Well Stimulation Services Shrink In The Bakken By 70%

Synopsis

Activity levels for well stimulation services continue to drop in the Bakken Shale as operators scramble to reduce spending to reflect significantly lower cash flows.

For many operators, that means suspending drilling and completion activity until commodity prices recover.

For the first time, survey respondents suggest recovery could occur at commodity prices below $50 on the completion side of the business. Of note, the consensus 90 days ago was that oil had to return to $60 for recovery to begin, so the industry appears to have adjusted its cost structure to reflect new realities.

Meanwhile service providers are removing additional equipment from the market. Regional capacity, as measured in hydraulic horsepower (hhp) fell from 460,000 hhp in the fourth quarter of 2015 to 300,000 hhp midway through first-quarter 2016.

Crew count continues to fall with well stimulation service providers noting 10 to 12 fleets active vs. 90 days with 12 to 15 fleets active.

Although there have been some experiments with sliding sleeves to boost stage count above 50, most work is done on a plug and perf basis with an average stage count of 33 per lateral. Pricing per stage has subsequently dropped below $30,000, though the decline is marginal compared to 90 days ago.

The big change is operators have de-bundled services and are self-sourcing sand and chemicals vs. prior business practices where those materials were bundled with well stimulation services by the oilfield services companies.

Watch for the next Heard in the Field report on the Bakken Shale well stimulation market in May 2016.

Part I. – Survey Findings

Among Survey Participants:

• Demand Shrinks Quarter-To-Quarter
  [See Question 1 on Statistical Review]
  ​Six of eight respondents reported that demand has shrunk in first-quarter 2016 compared to fourth-quarter 2015 because of the low oil price. Most respondents said demand has shrunk because more E&P companies have suspended drilling and completing wells until oil prices recover. Two service providers indicate they believe that demand has bottomed.
  • Mid-Tier Service Provider: “We have new reports every week of another operator or two who have suspended both drilling and completing.”

• Higher Oil And Gas Prices Needed For Demand To Improve
  [See Question 2 on Statistical Review]
  Among respondents, an average oil price of $48 and an average natural gas price of $2.80 would be required for demand for fracking service to improve. These price levels would be necessary for operators to increase their exploration activity.
  • Mid-Tier Service Provider: “These prices have everyone operating at a loss and things have to come up considerably before anything will resemble a recovery here.”

• Regional hhp Estimates Continue To Drop
  [See Question 3 on Statistical Review]
  Average estimated hydraulic horsepower (hhp) in the region has dropped to about 300,000 hhp, according to respondents. This is down from more than 460,000 hhp estimated in November 2015 and roughly 1 million hhp at mid-year 2015.

• Service Providers Continue To Layoff And Idle Crews
  [See Question 4 on Statistical Review]
  ​Among respondents, the number of active crews left in the entire Bakken area range between 10 to 12 fleets, down from 12 to 15 estimated in the November report.
  • Mid-Tier Service Provider: “There is only one company that may still have six or seven fleets remaining here, but everyone else is down to one or two fleets remaining.”

• Bakken Well Metrics: Vertical Depth Ranges ~9,900 Feet, Laterals ~9,500 Feet
  [See Question 5 on Statistical Review]
  ​Average vertical depth reported is 9,937 feet across the play and average lateral length is 9,438 feet. Average number of stages is 33. Injection rates average 63 barrels per minute with about six stages completed daily on a 24-hour schedule.
  • Mid-Tier Operator: “We are normally doing 30 to 35 stage slickwater fracks on 9,000- to 10,000-foot laterals. There have been no real changes in approach.”

• Average Cost Per Stage: More Than $29,000
  [See Question 6 and 7 on the Statistical Review]
  ​The average per stage price is reported at $29,438, down slightly from $30,300 in November on weak demand. Service providers have begun to show total flexibility in bidding fracking jobs. Most service providers still prefer turnkey pricing, but virtually all providers are now negotiating for equipment only if operators want to buy sand and chemicals direct. All respondents expect prices to remain the same over the next three months.
  • Mid-Tier Service Provider: “Prices can only go down if materials go down. Almost everyone is just trying to break even and survive.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the well stimulation/pressure pumping service segment in the Bakken. Participants included five managers or sales personnel with well service companies, one supplier of frack equipment and supplies and two company men working for E&P companies. Interviews were conducted during mid-February 2016.

Part II. – Statistical Review

Well Stimulation/Pressure Pumping

[Bakken Shale]

Total Respondents = 8

[Fracking service providers = 5, Suppliers = 1, Operators = 2]

1. Do you expect demand for pressure pumping equipment to grow, remain the same or shrink first-quarter 2016 compared to the fourth quarter of 2015?

2. What oil price (per barrel) and what natural gas price (per Mcf) is needed for demand for fracking services to improve?

3. In your estimation, what is the total hydraulic horsepower (hhp) in your area?

4. How many total crews do you estimate are active in the area?

5. What is the average vertical drilling depth, average horizontal lateral length, number of frack stages and injection rates (barrels per minute) in this play? What are the average frack stages per day? Is this a 12-hour or 24-hour shift?

6. What is the average cost per stage in your area now?

7. Do you expect fracking prices to increase, remain the same, or decrease over the next three months?

End Statistical Survey