• Appalachian operators are reducing backlog of DUC wells.
  • The regional market added three well stimulation crews.
  • Well stimulation pricing is rising.

Is Appalachia making the turn?

The region has clearly evolved into the center of the U.S. natural gas universe over the last halfdecade with its astonishingly productive wells, whether located in the liquids-rich southwest quadrant of Pennsylvania or the state’s northeast dry gas zone.

Signs of recovery may be in the air. Well stimulation providers tell Hart Energy they expect an increase in activity this winter as the natural gas storage overhang dissipates following another record-setting hot summer. Outside the industry some of the more optimistic pundits are talking about natural gas prices above $4/Mcf.

At first glance nothing appears to have changed in a region beset with takeaway challenges and flat activity levels. Horizontal rig count in the Utica Shale is bumping along at slightly more than a dozen units, with another couple dozen horizontal rigs active in Pennsylvania’s Marcellus Shale. Neither tally has changed much since industry onshore rig count bottomed at the end of May.

Yet other signs provide hints of a winter-time expansion. Pricing for well stimulation is up 15% to $43,750 per stage on average vs. the regional bottom one year ago. Furthermore, average stage count per well rose 18% incrementally over the same time frame on the basis of longer laterals and a reduction in spacing between stages to as low as 46 m (150 ft) in leading-edge laterals. Average stage spacing across the region is now below 61 m (200 ft).

Although completion techniques remain remarkably uniform—slick water, plug and perf, and sand volumes in the 10.5 million pounds per lateral range—operators are finding additional ways to squeeze more natural gas goody out of those incredibly productive Devonian formations. Operators are employing data gathered during the horizontal drilling process to guide optimal placement of perforation clusters between stages to generate more efficient hydrocarbon harvest. That is partly what lies behind the headlines on the monster IP rates that have come out of the region this summer.

Meanwhile, operators are quietly working through the region’s drilled but uncompleted (DUC) well backlog, with inventory dropping 10% to 15% during third-quarter 2016, according to participants in Hart Energy’s Heard in the Field survey program. Indeed, the volume of zipper fracks, which is a proxy for batch completions, rose 11% to 59% sequentially during the third quarter, which suggests operators are finally addressing the DUC inventory. Operators also are completing more of the wells drilled on pads.

Other signs are evident in the slight increase in regional hydraulic horsepower (hhp) for well stimulation capacity to 830,000 hhp, plus the addition during third-quarter 2016 of three more frack crews to the market. Well stimulation is experiencing the first modicum of increased demand even as Appalachian workover contractors report an uptick in demand for routine maintenance on existing wells.

To date, drilling contractors have not reported an increase in demand for rigs this winter, which is confirmed by flattish trends in new well permitting. Although volume is lackluster, most new permits have been concentrated in southwest Pennsylvania. Indeed, 39% of new filings over the last six months centered on Washington and Greene counties in southwest Pennsylvania, with leading filers for new permits including Range Resources Corp., Rice Energy Inc., EQT Corp. and private equity-backed Vantage Energy.

Taken as a whole, the region is not out of the woods, especially when viewing third-quarter well drilling levels. But improvements in completion techniques might imply a need for fewer rigs. That said, Appalachian prospects appear to be improving. Just ask the well stimulation sector.

Contact the author, Richard Mason, at rmason@hartenergy.com for more information.

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