Contractors are looking for an increase in demand for 2014 pressure pumping services in the Rockies as activity expands in rapidly developing oil plays. Optimism on improved activity levels comes despite a sharp pullback in activity in dry gas plays such as the Piceance basin.

Some of the demand increase stems from the evolution from vertical to horizontal drilling as oil plays transition from delineation work to the optimization phase of unconventional development. Horizontal work involves more stages downhole and features greater service intensity. The transition adds to demand over and above expanding activity levels as operators delineate several up-and-coming liquids-rich plays in the region.

That said, contractors are less optimistic about pricing improvements in 2014 since there is an adequate supply of well stimulation equipment in the region. Equipment supply is considered excessive in the Piceance as activity winds down in the wake of poor natural gas economics. Well stimulation firms have laid crews off in the Piceance and moved equipment to other more promising areas in the Rockies. Consequently, there is enough capacity in the region to meet demand, even in an expanding activity environment.

Comments about market conditions in the Rockies outside the Bakken originated as part of a Hart Energy survey of oil service contractors in the region. Contractors reported an installed base of 732,600 hhp spread among six service providers who are marketing 25 fleets in the Rockies outside the Bakken shale. The installed well stimulation base is about one-third lower than the same period one year ago. Small-tier service providers have vacated areas like the Piceance, while larger firms are rotating equipment out of dry gas plays into oil areas both in the Rockies and other regional markets.

Contractors report the average cost per stage ranges from US $30,000 on vertical wells to $53,750 for horizontal work. The drilling mix in the region has repolarized from 75% natural gas-directed previously to 75% oil-directed currently, survey participants said.

A separate survey of well servicing contractors also revealed expectations for rising activity in 2014. However, optimism here came with a note of caution regarding oil prices. Oil prices at present levels would lead to an expansion in work, according to well service contractors, while a decline in commodity prices would adversely impact demand.

Well service contractors noted they had received positive comments regarding 2014 budgets and increased workflow from many of their E&P customers.

Contractors reported a sufficient supply of well servicing equipment in the region with some capacity stacked out. The main issue for contractors, according to survey participants, is labor. Crews have left the well services sector for better-paying employment in other segments of the oil services industry or have moved to the Bakken, where wages are higher for well servicing firms. A number of experienced hands have gone to work for customers as consultants.

Well service contractors noted that coiled tubing (CT) is making inroads in the Rockies outside the Bakken, though workover rigs continue to gain the greater share in an expanding market. Hurdles facing CT include pricing since it is much more expensive than a workover rig even when considering the enhanced performance capabilities of CT units, the fact that laterals are getting longer, and CT is less effective drilling out stages at some of the extended laterals that operators are now drilling in the Rockies.

The survey found hourly rates for workover rigs at about $1 per unit of horsepower, or $300 to $500.

Regional trends

Slickwater fracs and sliding sleeves illustrate that the Rockies still present tight sands opportunities for hydrocarbons. Much of that opportunity involves going back into older fields and prospecting for different layers or turning wellbores horizontal to capture bypassed hydrocarbons.

Contractors identified several regional trends including moving from vertical to horizontal wells in the liquids-rich Dakota formation in the Greater Green River basin. Regionally, the move to horizontal drilling suggests operators are still in delineation mode in new plays, though early optimization efforts are unfolding in select markets as operators experiment with downhole practices.

Operators made significant progress on the evolution to pad drilling in 2013. Pad drilling now accounts for up to 90% of horizontal wells in a few specific plays and is spreading rapidly elsewhere in the region, with contractors anticipating a 15% increase in the number of horizontal wells drilled on pads in 2014. The average number of wells per pad remains fewer than three, however, slightly more than in the Permian but below the averages in the Eagle Ford, Bakken, and Marcellus shales.

Proppant volumes are lower here than in other plays, partly because completion practices feature fewer frac stages than other basins. Proppant rates range from 600,000 lb to 800,000 lb of sand on a 10-stage vertical well to more than 1 million lb on a representative 18-stage horizontal lateral, with coarse sand the predominant proppant. Zipper fracs are the main completion method on pad wells.

While stage clustering is beginning to dominate mature regions elsewhere, operators in the Rockies are still spacing stages at even intervals. The region has yet to see the widespread implementation of longer laterals that is characteristic of the Bakken. While contractors anticipate demand will grow for higher spec rigs on the basis of longer laterals, particularly in 2015, most customers are still comfortable with 750-hp to 1,000-hp rigs for drilling laterals. Higher spec rigs will likely be newbuild units when they arrive since it is unlikely the Rockies drilling market outside the Bakken shale will draw higher spec units currently active in North Dakota.

Drillers tell Hart that more contracts are available from customers but feature shorter terms. One- and two-year contracts have given way to six-month contracts, though operators in the Rockies signal they will be looking for rigs in June when the newer, shorter term contracts roll over.

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