Now that the Eagle Ford has embarked on the resource harvest phase of unconventional development, what does the landscape look like for oil services?

It’s a question worth asking because the argument is that the Eagle Ford Shale is an industry template for how unconventional liquids will be developed in the resource harvest mode, the final phase of the unconventional cycle.

The industry has multiple examples from several basins regarding the evolution of the discovery/delineation phase in unconventional development, as well as the optimization phase that follows. But it currently has few examples of what the resource harvest phase looks like in practice, at least in tight oil formations, since the industry is just now entering the final phase of the tight formation developmental cycle in a few select oily basins.

Furthermore, industry practices currently in vogue will shepherd the Eagle Ford towards peak oil production in the next three to five years as the play reaches its full potential.

To develop a more concise picture of this unfolding dynamic, Hart Energy canvassed five oil and gas operating companies and 18 contractors across three service lines in the Eagle Ford, including well servicing/workover, pressure pumping, and downhole completion in mid-March to develop a sense of the market. Another survey on Eagle Ford land drilling is reported separately.

The major finding is that operators are still experimenting to discover a silver bullet for Eagle Ford completions. That finding plays into the theme that operators advanced significantly in drilling efficiency in 2012-2013, but are just now focusing on completion efficiency. Apparently, the industry is still advancing along the learning curve when it comes to successful and consistent completions at the stage level in tight formation oil and liquids plays.

Secondly, well stimulation contractors expect demand will rise in 2014 for pressure pumping services in the Eagle Ford, mostly on the basis of increased budgets and a capital allocation mix that favors completion services over drilling. Whether that increase in demand translates into pricing power is a separate question, however, and the answer to that is a resounding “no!” according to survey participants. No survey respondent expected Eagle Ford well stimulation pricing to move higher over the next 90 days. Contractors peg the supply of pressure pumping equipment as more than sufficient to meet higher demand in the Eagle Ford and that circumstance is harming margins in a competitive market.

Survey respondents estimated Eagle Ford well stimulation capacity at 2.1 million hydraulic horsepower (hhp) in the region, up from the 1.6 million hhp reported 90 days ago. The main story line is a scramble for market share as larger service providers add to their Eagle Ford pressure pumping fleets and battle for market share.

The multi-national service companies are now bundling wireline and downhole tools into well stimulation packages to eliminate wait time charges for customers and reduce costs.

Metrics reported by well stimulation contractors suggest that operators are using slightly higher pressures while pumping, extending lateral length, reducing the number of stages by spacing individual stages further apart, and using more perforation clusters and sand per stage.

Consequently the average cost per stage reversed a multi-year decline and started back up in the first quarter 2014. The average reported among well stimulation contractors is now $90,000 per stage, up about 7% versus the fourth quarter 2013, but still below per stage pricing of $98,000 in the same quarter one year ago. There is nuance in that number, however, which reflects slightly fewer, but larger stages. The total price to fracture stimulate a well is unchanged, contractors report, but the dynamics of how that well is fracture stimulated leads to a difference in metrics that indicates an increase in pricing for individual stages.

Few contractors expect to see meaningful increases in well costs during the next 90 days because of competition and report no inflation with bulk commodities like sand.

Of note, contractors reported a 50/50 work mix between slickwater and crosslink gel frac operations with clients driving the choice. Preferences are mixed for multiple reasons, but slickwater is cited as being less expensive while crosslink gel uses less water.

Seven of eight survey respondents said operators are still experimenting with downhole completion techniques. The observation is that no individual fracturing method appears to be superior, at least when measured by production. Otherwise, current trends point towards longer laterals, fewer stages in plug and perf (PNP) operations with more perforation clusters between stages. Operators who prefer to cluster stages closer together, or at irregular intervals, are using sliding sleeves and a few are using hybrid completions with some sliding sleeves at the toe with PNP along the remainder of the lateral.

Survey respondents said the major part of the transition to pad drilling has already occurred in the Eagle Ford with the percentage of pad work on par with the Marcellus Shale, or more than 85% of new horizontal wells. Contractors reported an average of four wells per pad in the Eagle Ford, essentially unchanged since mid-summer 2013.

Nearly all fleets have gone to 24-hour operations in the Eagle Ford.

Separately, survey respondents said 58% of their Eagle Ford completion work involved zipper fracs with the remainder completed as solo laterals.

Workover Services See Small Price Increase

On the well servicing/workover side, contractors reported rising demand for workover rigs as more wells are brought on production, especially due to the increase in well count from pad drilling. That rise in demand led to modest price increases on the basis of covering higher contractor costs for labor and fuel.

Well service contractors also noted an evolving work mix. One contractor said his business mix moved from 80% completion in the last half of 2013 to 40% completion currently in the first quarter 2014 with maintenance work representing 60% of recent business.

Well service contractors said the increase in Eagle Ford pad operations and a cadence of 4,500 wells annually will lead to sustained increase in demand for workover services going forward.

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

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