Permian Well Stimulation Takes A Steep Dive

Synopsis

Well stimulation work is following Permian rig count downward, although a majority of well stimulation service providers characterize demand as flat over the last 90 days.

Respondents to this quarter’s Permian Basin well stimulation survey indicate operators need a sustained price of $50 oil before Permian activity increases.

Well stimulation firms are relocating crews and equipment to the region from other distressed markets and will service those markets out of the Permian Basin.

However, service providers note crew count is down to 22 in the Permian while effective capacity has also declined to 660,000 in hydraulic horsepower (hhp). These are both significant drops since the last survey in December 2015.

Per stage pricing remained flat at $34,000. Although reports surfaced at the end of the quarter that one of the large-tier service providers is instituting a 15% price cut in a gambit to gain market share.

The survey found an average 37 stages on laterals that averaged 8,600 feet. Lateral length increased in part because more rigs are stacking out as operators high-grade prospects.

Delaware Basin lateral length lags the Midland Basin but should increase in 2016.

Watch for the next Heard In The Field report on the Permian well stimulation market in June 2016.

Part I. – Survey Findings

Among Survey Participants:

• Demand Flat To Down Slightly Quarter-To-Quarter
  [See Question 1 on Statistical Review]
  ​Six of eight respondents reported that pressure pumping demand had remained the same during first-quarter 2016 compared with the fourth quarter of 2015, but two said demand had shrunk quarter-to-quarter because of more rigs being released.
  • Mid-Tier Service Provider: “We have several clients keeping activity stable at this time. They expressed very cautious optimism that [oil] prices will rise to the $40s by summer.”

• Higher Oil And Gas Prices Needed For More Fracking
  [See Question 2 on Statistical Review]
  ​Among respondents, an average oil price of $50 and an average natural gas price of about $2.40 would be required for operators to increase their exploration activity.
  • Mid-Tier Service Provider: “These wells in Permian are break-even at best until prices return at least into mid $40s.”

• Hydraulic Horsepower Capacity Estimates Continue To Drop
  [See Question 3 and 4 on Statistical Review]
  ​Average hydraulic horsepower (hhp) in the region stands at 600,000 hhp, according to respondents. This is down considerably from the average 1.14 million hhp estimated in December. Furthermore, respondents estimated there are only about 22 crews activity in the region, about half of what respondents estimated in December. One respondent said that the Permian region is becoming a centralized hub for frackers serving all markets in Texas.
  • Mid-Tier Service Provider: “Nearly everyone left fracking in Texas has moved most hhp to Permian and will now service anywhere in Texas from here.”

• Permian Basin Well Metrics: Vertical Depth Averages 9,875 Foot, Laterals Average 8,625 Foot
  [See Question 5 on Statistical Review]
  Average vertical depth reported is 9,875 feet across the play. Average lateral length is 8,625 feet. Average number of stages is 37. Injection rates average 76 barrels per minute with about six stages completed daily on a 24-hour schedule.

• Average Cost Per Stage: ~$34,000, Pricing Expected to Remain Flat Quarter-To-Quarter
  [See Question 6 and 7 on Statistical Review]
  ​The average per stage price is reported at $34,000, same as reported in December. One service provider mentioned that some E&P clients are switching to brown sand, a less expensive alternative to some higher grades of sand. Six respondents expect prices to remain the same over the next three months. However, two expect further price decreases as clients attempt to reduce costs even more.
  • Mid-Tier Service Provider: “We just had another price decrease this week for two clients who switched to brown sand and they are looking for more ways to save.”

• Some Issues with Payments for Services
  [See Question 8 on Statistical Review]
  ​Among the five fracking service providers, three reported they had no problems with collecting payments from operators for services rendered, but two said there had been some issues with payments. One service provider said it was taking 60 days for bills to be paid and another said his company had to sue to collect, in some cases.
  • Mid-Tier Service Provider: “We have to exercise some patience in getting paid.”

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 Permian Basin. Participants included five managers or sales personnel with fracking service companies, one operator, and two consultants working for E&P companies. Interviews were conducted during mid-March 2016.

Part II. – Statistical Review

Well Stimulation/Pressure Pumping

[Permian Basin]

Total Respondents = 8

[Fracking service providers = 5, Operator =1, E&P consultant = 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 thousand cubic foot (Mcf) is needed for demand for fracking services to improve?

3. In your estimation, what is the total hhp in your area?

4. How many total crews (spreads) 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?

8. Are fracking service providers taking special measures to collect payments from operators? (Service providers only)

End Statistical Survey