Well stimulation pricing, the largest casualty in the current energy downturn, may be nearing bottom. At press time rig count was flattening after publicly held operators removed an estimated $80 billion in spending in just six months, a majority of which was formerly allocated to oilfield services.

Hart Energy’s Industry Revenue Model indicates monthly revenue is down 44% to $22 billion from last fall’s peak based on current production times average monthly commodity prices for crude oil, natural gas liquids and natural gas. Add it up—or rather subtract it out—and it means oil and gas operators, both public and private, will have about a quarter billion dollars less domestically to reinvest or distribute as royalties or other payments in 2015. The figure may actually be greater since the industry was significantly outspending cash flow on a cushion of high-yield debt in the 2011 to 2014 era. Now operators are committed to living within cash flow out of necessity.

For the services sector, it means fewer rigs, fewer wells and less demand for well stimulation, which had been in the midst of capacity expansion when the floor dropped out of oil prices in late 2014.

Per-stage pricing for well stimulation services followed suit, dropping from $80,000 to $90,000 for standard plug and perf in fourth-quarter 2014 to the mid-$50,000 range in second-quarter 2015, according to Hart Energy telephone surveys.

Well stimulation firms are operating at or below cash operating costs. Some smaller companies have gone out of business or been consolidated. Regional fleet effective capacity dropped significantly. Effective capacity is estimated at half of late 2014 levels in the Bakken, for example. In other markets, the churn is still underway, and well stimulation players tell Hart Energy they just don’t know a definitive number yet and won’t until the smoke clears, which they expect to happen in the third quarter.

Furthermore, stimulation companies tell Hart Energy surveyors that pricing won’t go much lower as they choose to idle equipment and lay off crews rather than work unsustainably at a loss. Some bigger players are reportedly operating below cash operating cost regionally as they seek marketshare and attempt to cover the deficit by bundling multiple wellsite services for customers.

Well stimulation companies have seen pricing drop about 35%, while completion-related bulk commodity materials like raw sand are down 20%. As noted last month, Hart Energy surveys show drilling rig day rates declined 25%. Currently operators can get a 1,500-hp AC-VFD Tier I rig from $16,500 to $21,000 a day, depending on the market, though demand for rigs of any kind is spotty.

The reduction in pricing for oilfield services would be a windfall for oil and gas operators if they were more active in the field. Publicly traded operators now claim that they can achieve acceptable rates of return at $65 oil and would get active with a sustained price between $65/bbl and $75/bbl. Unfortunately, crude oil pricing remains about $10/bbl below the $65 sustained that operators say they need, partly due to regional differential discounts.

By the time the cycle troughs—and that trough appears imminent—oil and gas operators will see a 25% reduction in well costs. Those savings appear to be split 40% to 60% on a capital efficiency vs. secular pricing basis. That ratio will be worth watching in the future because the portion of well cost reductions attributable to the secular downturn will not be permanent and may jump more than anticipated when operators return to the field, only to find the deficit in experienced manpower and equipment capacity on the services side can only be solved by an increase in pricing.

• Well stimulation pricing down 35%

• Well stimulation providers at cash cost as firms idle equipment and release crews

• Pricing for well stimulation approaching bottom

• Operator overall well costs down 25%

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