Synopsis

A little spring thaw for the Bakken? Rising oil prices have improved attitudes among Bakken drillers, although actual demand for drilling services is at the same low point as 90 days ago.

What has changed over the last 90 days is contractors scrambling to hold onto crews vs. laying them off. That subtle change in policy reflects expectations of an improving drilling market in the second half of 2016.

Otherwise things remain the same for Williston Basin drilling contractors: low demand, stagnant pricing and efforts to cut cost. The low drilling level has made it possible for operators to complete new wells rather than adding to the backlog of drilled but uncompleted wells (DUCs).

The State of North Dakota reports the DUC backlog at roughly 925 units in March 2016. Meanwhile rig count continues to hover below 30 rigs active, down 88% from the 2014 peak.

Only 15 operators were active in May with 40% of active rigs employed by just three companies: Continental Resources Inc. (NYSE: CLR), ConocoPhillips (NYSE: COP) and Oasis Petroleum Inc. (NYSE: OAS).

Nabors Industries Ltd. (NYSE: NBR) is the leading drilling contractor with nine rigs active followed by Patterson-UTI Energy Inc. (NASDAQ: PTEN) and Helmerich & Payne Inc. (NYSE: HP), each with four units active. These three contractors account for more than 60% of active rigs in North Dakota.

Watch for the next Heard In The Field report on the Williston Basin drilling market in August 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Drilling Stalled In Bakken
    [See Question 1 on Statistical Review]
    ​There is a lull in drilling demand in the Bakken as operators wait for oil and gas prices to stabilize and increase. All respondents said rig demand was at the same low point now as it had been in first-quarter 2016. In addition, respondents said they are cutting costs and trying to hold onto labor in anticipation of better times ahead.
    • Mid-Tier Operator: “Drilling contracts will be the last thing to recover. Completions activity will recover much quicker than drilling and will impact the industry. It will be much easier to get a contract for people to be fracking and completing.”
  • Uncompleted Wells Holding Steady
    [See Question 2 on Statistical Review]
    ​All eight respondents said that DUCs in second-quarter 2016 were flat with the first quarter. Drilling has dropped considerably in the area and operators are completing the few wells that have been drilled.
    • Mid-Tier Operator: “I don't think people are drilling anymore and not completing. I think that those wells are just sitting there uncompleted from last year. We are not growing the number of uncompleted wells at all. Only a fool would go out and drill a well and not complete it today.”
  • Oil, Gas Prices Key To Demand
    [See Question 3 on Statistical Review]
    ​Six of the eight respondents said that the true catalyst for a turnaround in the Bakken Shale area would be an increase in commodity prices. However, two said decreasing the number of uncompleted wells might also be a catalyst.
    • Mid-Tier Operator: “If you just look at the pressure pumping market it is the best indicator for completion activity. The pressure pumping data out there shows there are less completions now than a year ago, and than six months ago. We're still completing a few, but overall less people are completing now. The costs have come down from a year ago when the cost structure was $60 oil and now it’s $45.”
  • Mergers Off The Radar For Now
    [See Question 4 on Statistical Review]
    Five of the eight respondents have not heard of any mergers within the driller ranks yet. Three respondents said they hear more rumors than mergers.
    • Mid-Tier Driller: “I haven't heard of any mergers recently and I think the main culprit is the way the market is right now. Contractors don't want to take on that debt to purchase with the bleak forecast. Now is the opportunity side, but the risk side is not there.”
  • Acquisitions In Discussion
    [See Question 5 on Statistical Review]
    The only acquisition mentioned in the drilling community was Schlumberger Ltd. (NYSE: SLB) buying Canadian-based Xtreme Drilling and Coil Services Corp. Otherwise, survey respondents anticipate service company acquisitions are likely, though none have been announced.
  • Low To Mid-Teens For Big Rig Rates
    [See Question 6 on Statistical Review]
    Day rates in the Bakken Shale for the benchmark 1,500 hp AC –VFD Tier I rig range between $10,500 to $18,000. The high end represents rigs that have been on long-term contract with full packages, similar to findings in the February Heard in the Field report. Rig rate averages are itemized in Table I below.
    • Top-Tier Driller: “If a rig is locked into a contract, which some still are up here, then they are in the mid $20’s for day rates. Otherwise, we haven't tested the market in a few months, and I imagine rates they are in the teens now.”

Table I – Average Day Rates For Bakken Rigs


Size


AC Power


Diesel/SCR

Conventional
Mechanical

1,500 hp

$16,700

$14,000

$10,500

2,000 hp

$18,000

[Rates shown are an average ‘per day’ rate among all respondents in the category.]

  • Rig Rates Holding Low
    [See Question 7 on Statistical Review]
    ​Demand for high horsepower drilling rigs in the Bakken Shale area is down and so are day rates. However, none of the respondents expect rates to move lower or higher in the next three months.
    • Top-Tier Driller: “There is some drilling activity going on but as soon as oil prices go up and the companies start completing wells it will most likely flood the market and drilling will go down.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the land drilling segment in the Bakken Shale. Participants included four oil and gas operators and four managers with drilling companies. Interviews were conducted in early May 2016.

Part II. – Statistical Review

U.S. Land Drilling

[Bakken Shale]

Total Respondents = 8

[Oil and gas operators = 4, Drilling companies = 4]

1. Do you expect demand for drilling rigs to grow, remain the same, or shrink in second-quarter 2016 compared to the first quarter?

Remain the same:

8


2. Are the number of DUCs increasing, decreasing or remaining the same compared to three months ago?

Flat (0%):

8


3. Besides better oil and gas prices, are there any other catalysts that would help drilling improve?

Price is the ultimate determining factor:

6

DUCs need to be completed:

2


4. Have there been any drilling companies that have merged together with another drilling company in your area?

None mentioned:

5

More rumors than fact right now :

3


5. Have there been any drilling companies that have been acquired by other drilling companies in your area?

Schlumberger bought Xtreme Drilling and Coil Services:

1

Not that I know of at this time:

7


6. What are the average rig day rates in your area? Is this rate for an AC Power, Diesel-SCR, or Conventional Mechanical type of rig?


Size


AC Power


Diesel/SCR

Conventional
Mechanical

1,500 hp

$16,700

$14,000

$10,500

2,000 hp

$18,000

[Rates shown are an average ‘per day’ rate among all respondents in the category.]


7. Do you expect rig day rates to increase, remain the same or decrease over the next three months? By what percentage?

Flat (0%):

8

Average:

Flat


End Statistical Survey