May 29, 2014

DUG Permian Basin Conference - Heard it at the Permian

BHI, EMES, HAL, HCLP, NBR, SLCA, WFT
By Jon Gates
All signals at last week’s DUG Permian Basin conference in Fort Worth, Texas, indicated strengthening demand for shale oil field services and materials.

Comments from the conference floor:

  • Pressure pumping demand/pricing: One source with a pressure pumping service group said customers are coming to them early this year to try to lock in contract prices for 2H14 and into 2015, an indication that demand and fleet utilization is creeping up and that some price increases are starting to edge into the market for services, beyond just materials cost pass-through.
  • Frac sand: Besides the winter impact on rail services, two frac sand suppliers at the conference said demand levels are challenging infrastructure capacity to deliver. Where there are shortages, suppliers who can deliver are stepping in and getting sharp price increases on materials. In isolated cases, they are seeing double and triple ordering as buyers attempt to lock in materials from one or more supplier sources to ensure deliveries.
  • Pressure pumping equipment trickles into auctions: A global equipment auction specialist attending the event said he has seen several pressure pumping units from Nabors Industries Ltd. and Baker Hughes Inc. released into the North American market at recent auctions. This is a departure from the general trend of pressure pumpers decommissioning units rather than reselling into the market, where the equipment could be taken by a lower-cost service provider.  

 Comments from the podium:

  • Virtually every E&P presentation at DUG Permian showed increased spending in 2014, continuing the trend toward horizontal drilling, longer laterals and more rigs and emphasizing common themes in OTR Global's 2014 research.
  • Presentations by operators also highlighted the dozen or so “strat columns” underlying the Permian Basin, with lateral landing targets 2,000-4,000 feet thick (compared with the average 50-130 feet in Eagle Ford and Bakken-Three Forks). This broad geologic layering of source rock strata is driving optimism for continued estimated ultimate recovery (EUR) gains.
  • One panel discussion touched on the actual recovery rate of oil and gas from shale formations being only about 3%-5%. It was estimated only about two-thirds of completed frac stages are functional, with a 20%-30% difference between the best and worst producers. As the industry closes in on subsurface optimization, a panel of E&P reps estimated recovery rates might reach as high as 10%-14% of the shale strata.

 OTR Global's next full report on Pressure Pumping and Completions is scheduled for publication June 9.