Pioneer Drilling Reports Slow Down in Eagle Ford Rig Contracts

June 29, 2012 R.T. Dukes

Pioneer Drilling is forecasting thinner margins and lower utilization of its rig fleet due to falling natural gas and oil prices. Eagle Ford drilling rig utilization is a direct contributor to the suppressed numbers. The company ran an average of more than 13 rigs/week in the Eagle Ford during the second half of 2011, but only 10 rigs were running as of June 22, 2012.

“With the recent declines in oil and natural gas liquids prices, we are seeing some softening of demand in certain markets,” including in the Eagle Ford Shale, said Pioneer CEO William Stacy Locke in a statement.

This shouldn’t set off alarms. Not many (if any) companies planned for $2 natural gas and those that did were hoping for $100/bbl oil. Lower commodity prices mean less cash flow to use in developing plays like the Eagle Ford. The overall U.S. rig count is expected to fall under pressure in the second half of the year if commodity prices don’t recover.

Chesapeake energy is one example of a company planning to drop rigs. CHK has 32 rigs running now, but plans call for the company to average 30 in 2012. We’re half-way through the year and the company has averaged 33 rigs running to date (not counting spudder rigs). If they stick to the plan, they’ll need to drop 5-7 rigs in the second half of the year.

A Lower Rig Count Does Not Automatically Mean Fewer Wells

Operators are improving drill times and operational efficiencies across the play. That means they can drill the same number of wells with fewer rigs. If Chesapeake improves drill times by 20%, it can drop 6-7 rigs and drill the same number of wells. Expect to hear more about efficiency improvements during Q2 earnings calls.

Read more from Vicki Vaughn regarding Pioneer Drilling’s announcment at fuelfix.com

Eagle Ford Shale Regional Rig Count at 271 – June 22, 2012

June 22, 2012 R.T. Dukes

The Eagle Ford Shale drilling rig count dropped to 271 this past week. That's down from 278 the past two weeks. Losing seven rigs is noticeable, but not significant. Watch the rig count for the next few months to get an idea of what becomes normal. Many analyst are beginning to predict lower activity across the U.S. Some expect declines of 20-25%. That won't likely happen in the Eagle Ford, but don't be surprised if activity does slow. Capital budgets simply weren't planned with $2/mcf gas and less than $80/bbl oil.

Murphy Oil is up for review this week. The company is relatively new to shale plays, but entered when commodity prices were low during the recession of 2008-2009. The company quickly assembled more than 200,000 acres across eight counties in the play. Murphy has 14 rigs active in North America and 10 of those are active in the Eagle Ford Shale. The company has three rigs in Karnes, three in McMullen, two in Atascosa, and two in Dimmit County.

Eagle Ford Oil & Gas Rigs

The natural gas directed rig count (Smithbits) rose by two to 74 this past week. Karnes and Webb counties are the only counties with more than ten rigs targeting natural gas. Henry Hub futures prices traded down during the week, but recovered by the end of Friday. Prices were trading at $2.62/mmbtu on Friday afternoon. Oil prices lost even more ground this week. WTI was trading just over $80/bbl Friday afternoon, but had dipped below $78/bbl at one point. During the past week, oil directed activity fell to 196 rigs. That's the first time we've fallen below 200 since the beginning of April.

248 horizontal rigs are running in the region down from 256 last week and one water well is being drilled in McMullen County. Karnes County still leads development with 40 rigs and La Salle is up to 37 rigs this week. McMullen (30), Dimmit (29), Webb (25), DeWitt (22), Gonzales (18), Live Oak (11) and Atascosa (10) make up the top Eagle Ford counties.

News items this week included:

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Drilling Rig Count by Operator

What is the Rig Count?

The Eagle Ford Shale Rig Count is an index of the total number of oil & gas drilling rigs running across a 30 county area in South Texas. The South Texas rigs referred to in this article are for ALL drilling reported by SmithBits and not solely wells targeting the Eagle Ford formation. All land rigs and onshore rig data shown here are based upon industry estimates provided by the Baker Hughes Rig Count and/or Smith Service Co's (Schlumberger) Smith Rig Count.

Drilling Rigs by County

Eagle Ford Shale Regional Rig Count Flat at 278 - June 15, 2012

June 15, 2012 R.T. Dukes

Talisman Energy - Statoil Eagle Ford Shale Map

The Eagle Ford Shale drilling rig count held flat at 278 this past week. Activity began approaching current levels in March and the region hasn't experienced a big change in either direction over the past ten weeks. That's good news in the face of falling oil prices. We've touched on this before, but it is worth mentioning again. If there is going to be an impact from the oil price decline over the past four to five weeks, we will not know for a couple of months. The rig count normally lags commodity price indicators by roughly three months.

Talisman Energy is up for review this week. Talisman is the operating partner in a JV with Statoil in the Eagle Ford Shale. The company entered the play through the acquisition of Common Resource's acreage in May of 2010. Talisman entered a joint venture with Statoil shortly thereafter. The partners have made subsequent acquisitions and Talisman now controls over 85,000 net acres across the play. The majority of the partnership's activity targets the Eagle Ford in Karnes, La Salle, and McMullen counties along the liquids-rich/gas-condensate portion of the play. The company has 12 rigs running as of June 2012, with seven targeting gas and five targeting oil. Drilling activity is up from ten rigs at the end of 2011.

Eagle Ford Oil & Gas Rigs

The natural gas directed rig count (Smithbits) rose to 72 this past week. Karnes, Live Oak, and Webb counties are the only counties with more than ten rigs targeting natural gas. Henry Hub futures prices traded up over 10% on Thursday after bullish natural gas storage data was published by the EIA. Prices were still trading up around $2.46/mmbtu on Friday afternoon. Oil prices remained flat again this week. WTI was trading at $84.00/bbl. During the past week, oil directed activity decreased by one rig to 205.

256 horizontal rigs are running in the region and one water well is being drilled in McMullen County. Karnes County leads development with 40 rigs and La Salle has 35 rigs. Dimmit (32), McMullen (30), Gonzales (23), Webb (23), DeWitt (22), Live Oak (14) and Atascosa (10) make up the top Eagle Ford counties.

News items this week included:

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Drilling Rig Count by Operator

What is the Rig Count?

Drilling Rigs by County

Eagle Ford Shale Regional Rig Count Rises Two to 278 - June 8, 2012

June 8, 2012 Kenny DuBose

The Eagle Ford Shale drilling rig count rose by two this past week to 278. That's near the average of 279 that ran last month. May was the most active month in the region's history. 279 rigs running throughout the month beat the April record by 5 rigs. Pioneer Natural Resources Eagle Ford position is up for discussion this week. The company has been active in the region since the discovery of the Pawnee Field over 50 years ago. Prior to the Eagle Ford's discovery, the company was focused in the development of its Edwards Trend assets. After drilling exploration wells that produced more than 10 mmcfd, the company entered a joint venture with Reliance Industries in June of 2010. Full development kicked off shortly thereafter. Currently, the company targets the gas condensate window of the play with 12 rigs running across four counties. Five rigs are active in Live Oak, four in DeWitt, two in Karnes and one in Bee County. The company is delaying two additional rigs until natural gas prices improve.

Eagle Ford Oil & Gas Rigs

The natural gas directed rig count (Smithbits) remained at 70. McMullen County dropped gas rigs in favor of oil rigs this past week. Now, Karnes, Live Oak, and Webb counties are the only three counties with more than ten rigs targeting natural gas. Henry Hub futures prices traded flat over the past week at $2.31/mmbtu on Friday afternoon. Oil prices remained flat as well. WTI was trading just over $83.30/bbl. During the past week, oil directed activity increased by one rig to 206.

258 horizontal rigs are running in the region, with 1 disposal well being drilled in Atascosa County and 1 water well drilled in McMullen County. Karnes County leads development with 39 rigs and La Salle has 35 rigs. Dimmit (33), McMullen (30), Gonzales (23), Webb (23), DeWitt (21), Live Oak (14) and Atascosa (11) make up the top Eagle Ford counties.

News items this week included:

Devorah Fox from Mike Byrnes & Associates contributed an article related to Driving Fatigue in the Oilfield.

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Drilling Rig Count by Operator

What is the Rig Count?

Drilling Rigs by County

1,500 Eagle Ford Wells Waiting to Be Completed?

June 6, 2012 R.T. Dukes

Are there really as many as 1,500 wells sitting idle until a completion crew arrives on the scene? Comments regarding the size of well backlogs is coming up more frequently. At Bentek's Benposium a few weeks ago the comment was made that Marcellus production would grow through the end of the year even if operators stopped drilling. Wow. We're in a similar situation in the Eagle Ford. If you carry the trend forward, the play will be approaching 2,500 producing wells by the end of June 2012. Add a well backlog of 1,000-1,500 and you see why analyst are raving about production growth. Estimates of 1,100-1,200 are the most common, but we've seen 1,500 mentioned by the most bullish analyst.

If 1,500 is correct and service companies catch up, the producing well count will grow by 60% without any drilling. Drilling has raced ahead of completions by 4-6 months. That's not sustainable. Operators don't make a return until wells start flowing. Expect a big push in 2012 to drive inventories down.

Consider the +/-250 rigs that are drilling and we're getting +/-250 wells drilled and awaiting completion each month. Drilling at this rate isn't going to ease pressure on service companies.

How Big is a Normal Eagle Ford Well Back Log?

That should be the first question everyone asks. At first blush, I don't know what is normal, so 1,000 wells sounds like a lot, but maybe not......

In an area with infrastructure constraints, I'd expect the well back log to be higher than other areas of the country. A 1-2 month backlog wouldn't be surprising. Waiting six months to bring a well online after drilling is completed is a problem. Don't expect this trend to last. Capital budgets for most operators are already pressured by low natural gas prices. Infrastructure and service constraints aren't going to make any management team happy. My estimate is we'll approach a normal inventory of 1-2 months over the next two years. At that time, most operators will be in full development mode and the constraints of today will be behind us.

I'd love to hear what you guys are seeing in the field. Is your company catching up? Share your experience in the comment section below: