Frac services costly, in tight supply, operators say

Paula Dittrick
OGJ Senior Staff Writer

HOUSTON, Nov. 30 -- Operators faced with costly delays in obtaining fracturing crews are considering their options, and some are assembling their own company-owned fracture stimulation fleets and also entering long-term service contracts.

Pioneer Natural Resources Co. said it’s expanding its integrated services in the Spraberry Trend and also in the Eagle Ford shale as part of a strategy to control drilling and production costs. The company plans to internally provide 30-60% of its service requirements by 2012.

Scott Sheffield, Pioneer chairman and chief executive officer, said vertical integration is expected to save Pioneer $200,000-300,000/well compared with utilizing third-party services.

A second company-owned fracture stimulation fleet has started operating in Spraberry, he told analysts in late October. Two additional fleets are being built, with one scheduled for delivery in the first quarter of 2011 and the second in the second quarter of 2011.

To support its fracture stimulation operations, Pioneer has contracts in place for its forecasted sand needs through 2015. Frac tank ownership will more than double from 250 tanks currently to 550 tanks by yearend, the company said.

Tubular requirements are contracted through 2012, and pumping unit requirements are contracted through 2011. In addition, Pioneer owns nine drilling rigs currently operating and recently acquired three more rigs expected to be operational by Dec. 31.

Four pulling units are being added, which will bring the total fleet to 23 units by mid-2011. The company also has hot oil units, water transport trucks, reverse units, and fishing tools to support its growing operations.

In the Eagle Ford, Pioneer is purchasing a fracture stimulation fleet that is expected to be in service by second-quarter 2011. Pioneer has a 2-year contract for third-party fracture stimulation services beginning in the first quarter of 2011.

BES boosts frac spreads
Basic Energy Services Inc. (BES) of Midland, a service company, reported robust demand from the Permian basin, Bakken, and Eagle Ford for its fluid service trucks.

Ken Huseman, BES president and chief executive officer, said, “Utilization in our well servicing segment showed the most significant improvement from September driven by activity in our oil-orientated operating areas, producing the largest number of rig hours and highest utilization since October 2008.”

Basic plans to add a 25,000-hp frac spread in early 2011 for the Wolfberry play. A spread includes the pumps, trucks, and related equipment.

“We believe the company could add one to two additional frac spreads later in 2011, increasing its exposure to the stimulation business,” Barclays Capital analyst James C. West said of BES in an Oct. 28 research note.

Unit Corp. of Tulsa reports 67% of its drilling rigs working during 2010 are drilling for oil or natural gas liquids and 88% are drilling horizontal or directional wells. Unit is a contract drilling business along with its oil and gas exploration and production business. It also has gas gathering and processing.

“Because of the increases in demand for drilling rigs capable of drilling horizontal wells, we are building four new drilling rigs,” said Larry Pinkston, Unit’s chief executive officer. He expects two rigs will be completed in the first quarter 2011 and the other two are to be completed during the third quarter.

“All four of these drilling rigs are 1,500 hp, diesel-electric, and will be operating under long-term contracts in the Bakken play,” Pinkston said. Unit’s drilling fleet totals 121 rigs of which 74 rigs are under contracts with 43 of those rigs having contracts ranging from 6 months to 2 years.

EOG considers options
EOG Resources Inc. said it has no plans to buy pressure-pumping equipment but that it’s contemplating its options given what its executives call an “unacceptable” tightness in availability of frac crews and equipment.

“We are discussing other avenues, and we have a plan that we will discuss” in mid 2011, Mark Papa, EOG chief executive officer, told analysts during a third-quarter earnings conference call. He reported waiting for months on fracturing services across most of its operating divisions.

“These delays won’t go away anytime soon,” Papa said. “The biggest improvement we see in the frac situation is if the gas rig count drops 200 rigs.” He forecasts that could happen around mid 2011 or later.

Papa said fracing delays hold up numerous wells simultaneously because EOG is developing clusters of wells in the South Texas Eagle Ford play where it expects significant production increases next year. EOG has a 10-rig drilling program throughout most of 2010 and plans to average 14 rigs in 2011.

El Paso Corp., Houston, said it has dedicated frac crews in place in its Eagle Ford and Haynesville plays. Brent Smolik, president of El Paso E&P Co. LP, said El Paso was “pretty well covered for 2011” with frac contracts for those two plays.

“We’re looking for frac crews now in Wolfcamp,” Smolik said (OGJ, Nov. 15, 2010, p. 25).

Southwestern Energy said it has a standing agreement for fracing services in the Fayetteville shale. The agreement comes up for pricing changes annually, executives said during a Nov. 4 conference call. Their current frac agreement expires Mar. 1, 2011.

Contact Paula Dittrick at paulad@ogjonline.com.

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