As wireline goes, so goes the O&G industry.
Wireline makes a good barometer for what’s happening not just in the service industries sector, but in Basin energy development on the whole. Wireline is a trade that plays a part in exploration as well as in ongoing, down-the-road production, so it rides with the fortunes of each. Moreover, wireline goes where the action is, so a snapshot of the wireline sector’s activity, and of its health, tells a lot about the industry on the whole.
We found that picture to be promising but still full of challenges, still an uphill climb.
And maybe the most telling indicator is this: that wireline (and O&G service industries in general) are taking it on the chin during this still-largely-downturned cycle.
A lot’s been said about how a good many oil companies (that is, producers) are going to town even at $50 oil, even at $40 oil, because they have found greater efficiencies and have improved their technology. And there is much truth to that. But what is less said is that these oil companies have found much of their efficiency simply in the price cuts they’ve achieved among the service companies. Wireline is one of those niches that have made deep concessions.
In examining current conditions among wireline outfits, PB Oil and Gas spoke with Chris Edgar and Kelly Connally, partners in Integrity Wireline, as well as with Bill Adey, Director of U.S. Wireline for Weatherford International; Eduardo Perez, district manager for KLX Energy Services (formerly Cornell); and Ryan Crutcher, district manager for Capitan Wireline.
These sources unanimously confirmed that the biggest changes going on with them are huge leaps forward in technology. Wireline’s versatility is at an all-time high. The kind of magic they can perform downhole is mind-boggling. The magnitude of the downhole gunnery that goes off is, well, explosive. And the levels of sophistication they are called upon to achieve, as well as the assurances and guarantees they are asked to make (and that they keep), is greater than ever.
Launched in Adverse Times
Edgar and Connally are two of the four partners who formed Integrity Wireline just over a year ago, when the industry was at low ebb. Starting with a core group of ten individuals, they now number about 70, and business is brisk. For them, the bulk of the work is in the Basin—and of that, most is on wells being completed by EOG in its vast New Mexico leases. EOG has thousands of wells to complete in the region between Jal and Carlsbad, and Integrity is the busiest of the wireline firms working there for EOG.
But Integrity works for other big operators as well, including Marathon, and having a diversity of connections gives them good perspective on how things are faring in the Basin across the board.
Sitting in the Abilene headquarters office of Integrity, PB Oil and Gas asked Edgar and Connally if the exploration end of the business was fully back to work at $40-something-per-barrel oil. “Not yet,” both of them said.
Connally said that things are “probably at half throttle” right now.
“In the next six months or so—going through the 3rd and 4th quarters—that’s really going to tell the tale,” Connally said. “But a lot of your major companies out there, yes, they can still produce at $50 oil. And do so very well.”
So, with their improved technology and all those efficiencies increasing all the time, are those E&P firms finding that $40 to $50 rate more attractive all the time?
“Yes, all the time,” remarked Edgar. “But it’s the service companies who are making it attractive for them, too,” he added.
How so?
He gave an example of pricing gone south.
“When I was doing stage work, like in the early 2000s, we were making runs for $12,000 a run. The same runs that I was making for $12,000, back in those days, are like $3,000 now.
“Yeah,” he said, letting that sink in. “Same equipment, everything. They’ve got the service companies [working for less]. Frac jobs [in years past] would be $250,000, and now they’re $30,000. It’s just crazy.”
Connally added: “They’ve gotten all their service companies down to where they can produce the well [at costs dictated by today’s diminished crude price].”
The two Integrity partners said that the E&Ps have set budgets that have effectively slashed margins for everyone in the service sector.
Capitan: a Case Study
Then, too, within the wireline industry itself, there are the disparities that exist between the major service sector entities, such as the Halliburtons and the Schlumbergers, and everyone else—everyone else being the smaller independents.
Ryan Crutcher, a district manager for Midland-based Capitan Corporation, spoke as an employee of one of those independents. One of the larger of the so-called independents (Capitan runs 20 wireline trucks, after all), but still, Crutcher deems Capitan to be in a different niche than the majors of well servicing.
“I would say Halliburton and Schlumberger would probably be the biggest,” Crutcher said. “Renegade is pretty big. They’ve got quite a few trucks now.”
And the competitive angle for the majors, as Crutcher point out, is that they can offer package deals and package pricing.
“They can bundle up frac, and they can bundle up flood, and they can bundle up wireline, and you kind of get a package deal,” Crutcher said. “Meanwhile, we’ve been able to get with some frac crews and try to work a deal out, but for the most part that’s something that the independent wireline company has trouble with.”
But Crutcher maintains that personal connections, and “the mentality of the people” that one deals with, where smaller wireline companies are concerned, are the main advantages they can offer. “With those [companies], you don’t feel like a number. At Capitan, you could go to Midland and sit down with one of the owners of the company, if you wanted to. And he would know you and he would know your name. I just think that makes it more appealing. Also, as for us, as for the employees, usually the pay is quite a bit better with independent wireline companies than it is with your majors. And a company like Capitan doesn’t have the overhead that Halliburton does.”
Crutcher, who manages out of his company’s Levelland office, said his office runs four trucks and business has really picked up.
“We started picking up last year at the end of last year, in November and December,” he said. “December was actually our best month of all of 2016. Each month this year, in ’17, it’s better and better.”
Capitan is a cased-hole wireline company. Other than the fact that they don’t do open-hole logging, they pretty much do everything that wireline conpanies do, and that includes plug-and-perf jobs and other stage work, as well as pipe recovery, logging, and more. In their part of the world they work for companies like Sheridan, Texland, Walsh, Apache, Exl, Pioneer Natural Resources, and “just about everybody.” Crutcher’s own area of greatest activity is Yoakum County, in the San Andreas play.
“They’ve finally figured out how to go horizontal in the San Andreas. They’re getting mile-long laterals there,” he said. “Horizontals are just starting to get big here. Up in our area, we have a lot of mature fields. Most of the oil that’s drilled around here has been verticals. But starting about six or seven years ago, we started doing quite a few of what we [then] called “stage jobs,” [which were] plug-and-perf jobs where we just went out and shot the formation and they [the other crews] then came in and did their thing. But here in the last couple of years, we’re focusing more on isolating the formation and doing it in stages.”
Technology is King
In the wireline industry, in general, technology is changing every day, and that has been the biggest observable trend, according to Integrity’s Christ Edgar.
“There are new charges out. New gun systems. New caps. New shooting systems,” Edgar said. “Whenever I started perforating years and years ago, we would shoot, you know, like four guns on a string. Once the ‘select fire,’ or extra guns, started getting added to single guns, it went up. Now we’ve shot as much as many as 20 guns at one time. On an everyday basis, we’ll shoot 15 or 16, in one run. Yesterday, we shot ten runs, so we shot 150 guns yesterday. Everything’s getting a little bit more aggressive.”
And the number of charges per gun can be impressive, too. The number depends “on what they want,” Edgar said, but he added that they often do as many as 60 to 80 per gun.
“The frac designs are getting a little bit more aggressive and it just costs so much to do the fracs,” he added. “So they [operators] want to try to get as much as they can get done in one run as possible.”
Yet more indication of the heightened technology and sophistication in this sector came from the feedback offered by Bill Adey, Director of U.S. Wireline, for Weatherford International.
“In vertical wells, we primarily use traditional wireline tools,” Adey said. “[But] in the 80 percent of Permian wells that are horizontal or highly deviated, that’s where we get to make use of alternative deployment methods, including drop-off and memory. The variety of deployment options we offer is really a strength for us, and our customers appreciate having that flexibility. The bulk of our work in the Permian is in open-hole and cased-hole logging. Our industry-leading, best-in-class imaging and cross-dipole tools help our customers evaluate the rock properties of their formation.”
Remarking that “All of our crews are working constantly,” Adey said that the market has tightened up dramatically. And has seen diversification as well.
“One thing we’re seeing is that there’s a demand for wireline services on wells of all ages—brand-new drills, drilled-but-uncompleted wells, and mature wells that now need remediation. And, often, you need the same tools for old wells as you do with new ones.”
Adey said that Weatherford uses its SecureView casing and cement evaluation service to help with pre-completion surveillance and toe prep in new horizontal wells.
“We also do a lot of remediation work in older wells that have corrosion,” he said.
“The market is two-fold: older wells and new wells. For mature wells, the trick is to get them back up and running again. When production stops, you need to do surveillance downhole and restore wellbore integrity. Our SecureView service checks your casing integrity and identifies exactly where there’s a problem, so we can fix it and get you back online.”
Adey said that Weatherford is handling a great deal of activity in Midland and Martin counties, and also parts of New Mexico.
“We have been running our Compact family of tools for 20 years as of this spring, and the family is constantly growing,” Adey said. “Our Compact oil-base mud microimager, which we introduced just over a year ago, has been very popular with our customers in the Permian. Our customers are also very happy with our ultrasonic tools—we have customers telling us they produce best-in-class images.”
Bigger Laterals, Bigger Fracs
Like the other companies mentioned here, KLX Energy Services (a division of KLX that, prior to its acquisition by that parent, was known as Cornell Wireline) handles all the kinds of work that wireline companies typically are asked to do.
Eddie Perez, district manager for KLX, said that pumpdown stage work has become their single biggest activity. KLX is running about eight trucks out of their Midland office, and some of their biggest customers are Anadarko, J. Cleo Thompson [Petroleum], and Parsley. Their heaviest fields of operation are around Mentone and Pecos (in the Delaware Basin), as well as around Midland, and down towards Big Lake.
The laterals they are doing run from 4,000 feet to 10,000 feet. “It just depends,” Perez said. “They’re all over the place.”
Like other companies discussed here, KLX maintains a gun shop where they build their perforating guns to order.
Asked what the biggest changes are that he has seen, Perez shared what others have indicated. “It’s mainly the size of the jobs,” he said.
Data Rules
“Everything is going to computer-based information,” said Chris Edgar of Integrity. “A lot of the engineers [wireline operators are now called engineers, and the riggers (ground help) are now called operators] for the newer companies are younger guys—guys that some people call Millennials. There are other terms. Some people call them the ‘Google Groups.’ But it’s become where, instead of making a phone call and saying “Hey, this is what happened,” instead you write out this big long report. It’s email or flash drives.
“And that goes anywhere from wireline trucks, to crane trucks, to frac, to coiled tubing, all the technologies,” he added. “It’s getting incredible. A lot of frac companies, back in the day, would have wires running everywhere. A lot of the frac companies now, everything’s wireless. Technology is the biggest change.”
Where is it all headed?
Capitan’s Ryan Crutcher gets the last word.
Asked if he thinks that business could continue to gain momentum if oil holds its current price or makes gains this year, Crutcher was quick to reply.
“Lord, I hope so. [laughter] I’d like to say I knew. I’ve watched this market for 15 years now, and just by the time I think I’ve got it figured out, something happens. But I think we’re on the right track.”
Still, he pauses and adds something else.
“But what’s so crazy about the oil market is how geopolitical it is.”
How so?
“It doesn’t take but just a mention of a rumor and you can watch the price either go up or go down. And you know, the crazy thing is, not a valve was turned. But it’s just speculation. And that’s what hurt us in 2008 and 2009. That’s why the price got so high was because of speculators. And yet I think we’re on the right track. I don’t know what’s gonna happen. I think we need to get our infrastructure [in order]. I think there needs to be a lot more work [done] on our infrastructure—pipelines, and streamlining things and new refineries—for us to be able to start handling the oil that’s gonna be hitting the market.”