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Founders recently attended the Coiled Tubing & Well Intervention Conference &Exhibition in The Woodlands, TX. With over 2,000 professionals in attendance, theconference included a diverse range of presentations and exhibitions covering industrystatistics, best practices, along with emerging problems and solutions across all sectors ofthe industry. Highlights of challenges and innovation from the conference included:
Market Overview & Growth. Coiled tubing (CT) dates back to the 1960’s, butrelatively recent advancements in technology and procedures have drastically improvedthe benefits and popularity of this service. The initial development of CT was spurredby the desire to work on live wellbores (no need to kill the well). Although there aremany applications for CT today, common applications include well millouts/cleanouts,fishing jobs, tool conveyance, and logging. The speed and economic advantages of CThave contributed to the industry’s rapid growth in recent years – over $5.4 billion wasspent on CT in the U.S. during 2013.
• The U.S. market has witnessed consistent growth. Though the Global CTcount has seen more volatility, the domestic count has steadily risen from 441(in 2010) to 568 (in 2013)
• Domestic spending on the CT sector has increased significantly since 2009.While growth is beginning to mature, Spears and Associates predicts a $274million spending increase in 2014, a 5% rise over 2013
Prepared by:
Duane [email protected]
Patrick [email protected]
John [email protected]
Brandon [email protected]
“
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April Edition: Coiled Tubing & Well Intervention
1202
14101276 1248
1434
455 441 494 531 568
2009 2010 2011 2012 2013
200
400
600
800
1000
1200
1400
1600WORLDWIDE COILED TUBING UNIT COUNT
Global (less USA)
USA
-40%
-20%
0%
20%
40%
$2,000
$3,000
$4,000
$5,000
$6,000
2009 2010 2011 2012 2013 2014
COILED TUBING - DOMESTIC MARKET SPENDING
Total CT Market
Spending
YoY Growth %
THE SPEED AND ECONOMIC
ADVANTAGES OF CT HAVE
CONTRIBUTED TO THE
INDUSTRY’S RAPID GROWTH
IN RECENT YEARS – OVER
$5.4 BILLION WAS SPENT ON
CT IN THE U.S. DURING 2013
Injector Head
Coiled Tubing
Tubing Reel
Control Cabin
LONGER LATERALS LENGTHS
REQUIRE CT UNITS WITH
LARGER OUTSIDE DIAMETERS
(OD) STRINGS, INCREASING
THE NUMBER AND SIZE OF THE
EQUIPMENT LOADS NECESSARY
TO SERVICE THE WELLS
Emerging Trends & Challenges. The greatest challenge for coil tubing comes fromincreased lengths in drilling laterals from horizontal drilling. Stimulation technologyhas pushed total depths of wells further requiring CT units with larger outsidediameters (OD) strings, increasing the number and size of the equipment loadsnecessary to service the wells. For example, in Alberta the average completed laterallength has increased 177% from 2008 to 2013; while the number of stages per well hasrisen 320% over the same period. While innovation is driving longer laterals, it’s alsocreating additional challenges for CT:
• Operational – Performing intervention work on long wellbores withconventional CT units is generally limited by either the length or OD of theCT strings as a result of the limitations to the reel capacity
• Logistical – The ability to get CT equipment to location is a challenge in andof itself. In the US, height, length, weight, and axle restrictions and divisibleload rules require permits, escorts, or split loads (varied by state and localauthorities), placing challenges on CT trailer designs and increasingtransportation costs
• Safety – Occupational Safety and Health Administration (OSHA) setsregulations for keeping personnel clear of the fall zone, creating safety andoperational challenges to efficiently execute and rig-up in a timely manner
• Meanwhile, service providers are being challenged by E&P operators toincrease speed and efficiency of these packages, while improving safety
Innovations in Procedure. Advancements in CT are not only coming from hardware,but from increased expertise and experience as well.
• Fluid selection and application, coming from the emerging completion fluidsservice companies, can often determine the cost and success of a CT drillout.According to Marathon Oil Corp.’s presentation Improving Post-StimulationCoiled Tubing Drillout, “despite the increasing use of coiled tubing units, drilloutpractices have typically been based on “art” rather than science, oftenresulting in drilling problems such as poor fluid efficiency and hole cleaningissues, lost circulation, stuck pipe, lost-in-hole tools, and parted pipe…agreater percentage of stuck pipe incidents are directly related to poor holecleaning…”
• Traditionally, CT companies deployed the completion fluids to clean upwellbores themselves by “pouring over the top.” This application ofcompletion fluids is consistently being replaced in favor of hiring a separateservice company to provide trained completion fluids engineers who mix thechemicals onsite with specialized equipment according to the varyingconditions of the individual wellbore. This is essentially applying aproprietary approach to clean wellbores more thoroughly and cost effectively
• As the drilling space continues to advance, product and service innovationwill be crucial to competitively meeting customer demands. Service providersthat understand industry trends and proactively adjust are well positioned tosustain long-term success
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“
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Logistical challenges arise as coiled tubing units are increasing required to serve longer and deeper wellbores
Completion fluids cleaning the wellbore
Operations must keep safety a top priority
Select Oil & Gas Transactions
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March and April witnessed moderate activity in the M&A market for Oil & Gas Equipment and Services. A transaction of interest involved Calumet Lubricants' $234.0 million acquisition of Tulsa, OK based Anchor Drilling Fluids, a leading independent provider of drilling fluid solutions, completion fluids and production chemicals with more than 30 manufacturing, mixing, storage and distribution facilities in 13 states.
"With the acquisition of Anchor, Calumet will become a leading independent producer and marketer of drilling fluid solutions in the United States," stated Jennifer Straumins, President and COO of Calumet. "During the past decade, North America has witnessed a surge in oil and gas production, supported by the application of advanced drilling techniques in unconventional resource plays. Anchor's market leading position as an established independent producer of drilling fluids, coupled with its deep base of established customers and expansive distribution network, position it as a key beneficiary of the trend toward increased exploration and production spending."
Sources: Capital IQ & PR Newswire
Transaction Overview:
Announced Date Closed Date Target Buyer/Investors Size ($mm)
Apr-08-2014 Apr-08-2014 Perfomix, Inc. Baker Hughes Incorporated (NYSE:BHI) -
Apr-03-2014 Apr-03-2014 CTE Industries Ltd.Antelope Oil Tool & Manufacturing Co., LLC
-
Mar-24-2014 -Weatherford International Ltd., Pipeline and Specialty Services Business
Baker Hughes Incorporated (NYSE:BHI) 241.0
Mar-20-2014 - Ironhand Drilling Inc.CWC Well Services Corp. (TSXV:CWC)
94.3
Mar-20-2014 -Technisys, Inc. and FMC Technologies Energy Holdings Ltd
Levine Leichtman Capital Partners -
Mar-18-2014 Mar-31-2014 Anchor Drilling Fluids USA, Inc.Calumet Lubricants Co., Limited Partnership
234.0
Mar-13-2014 - SES Holdings Limited Schlumberger Limited (NYSE:SLB) -
Natural Gas Futures (Henry Hub)
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The natural gas spot price was $4.74 per MMBtu at the Henry Hub on April 22, decreasing $0.12 from the averageprice a month prior. Prices in April have leveled off after severe weather in February catalyzed a steep priceincrease. Specifically, February produced the highest gas prices since early 2010. As seen above, the severeweather reduced supply, buoying futures throughout 2014.
Future contracts for the Henry Hub project that prices will be sustained above the average of $3.65 per MMBtu in2013 – at an expected average of $4.82 per MMBtu in 2014.
Sources: Capital IQ
Nature Gas Futures Overview:
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50Apr - 2014
$4.74
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The West Texas Intermediate crude spot price closed at $100.37 per barrel on April 22. Prices have remained above $100 per barrel even though recent EIA data shows domestic crude-oil supplies at an all-time high. Supplies now stand above the high set in May 2013, according to EIA data going back to August 1982.
Also of interest, Gulf Coast supplies rose to 209.6 million barrels, a new high for the region. Gulf Coast supplies have climbed in recent months since a pipeline opened in January connecting a storage hub in Cushing, OK, with the Gulf Coast.
WTI prices averaged a profitable $97.45 per barrel in 2013. Further, 2014 is anticipated to continue supporting a strong drilling environment with an average futures price of $100.20 per barrel.
Sources: Capital IQ, EIA & The Wall Street Journal
Oil Futures Overview:
Oil Futures Pricing (WTI)
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15
Apr - 2014$100.37
U.S. Onshore Rig Count
6
Through April 25, U.S. onshore rig counts experienced a noteworthy 56 rig count increase from March 2014 and an 101 count increase from February 2013, bringing the current rig count to 1,793. The most notable increase derives from the second largest oil reserve in the world, the Permian basin. The basin’s rig count increased by 28 rigs in the past month and 56 rigs from two months prior. This has major implications for OFS companies – as other major basins are beginning to mature, strong upside for growth remains in the Permian as the basin continues to evolve and attract more attention.
Sources: Baker Hughes
Onshore Rig Count Overview:
1,500
1,550
1,600
1,650
1,700
1,750
1,800
1,850
1,900
1,950
2,000
Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14
Apr - '141793
0
500
1000
1500
2000
Woodford Total Barnett DJ-Niobrara Eagle Ford Fayetteville Granite Wash Haynesville
Marcellus Mississippian Permian Utica Bakken Others
U.S. Rig Count by Basin
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As of April 25, total rig counts observed a 52 count increase from a month prior, bringing the total to 1861. Since March 17, rig counts increased in the Permian (+28), Granite Wash (+12), Marcellus (+9), Mississippian (+4), Bakken (+3), Haynesville (+3), DJ-Niobrara (+1) and decreased in the Barnett (-2), Eagle Ford (-5), Utica (-6), Woodford (-13).
Rig counts as of April 25, 2014: Barnett – 24, DJ-Niobrara – 55, Eagle Ford – 219, Fayetteville – 10, Granite Wash – 64, Haynesville – 47, Marcellus – 87, Mississippian – 74, Permian – 542, Woodford – 37, Utica – 36, Bakken (Williston) – 187, and 1 Other – 479
1 “Other” includes remaining basins and offshore and inland water rigs in count
Sources: Baker Hughes
Rig Count by Basin Overview:
*
Gulf of Mexico Rig Count
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The total Gulf of Mexico (GOM) rig count increased by one as a four count increase in oil directed rigs was countered by a three count decrease in gas directed rigs.
In recent news, BP won the right to compete for U.S. contracts and new leases in the Gulf of Mexico for the first time since the 2010 oil spill. This incident prompted regulators to bar the company from new government business. Further, the oil giant expects to ramp up oil and gas production at four of its platforms in the deepwater gulf during 2014.
Sources: Baker Hughes & Bloomberg
Gulf of Mexico Rig Count Overview:
0
10
20
30
40
50
60
70
Jun
-09
Au
g-0
9
Oct
-09
Dec
-09
Feb
-10
Ap
r-10
Jun
-10
Au
g-10
Oct
-10
Dec
-10
Feb
-11
Ap
r-11
Jun
-11
Au
g-11
Oct
-11
Dec
-11
Feb
-12
Ap
r-12
Jun
-12
Au
g-12
Oct
-12
Dec
-12
Feb
-13
Ap
r-13
Jun
-13
Au
g-13
Oct
-13
Dec
-13
Feb
-14
Ap
r-14
Total Gulf of Mexico Oil - GOM Gas - GOM
U.S. NG vs. Oil Rig Count
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From March 17 to April 25, oil directed rigs saw a 73 rig increase while gas rigs observed a 21 rig count decrease. This significant increase is a positive sign for oilfield services providers, especially in basins with the largest gains, including the Permian (+26 oil directed), Granite Wash (+11 oil directed), and the Mississippian (+6 oil directed).
Specifically, several E&P operators have boosted their horizontal drilling program in the Permian, including Concho Resources and Pioneer Natural Resources. Baker Hughes CEO, Martin Craighead, said that they expect 2014 rig count to rise 10% in the Permian, one of the key reasons [the basin] continues to be the “key to their operations.”
Sources: Baker Hughes & Bloomberg
NG vs. Oil Count Overview:
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Oil Rigs Gas Rigs
U.S. NG vs. Oil Production
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US Oil production continues to escalate into historic levels (trend line shown in gold). Specifically, March brought production levels of 8.16 mm bbl/ day, and April’s production is expected to increase to 8.25 mm bbl/day. Furthermore, EIA forecasts crude oil production to reach 8.74 mm bbl/ day by the end of 2014.
Natural gas (charted in gray) production for April is forecasted at 68.61 bn cubit ft/ day, an expected increase from the March levels of 68.33 bn cubit ft/ day. Natural gas production has increased over the past 12 months, and the EIA expects production to hover near current levels during 2014, with an average of 68.45 bn cubit ft/day in 2014.
Sources: EIA
NG vs. Oil Production Overview:
65.0
65.5
66.0
66.5
67.0
67.5
68.0
68.5
69.0
6.6
6.8
7.0
7.2
7.4
7.6
7.8
8.0
8.2
8.4
Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14
Nat
ura
l G
as (
bh
. cu
. ft.
/day
)
Cru
de
Oil
(m
m b
bl/
day
)
Dry Natural Gas Production Crude Oil Production Linear ( Crude Oil Production)
11
Securities-related services, including M&A advisory for transactions involving stock or debt are offered through M&A Securities Group, Inc.., Member FINRA &SiPC. Founders Investment Banking & M&A Securities Group are not affiliated entities. Principals of Founders are registered investment banking agents withM&A Securities Group & shall perform such services on behalf of M&A Securities Group.
FOUNDERS INVESTMENT BANKING IS A MERGER AND ACQUISITION
FIRM WITH AN OIL AND GAS SERVICES PRACTICE THAT BRINGS A WALL
STREET-LEVEL OF SOPHISTICATION TO THE WELL SITE. ITS TEAM'S
PROVEN EXPERTISE AND PROCESS-BASED SOLUTIONS HELP COMPANIES
AND BUSINESS OWNERS ACCESS CAPITAL AND PREPARE FOR AND
EXECUTE LIQUIDITY EVENTS TO ACHIEVE SPECIFIC FINANCIAL GOALS.
O&G SERVICES LEAD ADVISORS:
DUANE DONNER
MANAGING DIRECTOR
205‐423-2548
JOE BRADY
VICE PRESIDENT
205‐503-4023
PATRICK BRADLEY
ASSOCIATE
JOHN ORTSTADT
BUSINESS DEVELOPMENT, OIL & GAS
BRANDON PILOT
ANALYST
FOUNDERS INVESTMENT BANKING, LLC
2204 LAKESHORE DRIVE
BIRMINGHAM, AL 35223
WWW.FOUNDERSIB.COM - 866.594.4358
Recent Founders Blast & Cast Fall Forumduck hunt at the lodge in Cameron Meadows.
RECENT O&G TRANSACTIONS:
