Shale drillers have added 158 rigs since May, according to Baker Hughes Inc. At the same time, companies such as Chesapeake Energy Corp. and EOG Resources Inc. have been increasing their efficiency by cramming more and more sand into individual wells, aiming to extend their reach miles further. That’s boosted sand prices roughly 25 percent to about $24 a ton, according to IHS Inc.
It’s an early sign that oilfield services, hard hit by a two-year slump in crude prices, are seeing the first hints of a turnaround. With spending by drillers in the lower 48 states now forecast to be $1 billion higher than analysts expected in the final three months of 2016, pricing talks are heating up as servicers face off against explorers fearful of uncertain oil prices ahead.
“Sand certainly led the way here, and that’s starting to make its way into other product lines,” James West, an Evercore ISI analyst in New York, said in a telephone interview. “It’s going to be a much more rigorous pricing recovery as we go into 2017, given the very ambitious drilling programs and production forecasts from the North American E&P industry.”
With West Texas Intermediate crude prices now up by about 80 percent from this year’s low, the industry is starting to use higher sand prices and the added activity in oil fields ranging from Texas’s Permian Basin to the Scoop and Stack plays of Oklahoma as an excuse to reopen conversations over how much they’ll be paid, said Samir Nangia, an IHS analyst.
Already, leases for more-efficient rigs that can walk from well to well and drill out several miles sideways, are up by as much as $5,000 a day, a third more expensive since May, according to Evercore. Spending to drill and complete wells in the lower 48 states will be $13 billion, or about $1 billion more than previously forecast, for the final three months of the year, Jud Bailey, an analyst at Wells Fargo & Co., wrote in a Nov. 11 note to investors. He expects the strong year-end activity to carry over into next year.