Outlook for the East Texas/ North Louisiana Market

Transcription

1 Outlook for the East Texas/ North Louisiana Market February 2014 Prepared for: East Texas Gas Producers Association Carthage, TX Prepared by: Spears and Associates Tulsa, OK

2 Oil Markets Global oil consumption is expected to grow 1. in 2014 (up 1.1 million bpd to an average of 91.4 million bpd). As has been the case for the past decade, all the incremental growth in global oil demand in 2014 is coming from emerging economies (which now account for 50% of total demand); oil use in developed economies continues to drop due to energy efficiency improvements and sluggish economic growth World Oil Demand (million bpd) Spears and Associates Sources: EIA; Spears 2

3 US Oil Production US oil demand is projected to average 18.9 million bpd in 2014, up 1% from last year. Fuel consumption in the transportation sector has declined due to increased engine efficiency and a drop in miles driven; however, oil demand for fuel/heat/feedstock applications in the industrial sector has increased as economic activity has improved. US crude oil production averaged 10 million bpd in 2013, up 12% for the year. According to the EIA, US tight oil production now represents 22% of total US crude oil production. Virtually all of the increase has come from the Eagle Ford play in South Texas and the Bakken Shale in the Williston Basin of North Dakota/Montana. Unless current restrictions on US crude oil exports are relaxed, US operators will have to slow the pace of their tight oil development after next year or else risk triggering oil-on-oil price competition US Crude Oil Production (million bpd) US Tight Oil Production (million bpd) DJ Niobrara Marcellus Haynesville Bakken Eagle Ford Spears and Associates Sources: EIA; Spears 3

4 Oil Prices Brent spot prices are projected to average $107.50/bbl in 2014 (down 1%), as markets remain well-supplied due to increased crude production from non-opec countries. Spot WTI prices are projected to average $90/bbl in 2014, down 7%. US operators have recently begun to make the case in public for relaxing restrictions on crude oil exports. This indicates producers believe that modifying/expanding US refining capacity to handle increased domestic light oil production will take too long and that increased exports is a quicker/cheaper way to access customers for their oil. $120 $100 $80 $60 $40 $20 $0 US Spot WTI Prices ($/bbl) Spears and Associates Sources: NY Merc; Spears 4

5 US Gas Production The EIA projects that US gas consumption will average 69.6 bcfd in 2014, down 0.8% from last year due to falling demand in the power sector where gas is losing market share to lower-priced coal. The EIA projects that US gas production will reach 67.3 bcfd in 2014, up 0.9% from last year. According to the EIA, shale gas production is estimated to account for about 45% of overall US gas output in It is estimated that US shale gas production exceeded 30 bcfd bcf in 2013, up 1. Most of the growth in US shale gas production over the timeframe is due to the Marcellus Shale, which is projected to produce an average of 9.3 bcfd in Other leading shale gas producing regions in 2013 are the Barnett Shale (5.2 bcfd), Haynesville Shale (5.5 bcfd), and Eagle Ford (3.3 bcfd). Spears and Associates US Gas Production (bcfd) US Shale Gas Production (bcfd) Other Woodford Fayetteville Marcellus Bakken Barnett Eagle Ford Haynesville Sources: EIA; Spears

6 Gas Prices US spot natural gas prices are projected to average $4.5/mmbtu in 2014, up ~25%, as the US gas market slowly tightens. US gas exports are positioned to rise sharply after A total of thirteen US Gulf Coast LNG export projects with a combined capacity of 18.3 bcfd have been proposed to the FERC. However, most observers believe that no more than 8.0 bcfd of this capacity will actually be built. $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 US Spot Gas Prices ($/mmbtu) Spears and Associates Sources: Natural Gas Week; Spears 6

7 US Drilling Activity Overall US rig count is forecast to average 1,763 active rigs (up 0.1%) in As of year-end 2014 overall US rig will be 1% lower than year-end US Average Active Rig Count Oil rig activity is projected to fall 1% in 2014 to an average of 1,355 active units, while gas rig count is forecast to grow 5% to an average of 407 active rigs as improved gas prices begin to draw investment back into the upstream gas sector. In 2014 US well count is projected to reach 48,600 wells (up 1%). We estimate that 31,900 new oil wells will be drilled in 2014, up 1% for the year and that the number of new gas wells drilled will increase 9% to 10,000 wells. Spears and Associates Gas related Oil related US New Wells Drilled by Type (000) Dry Holes Gas Wells Oil Wells Source: Baker Hughes; Spears

8 Description of Basin ~$10.5 billion was spent in East Texas and the Haynesville play during the course of Unlike other basins, which show an unbalanced spending pattern between the three major categories seen on the right, construction, completion and production each receive about one-third of the region s spending. The top three spend categories are hydraulic fracturing (19% of the basin s total spend), water management (17%) and contract drilling (9%). This region represents 7% of the total US land market. 31% $10.5 billion 2013 East Texas/Haynesville Oilfield Market 34% Construction Completion Production Category Market SubTotal (millions) (millions) Well Construction Contract Driller $1,000 Bits $50 Drilling Mud $350 Directional Services $150 Cement $500 OCTG $1,000 Casing Running $50 Wireline - open hole $50 Cementing Hardware $50 Solids Control $100 Other Construction $250 $3,550 Well Completion Coiled Tubing Services $250 Completion Equipment $400 Fishing & Rental $250 Surface Trees $150 Wireline - cased hole $200 Hydraulic Fracturing $2,000 Other Completion $400 $3,650 Well Production Well Servicing $250 Artificial Lift $750 Water Management $1,800 Other Production $500 $3,300 35% TOTAL $10,500 8

9 US Regional Markets millions of US dollars Total US WELL CONSTRUCTION-RELATED REGION Driller Bits Drilling Mud DD+MWD Cement OCTG Casing Run OH Wireline Cmt Hware Solids Cont SubTotal South Texas $2,400 $125 $750 $450 $1,000 $1,250 $90 $50 $100 $275 $6,490 Permian $3,200 $175 $550 $300 $1,200 $1,500 $100 $75 $135 $350 $7,585 MidContinent $3,500 $200 $500 $500 $1,000 $1,250 $75 $75 $135 $375 $7,610 Rockies $3,500 $200 $750 $450 $800 $1,500 $125 $75 $135 $375 $7,910 ETx/NoLA $1,000 $50 $350 $150 $500 $1,000 $50 $50 $50 $100 $3,300 Gulf Coast $1,750 $100 $500 $150 $250 $500 $75 $75 $75 $200 $3,675 North East $1,750 $100 $350 $250 $400 $500 $35 $50 $75 $200 $3,710 West Coast $900 $50 $250 $150 $200 $500 $25 $50 $45 $125 $2,295 TOTAL $18,000 $1,000 $4,000 $2,400 $5,350 $8,000 $575 $500 $750 $2,000 $42,575 WELL COMPLETION-RELATED REGION Coiled Tbg Packers Fish/Rent Trees CH Wireline Frac Well Svs Arti Lift Water Mgmt SubTotal South Texas $500 $1,000 $750 $500 $600 $5,000 $500 $500 $1,900 $11,250 Permian $600 $1,250 $1,250 $750 $1,000 $6,000 $1,250 $2,000 $2,800 $16,900 MidContinent $500 $1,000 $750 $500 $600 $5,000 $1,000 $1,500 $3,300 $14,150 Rockies $600 $1,500 $1,000 $750 $800 $5,000 $750 $1,000 $9,600 $21,000 ETx/NoLA $250 $400 $250 $150 $200 $2,000 $250 $750 $1,800 $6,050 Gulf Coast $250 $250 $500 $200 $300 $1,000 $250 $750 $3,500 $7,000 North East $200 $400 $350 $100 $400 $2,000 $250 $750 $1,800 $6,250 West Coast $100 $200 $150 $50 $200 $1,000 $250 $750 $2,600 $5,300 TOTAL $3,000 $6,000 $5,000 $3,000 $4,100 $27,000 $4,500 $8,000 $27,300 $87,900 9

10 New Wells Drilled Drilling History & Forecast New well construction in this region is staggering along at a cyclic low. As the chart below indicates, ~3,500 new wells were drilled in 2011, falling to 2,500 in 2013 with very little uplift expected through 2015 unless natural gas well drilling again comes into favor. 40% of all drilling is horizontal or directional. Horizontal drilling in pursuit of the region s gas is not the predominant technique used. ~1,300 horizontal wells were drilled in 2011 and ~1,000 are predicted for Most of these wells are drilled into dry gas reservoirs. Spears & Associates estimates that ~$20 billion was spent in the region on drilling and completion in 2011, $10.5 billion in 2013 and $11-12 billion by This represents ~7% of all D&C spending on land in the US currently. 4,000 3,500 3,000 New Well Drilling Activity 2,500 2,000 1,500 1,000 Horizontal Vertical Horizontal 1,269 1, Vertical 2,245 1,570 1,497 1,593 1,603 10

11 Operator Activity Oilfield Logix has identified over 50 oil and gas producers who have drilled wells in the region in the last three years. Of these 50, 5 represent half the drilling in the region XTO, Chesapeake, Exco, Encana and EOG. BHP Billiton, who acquired Petrohawk s position in the field, has drilled 5% of the wells. Large oil and gas producers round out the top 75% of all wells drilled: Anadarko, ExxonMobil, Shell, Comstock, Devon, Forest, Valence and EP. Helmerich & Payne and Nabors are the drilling contractors on many of the wells drilled by these leading companies. 17% 22% XTO Energy Chesapeake Exco Encana EOG Resources BHP Billiton 2% Anadarko 14% Exxon Mobil SWEPI Comstock Oil & Gas Devon Energy Forest Oil Valence 9% EP Energy Other 6% 5% 5% 11

12 Operator Activity Preferred Service Companies of the 10 Most Active Operators ( ) Operator Contractor Coiled Tubing Formation Evaluation Cementer Directional Frac Gyro Survey XTO Energy Scandrill Key Schlumberger Halliburton Chesapeake Nomac, Patterson- UTI, Rowan Exco Patterson-UTI Go Coil Schlumberger Professional Directional Schlumberger Vaughn Energy Cudd Baker Hughes O-Tex Pumping SLB Pathfinder Trican Vaughn Energy Baker Hughes, Halliburton Professional Directional Encana Rowan Halliburton Halliburton Halliburton EOG Resources BHP Billiton Helmerich & Payne, Nabors Key Halliburton, Sclumberger Weatherford, Baker Hughes Baker Hughes, FTS Intl Schlumberger, Weatherford Scientific Drilling Vaughn Energy Halliburton Halliburton Halliburton ArkLaTex Leam FTS Intl Vaughn, ArkLaTex, MS Anadarko Nabors Schlumberger Baker Hughes SLB Pathfinder FTS Intl ArkLaTex Exxon Mobil Helmerich & Payne Schlumberger Baker Hughes SLB Pathfinder Gyrodata SWEPI Halliburton Halliburton Halliburton Halliburton Comstock Oil & Gas Elite Weatherford, Schlumberger SLB Pathfinder Gyrodata 12

13 Millions Drilling Contractors Drilling contractors saw spending collapse in 2011 and 2012 reducing the market from $1.5 billion to $1 billion. As the chart below on the right indicates, the outlook for the industry is flat and will remain there until drilling for dry natural gas reawakens in this country. Nabors, Scandrill and H&P are the three big drilling contractors in the region with a combined market share of 57%. Market Share of Drilling Contractors in East Texas % $1,600 Contract Drilling Market 1% 1% 1% 1% 2% 2% 2 Nabors Drilling Scandrill Helmerich & Payne Patterson UTI Precision Drilling $1,400 $1,200 $1,000 Rowan Pioneer Roco Drilling $800 $600 4% 4% 18% Big E Drilling Energy Drilling Justiss Lantern Drilling $400 $200 6% 16% Maxwel-Herring Mesquite Other $ Market Size $1,471 $1,097 $1,022 $1,066 $1,075 13

14 Drilling Contractors Drilling speed is a great differentiator among the drilling contractors. The chart to the right plots average drilling speed (feet per day) over a wide range of horizontal and vertical wells drilled in the last two years. The drilling contractors with the highest performance (Pioneer, Scandrill, Energy) drill mostly vertical gas wells to ~11,000. Contractors drilling horizontally see per-day performance fall to about 400 feet. Pioneer Scandrill Energy Drilling 14% Roco 1% 1% 1% 1% 2% 2% 4% 4% 2 18% Nabors Drilling Scandrill Helmerich & Payne Patterson UTI Precision Drilling Rowan Pioneer Roco Drilling Big E Drilling Energy Drilling Justiss Big E Drilling Precision Patterson-UTI Nabors Helmerich & Payne 6% Lantern Drilling Maxwel-Herring Rowan 16% Mesquite Other ,000 14

15 Days-to-Drill Days-to-Drill Days-To-Drill Rates-of-penetration (ROP) are improving each year at all well depths in the Haynesville. Between 2011 and 2012 drillers reduced days to drill by 1 for the average 15,000 horizontal well. Shallower wells also saw improving drilling times, but the dramatic performance increases were seen at deeper depths. Average Days-to-Drill by Measured Well Depth , , , Days-To-Drill vs. Measured Depth Days-To-Drill vs. Measured Depth 0-5,000 10,000 15,000 20,000 25,000 Total Measured Depth (ft.) 0-5,000 10,000 15,000 20,000 25,000 Total Measured Depth (ft.) 15

16 Millions Drill Bits Drill bits are tools attached to the bottom of a drill string whose function is to destroy and remove rock in the process of constructing a new well. Although some bits are roller cone, most feet of hole are drilled with a rented PDC bit. With new well counts falling in East Texas and North Louisiana, combined with drill bit efficiency improvements and price discounting, the regional bit market hit a cyclic low in Spears estimates that the current drill bit spend in the region will not materially rise in the near term. $80 $70 $60 $50 Annual Drill Bit Market $40 $30 $20 $10 $ Drill Bits $72 $59 $52 $53 $54 16

17 Millions Drilling Fluids Water-based drilling fluids are the most commonly used type of drilling fluid in East Texas/North Louisiana, representing ~90% of all muds found in the region. Since many of the wells are drilled horizontally, we expected to find a greater use of oil-based muds (lubricity), but rock and reservoir issues limited use of that mud system. The 2013 drilling fluids market was $350 million, down from $460 million in 2011 and remaining flat through % $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $- Drilling Fluids Market Market Size $461 $391 $348 $349 $354 89% Water Oil Other 17

18 Thousands Well Path Surveying The Texas Railroad Commission requires that a legal survey be taken of a well s path every 200 feet of open hole. If an MWD unit is in the well, this survey can be taken without stopping the drilling process. Otherwise, a surveying device is lowered into the hole. If nearby wellbores contain pipe, magnetic interference may influence the well path surveying device, in which case a gyro-based surveying tool will be used. In addition to state-mandated surveys, a directional driller requires an accurate survey of a well s position in space so that the trajectory of the new hole can be oriented properly. Since the hole is generally lined with casing when a directional drilling system is lowered into the well, gyro-based surveying tools tend to be preferred. A gyro is a device that, while spinning, is oriented toward true north. This firm reference is then used to establish angle and azimuth of the wellbore relative to that starting position. What was originally developed for offshore has been broadly adopted on land with the explosion of horizontal drilling. $40 $35 $30 $25 $20 $15 $10 Annual Well Path Surveying Market 9% 12% 8% 6% 1% 1% 40% Vaughn ArkLaTex Scientific Drilling MS Energy Gyrodata Halliburton Baker Hughes Accurate Directional Compass $5 22% $ Survey $35 $27 $25 $26 $26 18

19 Millions Directional Drilling Only of the nation s $5 billion directional drilling services market is in this region. Directional drilling includes three primary services: Positive displacement mud motor (PDM), measurement-while-drilling tools (MWD) and the directional driller. Combined, the cost of these tools and people ranges from $9,000 to $15,000 per day, but averages around $11,000 per day currently. With drilling speeds rising and rental rates falling, the market peaked in 2011 and has plateaued around $150 million annually in In the leading directional driller in the region Halliburton, with their tools built for high temperature applications. Schlumberger/Pathfinder was also large, followed by Baker Hughes, Pro Directional, and Leam, each with about 9% of the market. Directional Drilling Services Market $250 $200 2% 2% 6% Halliburton SLB Pathfinder Baker Hughes $150 8% 39% Professional Directional Leam $100 MWD Solutions Ryan $50 9% Weatherford Rensco $ DD Svs $235 $187 $149 $152 $159 9% 17% Crescent Other 19

20 Directional Drilling Who is the most productive directional driller? Our team analyzed ~1,000 days of directional drilling performance for ~10 directional drillers during the period The chart below shows the average number of directional feet drilled per day for the most active directional companies. Weatherford was the most productive driller with about 1,350 feet of hole per day (but this was on only a few wells in our sample). Baker Hughes and Halliburton averaged feet per day. Independents (and SLB Pathfinder) were much slower: feet per day. Weatherford Baker Hughes Halliburton Professional Directional SLB Pathfinder Crescent Rensco Leam Ryan MWD Solutions ,000 1,200 1,400 1,600 Directional Feet/Day-in-the-Hole 20

21 Directional Drilling Days in the Hole The number of days a directional drilling system is in the hole has been rising. This is counter to the trend seen in other basins. We believe that laterals are getting longer in the Haynesville, but that the region is seeing its drilling engineers with greatest potential being pulled and used elsewhere, which is hurting overall drilling efficiency. Year Average Days in the Hole Days in the Hole 2011 Days in the Hole 2012 Days in the Hole

22 Number of Wells in Sample Completed Length of Horizontal Wells Completed length of horizontal wells has been getting longer each year. In 2010 the average length was ~4,000 and in 2012 the length was ~5,200. Using the data, well lengths are increasing 15% per year or ~600. The chart below plots the distribution of completed lengths of more than 1,000 horizontal wells drilled in the last three years. The longest lateral in each year is 7,500, but the average or most frequently drilled lateral is right at 5,000 Year Average Completed Length of HW , , ,200 In 2010 and 2011, operators drilled a large number of laterals shorter than 4,000. In 2012 and 2013, very few of these shorter laterals were drilled Distribution of Horizontal Lateral Lengths Haynesville Lateral Length (ft.) 22

23 Millions OCTG Casing & tubing spending in 2013 was $1 billion, down from $1.2 billion in Based on new well counts in the future, we are projecting modestly rising pipe sales through PipeLogix is the authority on OCTG demand in the East Texas and North Louisiana. We encourage clients to contact PipeLogix for more in-depth analysis. OCTG Spending 4% 4% 2% 1% $1,600 $1,400 8% 35% 5 1/2 7 5/8 5 $1,200 $1,000 9% 4 1/ /4 $ /8 $600 11% 13 3/8 Other $400 $200 26% $ OCTG $1,500 $1,200 $1,000 $1,050 $1,100 23

24 Millions Cement & Cementers Cementing services in East Texas/North Louisiana in 2013 were $0.5 billion, down from $0.7 billion in The market is flat to slowly rising on drilling activity, but discounting has been creeping in to the market, so the pace of growth measured in dollars is very modest. Halliburton is the largest cementer in the play with 56% of the cement pumped. Baker Hughes is second with 20%, and Schlumberger 3 rd. This is Halliburton s strongest market share position in the US. Independents have been accepted in the region and are gaining ground. Notable are O-Tex Pumping, Trican, Superior, Basic and several others. $800 $700 $600 $500 $400 $300 $200 $100 $- Cementing Services Market % 20% 2% 2% 2% 2% 1% 1% 1% 56% Halliburton Baker Hughes Schlumberger O-Tex Pumping Trican Superior Energy Services Basic Energy Services Acid & Cementing Service Dales Oilwell Cementing Superior Well Services Market Size $692 $565 $523 $533 $539 Other 24

25 Millions Logging / Formation Evaluation $350 $300 East Texas/Haynesville Cased Hole Wireline Market Cased hole logging is the primary wireline work found in the region. But for the occasional open hole log taken in a vertical hole, most wireline work is limited to cement bond longs, plug & perf work and setting packers. As shown in the neighboring chart, the region s wireline market was ~$0.2 billion in This is down from $0.3 billion in 2011, with an expectation of a flat market through $250 $200 J-W Wireline has the leading cased hole market share. $150 $100 $50 $ CH Wireline $291 $238 $201 $201 $209 36% 39% J-W Wireline WW Wireline Pioneer Wireline PSI Wireline, Inc. Other 9% 12% 25

26 Logging / Formation Evaluation 2% 2% 1% 1% 1% 1% 1% Formation evaluation in East Texas/North Louisiana is done off of the drill string, using an openhole wireline log and using mud logging/surface data logging. Schlumberger is the leading formation evaluation service company, followed by Baker Hughes and Halliburton, who each have about one-sixth of the market. 8% 4% 42% Schlumberger Baker Hughes Halliburton Weatherford Insite Scientific Drilling Pioneer Wireline Tucker Several other service companies have been identified. 17% Blake Geosearch J-W Wireline ThruBit Valence 18% 26

27 Millions Stimulation & Hydraulic Fracturing Stimulation or hydraulic fracturing refers to the process of cracking open the oil/gas bearing rocks of a reservoir such that the hydrocarbon can be accelerated out of the wellbore. The market in this region, featuring the Haynesville, was ~$2 billion in This will be a plateau that will continue through 2015 with modestly rising well counts rising. Discounting has played a big role in the last two years, so more and more work is being pumped at a lower and lower price. This combination has created a fairly static market in terms of dollars. The top service companies are FTS International and Schlumberger, locked in a tie. The following two are Trican and Halliburton, each with Another dozen companies share the remaining 45% of the market. $3,500 Annual Hydraulic Fracturing Market 4% 2% 2% 1% 1% 1% 17% Frac Tech Schlumberger Trican $3,000 $2,500 $2,000 6% 6% 5% 16% Halliburton Cudd FTS International Baker Hughes A & C Bayou Well Services $1,500 7% $1,000 $500 7% 12% $ Frac $2,875 $2,279 $2,014 $2,050 $2,129 1 Cetco Key Weatherford Nabors Greenfield Energy Patterson-UTI 27

28 Stimulation & Hydraulic Fracturing Frac hydraulic horsepower (HHP) is one way of measuring the capacity of the stimulation industry. Our research indicates that ~1.1 million of the continent s 19 million HHP (almost 6%) is stationed and working in East Texas & North Louisiana. The table and chart on this page rank the frac companies by amount of available horsepower in the region. This ranking is slightly different than the ranking on the prior page, which is sorted by jobs pumped. 5% 5% 5% 6% 5% 5% 22% 14% FTS International Schlumberger Halliburton Baker Hughes Platinum Cudd Weatherford Trican Superior Green Field Bayou Frac Service Company HHP FTS International 240,000 Schlumberger 150,000 Halliburton 100,000 Baker Hughes 100,000 Platinum 70,000 Cudd 65,000 Weatherford 65,000 Trican 60,000 Superior 50,000 Green Field 50,000 Bayou 50,000 Tucker 35,000 Other 50,000 6% 6% 9% 9% Tucker Other Total 1,085,000 28

29 Total Proppant (lbs.) Stimulation & Hydraulic Fracturing Proppant is consumed on every frac job. The amount of proppant pumped in a well is heavily dependent on the length of the completed lateral. As the scatter graph below illustrates, the longer the lateral, the more proppant used. In 2014 the average completed lateral length will be ~5,500 and the average proppant per well will be 5.5 million pounds. Completed Length Pounds of Proppant Pumped Per Well 2,000 1,200,000 4,000 3,500,000 6,000 6,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - Horizontal Lateral Length vs. Total Proppant Used, Haynesville ,000 4,000 6,000 8,000 10,000 12,000 14,000 Lateral Length (ft.) 29

30 Number of Wells in Sample Stimulation & Hydraulic Fracturing Proppant use in hydraulic fracturing shows a wide range of pounds pumped per well, but the chart below shows a group of small frac jobs in vertical wells that use ~400,000 pounds of proppant, plus a large number of deeper wells that show no discernable pattern in proppant use. As the chart indicates, there are just as many wells that use ~3 million pounds of proppant per well as use 6.8 million pounds. Just as many use 4 million as use 5 million. With so little correlation between new well drilling and proppant use, averages or trends are hard to determine. Nevertheless, from this analysis we conclude that: In 2013, 2,500 new wells created demand for ~6 billion pounds of proppant. This is down from 10 billion pounds of proppant in New well drilling is projected to create demand for ~7 billion pounds of proppant in Distribution of Total Proppant Used, East Texas & Haynesville Total Proppant (1000 lbs.) 30

31 Number of Wells in Sample Stimulation & Hydraulic Fracturing Frac stages is one of the metrics regularly quoted by analysts working in this industry. Except for those companies providing plug & perf technologies, this is not a very meaningful statistic. Year of Completion Average Number of Frac Stages In the Haynesville, as many as 40 frac stages have been pumped in a single well but the average has been dropping. As the table to the right shows, number of stages pumped fell to 11 on average in 2013, down from 14 the prior years. We think this is an indication of gas producers seeking to minimize the cost of a frac job rather than maximize the output of their wells Distribution of Total Number of Frac Stages per Well, Haynesville Number of Frac Stages Spears & Associates, Inc. / Field Logix Series 31

32 Billions of Pounds Stimulation & Hydraulic Fracturing Annual Proppant Demand Proppant demand is rising throughout the US, but not in this region. Our research points to 6 billion pounds of proppant consumed in 2013, down from 10 billion pounds in 2011, but rising to 7 billion by We are not yet able to accurately evaluate the breakout between sand, resin coated sand and ceramic-type proppants, although we believe that sand represents well over 80% of the material pumped in the region Proppant

33 Number of Wells in Sample Stimulation & Hydraulic Fracturing A wide range of water volumes are pumped in Haynesville and East Texas frac jobs throughout the year. The chart below was developed by evaluating the water amounts pumped in about 50 regional frac jobs. On the left hand side of the chart we see the small frac jobs pumped in shallow vertical wells (typically found in East Texas). Sometimes called bucket fracs, these wells use 5,000 barrels of water and can be pumped 3 per day. But Haynesville and Cotton Valley frac jobs can be bigger much bigger. It is hard to say what the average water volume is for these larger frac jobs, but 175,000 barrels is about in the middle of the pack. This suggests that ~225 million barrels of water are pumped annually in frac jobs in this region Distribution of Barrels of Water Used, Barrels of Water 33

34 Millions Coiled Tubing Services Coiled tubing services are used in three phases of a horizontal well s early days. These phases include: Tubing-Conveyed-Perforating: In order to initiate the first stage of a frac, the so-called toe of the horizontal well must be perforated. TCP guns are lowered to the end of the lateral using coiled tubing. Well Bore Cleanout: Frac jobs that go wrong usually employ coiled tubing to resolve problems downhole. Drill Out Frac Plugs: Using a motor and a simple drill bit, coiled tubing is used to drill out frac plugs and sliding sleeves, cleaning out the wellbore in order to put a new well on production. The chart to the right is heavily influenced by the drill-out process. $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 Annual Coiled Tubing Market CT Svs $462 $284 $250 $266 $281 6% 6% 6% 7% 4% Market Share of Coiled Tubing Service Companies, Haynesville % 2% 2% 2% 9% 9% 20% 11% 1 Key Go Coil Cudd High Capacity IPS Baker Hughes Elite Pioneer CTU Weatherford CTS Coil Red Diamond Gladiator Platinum Precision 34

35 Legal Matters Copyright 2014, Spears and Associates, Inc. All rights reserved. This communication is confidential and is provided to clients of Spears and Associates, Inc. for their lawful use. This communication may not be disclosed, copied or disseminated, in whole or in part, without the prior written permission of Spears and Associates, Inc. The report and its contents are the property of Spears and Associates Inc. and are protected by applicable copyright, trade secret or other intellectual property laws. Disclaimer: This communication is based on information that Spears and Associates, Inc. believes is reliable. However, Spears and Associates, Inc. does not represent or warrant its accuracy, completeness, or any other aspect of this information. The viewpoints and opinions expressed in this report represent the views of Spears and Associates, Inc. as of the date of this report. These viewpoints and opinions may be subject to change without notice. This message should not be considered as a recommendation to buy or sell any securities. In no event shall Spears and Associates, Inc. be liable for incidental or consequential damages associated with reliance on any statement or opinion contained in this report. Important Disclosures: The following analysts were involved in creating or supervising the content of this report: Richard Spears, John Spears, and Kurt Minnich. These analysts certify that the views and opinions expressed in this report accurately reflect their personal views. None of these analysts (or members of their household) has a long or short position in any publicly traded oilfield equipment or service stock. These analysts have not and will not receive direct or indirect compensation in return for expressing specific viewpoints in this report. Spears and Associates, Inc. provides market research services to the petroleum industry, but does not provide investment banking services. From time to time Spears and Associates, Inc. will provide market research consulting services to some of the oilfield service companies mentioned in this report for which the firm is compensated. 35