Well Stimulation is carried out to increase production by improving the movement of hydrocarbons into the well bore. In addition, drilling and completion fluids sometimes damage the formation by blocking the pores in the reservoir, thus preventing flow of hydrocarbons to the well. Matrix acidization and hydraulic fracturing are two main types of well stimulation.
- Matrix acidization is a process of injecting acid and chemicals into the wellbore, penetrating the formation pores at pressures below fracture pressure. The key benefit of it is it brings back the original permeability of the reservoir rock. During pumping, acids break up the deposits and / or any solid particles within the pores that prevent hydrocarbons to freely flow towards the wellbore. It also removes any damage around the wellbore, that in turn increases productivity.
- Hydraulic fracturing is a process of pumping water, sand and chemicals underground, to have enough pressure to break the rock. It is mainly used in formations that have lower ability to transit fluids (aka permeability).
Placement of acid in the reservoir is of very high importance. There are number of tools and techniques available to achieve the right balance of pumping rate and acid placement. Application of such tools and techniques may vary from field to field. Placing fractures in the right place in deviated and horizontal wellbores with non-mechanical isolation tools is key. Generally, a jetting tool deployed on the coiled tubing, is used in order to place the acid in the right spot in the reservoir, which is more efficient that pumping from the surface.
A specialized vessel is required to conduct well stimulation offshore. Coupled with challenges in offshore application, 24hr operation and technical requirements, offshore well stimulation becomes a very well planned and thought-over process. There are a number of constraints that should be considered and planed in advance, such as vessel tanks and storage capacity, manning capacity to accommodate the required crew, pumping capacity and sailing time to refill the supply.
In general, well stimulation offshore requires larger pumping volumes than onshore. On some occasions, when a long horizontal well requires stimulation, 2 or 3 vessels might be required to provide continuous pumping operation without any interruption. In addition, blending rates, horse power and gearbox of the pumps on board the vessel play one of the vital roles in providing uninterrupted pumping.
Risks & Opportunities
Combining well stimulation with other services, such as coiled tubing, as deployment methods is always advisable, unless the coiled tubing units are owned by the operator.
Supply & Demand Dynamics
Demand for stimulation services is growing worldwide as a direct result of steady growth in well intervention activities, due to continuous efforts on maintaining and maximizing production within existing oilfields. In parallel to that, the number of aging wells is increasing, thus making well stimulation a high growing segment.
According to Markets& Markets well intervention market worldwide is estimated to achieve almost $20B, by 2019, which represent a yearly growth of almost 12%. The report also identifies top 3 segments, of which well stimulation is a part, constituting nearly half of the yearly revenues worldwide.
Well Intervention market in 2014, stood at circa $11B, with well stimulation being between US$ 1.5B to US$2B. Although, Middle East is considered to be the market with one of the highest penetration rates for well intervention, both onshore and offshore, the market share is still the lowest and well stimulation and account for less than $100m per year. However, as new projects to enhance mature fields progress, the demand for well stimulation will follow the pattern as well.
With brownfield projects to maintain production dominating the investment climate will mean more well stimulation. Yet, well stimulation is not entirely driven by old wells and oil-wells where the water cut (quantities of producer water) during production is low, will dominate the scene. Stimulating a well to produce more water than oil is irrational and not economic.
Due to the relatively low entry barriers this segment is very competitive with a large amount of players, of various sizes, fragmented around the world and across the value chain. Almost all the equipment and chemicals used in well stimulation are sourced from third parties who do not provide stimulation services directly.
The GCC market is composed of national/domestic service providers and international players, with the former being dominant. Most of the domestic companies are heavily focused on local markets and seldom venture out of the home country, even on a regional basis.
For wells with carbonate reservoirs and long horizontal wells, acid placement, high volumes and pumping rates are vital. Tank, pumping and trucking capacities are therefore also important.
New Entrants is Medium
- Equipment manufactured by 3rd party
- Low CAPEX & Leased equipment
- Commodity materials
- Local company policies
Power of Suppliers
- Plenty of suppliers
- Callout market
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- High Competition
- High growth category
- Equipment and chemicals available to many players
Buyer Power is High
- Spend for suppliers is significant
- Can offer long term visibility
- Limited number of buyers
- Doers not exist
Cost & Price Analysis
As a result of the shale revolution in North America, the demand for chemicals utilized in well stimulation grew significantly, however, without a corresponding supply capacity increase. This, in turn, created an undersupplied market, which drove up prices. When the supply picked up, prices stabilized and with the oil price slump, an oversupply of chemicals is imminent. These supply and demand swings introduce price volatility for the chemicals used in well stimulation.
Trucking and storage/tanking capacities, being key parts of the services, are driven by pure supply and demand fundamentals. Hence, unless owned by a service company, the prices of this equipment are volatile and depend on many other industries outside of the oil and gas industry.
Price dynamics of coiled tubing equipment as a deployment method are relatively stable and are discussed in detail in the relevant section.
The overwhelming majority of the equipment is manufactured by third parties. Service providers build up their fleet based on their requirements. There may also be cases when the trucking and storage/tanking capacities, being the most CAPEX intensive asset, will be outsourced on a rental basis. In addition, the chemicals used in well intervention are produced by major chemicals' suppliers.
This category is a relatively high fixed cost segment; hence, sustained revenue generation for contractors is of the utmost importance. Key cost drivers are:
- Acquisition cost. This is one of the biggest costs for service companies. The average price of a complete stimulation equipment package is between US$1m and US$8m.
- Maintenance costs. Maintenance costs are highly driven by the type of chemicals. A corrosive nature of the stimulation chemicals greatly reduces the working life of equipment. Apart from this, maintenance is geared towards routine and preventative programmes.
- Personnel costs. Key operational personnel are usually provided by a service company. Due to the call out nature of the services, employment patterns are mixed between permanent staff and a pool of temporary personnel. Over the last 3 years, personnel costs exhibited a significant downward trend due to indsutry downturn, ample supply of personnel and the nature of the relatively low-skill job for some positions.
- Chemicals costs. The majority of chemicals used in well stimulation are highly commoditized. Both, matrix acidization and acid fracking use large quantities of hydrochloric acid (high concentration HCI), together with water and a variety of other chemicals, including gels, proppants and other agents and additives. 75% of the demand for HCl is driven by companies outside of the oil industry, such as PVC and polyurethane production, and around 25% is made available for swimming pool disinfection, steel pickling, the food industry and others. If no supply capacity is created, prices for HCI can be volatile and may witness an increase when activities pick up. Another major cost contributor is the logistics of the HCI, which can be costly and inefficient, as it is concentrated in water when transported. Locating a closer source of HCI would thus be beneficial.
Total Cost of Ownership
- Equipment pumping rates, storage capacity and blending rates are important considerations. Not only higher rates might be a technical requirement, but in some instances a job can be done faster, hence saving on day rates.
- Cost of diesel for trucks
- Charging mechanism for deployment tools (coiled tubing) and jetting tools
- Nationalize and develop more local vendors
- Produce chemicals domestically
- Nationalize and develop more local vendors
- Produce chemicals domestically