Fracturing/pressure pumping

ProFrac Makes a Bet on Electric Fracturing Fleets

Another day, another deal for ProFrac.

An electric-powered hydraulic fracturing fleet in 2014 in West Virginia.
An electric-powered hydraulic fracturing fleet in 2014 in West Virginia.
Source: U.S. Well Services.

ProFrac has agreed to buy U.S. Well Services in a deal that it said will make it the biggest owner of electric-powered fracturing fleets.

This is the second acquisition this week for the publicly traded company, which has grown rapidly through acquisitions over the past year.

This deal will make ProFrac the second largest owner of fracturing fleets in the country and the third largest based on revenues, according to Richard Spears, vice president for Spears Associates. It is one of three companies in a pack chasing Halliburton.

“This will not be the last of the frac service provider consolidations. I predict that, by the end of the year, Halliburton is no longer the largest frac service company in North America. It may not even be No. 2,” Spears said.

U.S. Wells’ depressed shares jumped 27% on the news, closing up $0.99 and reducing the value of the ProFrac stock by more than 10%. That means the deal offering 0.0561 shares of ProFrac Class A common stock for each share of U.S. Wells was worth $1.08 per U.S. Wells common share as of late Wednesday.

Based on the total number of common shares, according to Yahoo Finance, the price would be a bit more than $83 million. U.S. Wells also comes with $281 million in debt.

This comes a day after the company announced it is buying SP Silica, a Permian sand company based in Monahans, Texas, and SP Silica Sales, subsidiaries of Signal Peak Silica, for $90 million. While sand prices are up on tight supplies, growth is likely to require investments to increase capacity in an industry where years of depressed prices led to a lot of deferred maintenance.

ProfFrac is controlled by the Wilks family, which is getting back into fracturing more than 10 years after selling its stake in its first pressure-pumping company for more than $3.5 billion.

The acquisition of U.S. Wells saves ProFrac money in two ways. $35 million will be saved by consolidating two operations, and it eliminates the $22.5 million in management fees ProFrac would have owed U.S. Wells.

The combined company will have 44 frac fleets after the deal, including 12 electric-powered ones, which ProFrac said will give it the largest electric-powered fleet.

It will also have 13 dual-fueled Tier 4 fleets able to run on natural gas or diesel and that meet the toughest US standard for diesel emissions.

In late May, U.S. Wells announced a contract with a “larger operator” to build a new fleet, adding to the four fleets it owns.

At the time, the company’s CEO, Kyle O’Neill, said the agreement was “evidence of the strength of demand for electric pressure-pumping fleets.”

Growth in the pressuring pumping sector will need to be by acquisition because the industry “has very little incentive or ability to materially expand its fleet of high-spec equipment,” Spears said.

“To me, the big prize with USWS was not just getting a significant fleet of electric frac equipment but to eliminate a huge ProFrac licensing fee cost and to move USWS per fleet quarterly revenue from today’s $10 million to the ProFrac average of about $15 million,” Spears said.

Big oil and gas companies looking for ways to reduce emissions, particularly of carbon dioxide, have been talking up electric, but they are facing a hard limit on the benefits.

“The technology is there, but the infrastructure is not,” said Mark Berg, executive vice president for Pioneer Natural Resources, during a panel discussion at the SPE/AAPG/SEG Unconventional Resources Technology Conference on 20 June.

The problem is finding the electric power to run those fleets in remote places, including many in the Permian where the grid is sparse and power must be generated on site.

“It defeats the purpose to power an electric frac fleet with a diesel generator,” Berg said.