Like other segments of the oilfield services industry, the US onshore pressure pumping space looks very different compared with a couple of years ago.
Decreased demand during the downturn forced some pumpers out of business and spurred consolidation, resulting in high personnel turnover in the field. Meanwhile, exploration and production (E&P) companies are drilling longer laterals faster and expecting similar efficiencies from pressure pumpers. Hoping to get the absolute most out of their wells, operators are intensifying completions by using more stages, water, and frac sand.
Now, with oil prices higher, E&Ps more focused on cash flow, and a growing count of wells awaiting completion, demand for pressure pumping is increasing fast, creating a race for horsepower among a leaner group of opportunistic firms hoping to gain market share. This includes the rise of large integrated, pure-play, and regional pressure pumpers and less use of integrated well services that include a full suite of completions work.
Market research firm Energent, part of research and consultancy Westwood Global Energy Group, estimates that US onshore pressure pumping horsepower during the first quarter totaled 17 million with a utilization rate of 83%, and it expects an additional 3.5 million hp to come online this year—primarily newbuilds—with many more currently being ordered. For comparison, total horsepower in the first quarter of 2015 was just less than 12 million with 61% utilization, according to Energent data. Much of the unused horsepower that was able to be refurbished has been redeployed.
Given expected lead time in delivery of new equipment, a surge of fleets is expected to be deployed by late summer, assuming oil prices hold in the mid-$60/bbl and demand remains strong, said Todd Bush, Energent Group vice president, commercial, North America research.
“We know of several companies that are already adding pumps and making larger orders for fluid ends and power ends,” which will most likely be filled in by late summer, he said. Transmissions and fluid ends have had longer backlogs compared with late last year. There also have been bottlenecks for pumps. But Bush expects manufacturers in those areas, especially for pumps, “to be pretty aggressive coming back for all the pressure pumpers to be able meet their E&P demands.”
Alex Yang, senior analyst of shale research at consulting service Rystad Energy, has observed that many equipment manufacturers now “are at capacity doing refurbishments rather than newbuilds.” He noted that “a lot of the cold-stacked equipment was cannibalized or not maintained correctly while in the yard” after demand plunged during the downturn.
“Still, it’s cheaper now to refurbish that equipment than it is to buy new equipment—with the exception of equipment originally built before 2008,” because, with that older equipment, “the trailers are smaller and can’t support modern setups with 2,500‑hp engines and 2,000‑hp pumps,” he said. “Newer units, as in equipment built around 2010–2014, can fit new engines and pumps, but older ones are often simply not big enough.”
Adding upward pressure on costs is a requirement from the US Environmental Protection Agency that all new pump truck orders this year come with Tier 4 diesel engines, meaning demand for those engines—like pumpers as a whole—is high with some deliveries facing delays.
“Each additional truck gets more and more expensive, which is driving newbuilds, which are 15% more expensive this year due to Tier 4 engines,” said Richard Spears, vice president of petroleum equipment and service consultancy Spears & Associates.
Rystad expects pressure pumping spot prices to increase 10–25% through the second quarter as utilization rates rise.
The bulk of demand growth and deployment of new horsepower is taking place in the Permian Basin, where some 800 E&Ps, 25 pressure pumpers, and 30 frac sand producers preside over an inventory of 2,430 drilled-but-uncompleted wells, Energent estimates. Bush expects most of the new frac spreads to be deployed in the Permian’s Delaware Basin specifically.
Halliburton Still King
Jeff Miller, Halliburton chief executive officer, said during the company’s January earnings call that it believed the US onshore pressure pumping market at the time was undersupplied by around 1.5 million hp due to “degradation on equipment and the intensity growing around completions.”
Already the US leader in horsepower deployed, Halliburton has undergone “a massive expansion of its capacity over the past year,” Rystad said in a press release. The analytics firm’s separate estimates show the oilfield services company has added 700,000 hp since the first quarter of 2017 to surpass 4 million hp. “Halliburton’s recent additions make their fleet 1.6-million-hp larger than their closest rival Schlumberger,” which itself is adding 1 million hp after its acquisition of Weatherford’s fleet, according to Rystad.
While Halliburton is gaining even bigger market share, BJ Services has also been “very aggressive” in activating fleets, Bush said, rising from 900,000 hp in the first quarter of 2017 to 1.6 million hp in the first quarter of 2018, with further growth expected through the end of the year. Patterson UTI reported that it reached 1.25 million hp at yearend 2017, FTS International said it will hit 1.7 million hp this year, and RPC said it notched 925,000 hp at yearend 2017.
Jim Landers, RPC vice president of corporate finance, said earlier this year that his firm believes “Tier 4 equipment will cost 10% to 15% more than the Tier 2 equipment.” He added, “We think people got in a lot of orders before the Tier 4 regulations came into effect,” and “people are kind of standing back, maybe waiting for other people to test the new equipment.”
Other companies to watch, Bush said, include the more agile pure-play pressure pumpers that are “very well-regarded when it comes to service, technology, and the science” such as ProPetro and Liberty Oilfield Services.
ProPetro, which is solely focused on the Permian with a strong presence in the Midland Basin, expects to ramp up to 905,000 hp by the end of the third quarter after adding two newbuild fleets and upgrading its legacy fleet. During its yearend 2017 earnings call in March, the company boasted savings through last year’s purchase of 86 Tier 2 engines and a transition from carbon steel to stainless steel fluid ends.
Dale Redman, ProPetro chief executive officer, said he has observed that lead time for newbuilds with Tier 4 engines is “probably in the neighborhood of 7 months to 8 months. And the cost of that would probably escalate to somewhere, for a 45,000-hp fleet, [to] $34 million to $35 million.”
Liberty, which nearly doubled its fleet last year by expanding its Permian presence and by entering the Eagle Ford, is nearing 1 million hp and expects to end 2018 with 1.2 million hp. Chris Wright, Liberty chief executive officer, noted there’s “still more demand than supply” for frac services, and pricing is slowly continuing “to drift upwards.”
Meanwhile, Keane Group has grown through a series of acquisitions over the last few years and is “aggressively adding crews in the Permian and the Rockies,” Bush said, going from 730,000 hp in the first quarter of 2017 to just less than 1.2 million hp in this year’s first quarter. It’s ramping up to 1.4 million hp this year.
In Appalachia, home of the Marcellus and Utica, “we’ve seen a couple of changes there over time with Halliburton losing a little bit of market share to Keane and a private company, US Well Services,” Bush said. Halliburton, Liberty, and Calfrac remain dominant in the Niobrara, while many more pressure pumpers are in the mix in Oklahoma, where activity has ramped up in the SCOOP, STACK, and Merge plays.