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Houston-based Keane Group Inc. has newbuild orders underway to add 150,000 hydraulic hp (hhp), nearly all destined for the Permian Basin, representing three more fracture fleets.
The onshore fracture specialist currently owns 1.2 million hhp and has 31 wireline trucks.
“Supply and demand fundamentals for U.S. oil and gas well completions remain highly constructive for quality completions service providers,” said CEO James Stewart. “Favorable conditions have continued to improve throughout the year, and robust 2018 capital budgets announced by producers in recent weeks have amplified and validated the growing demand for our services, which remains in excess of supply.
“This visibility, coupled with additional pricing improvements, provide the firmness of demand and favorable economics we require to deploy newbuild capital and further our growth trajectory.”
Nearly all of Keane’s previously idled horsepower was deployed this year, and in partnership with its largest, “most efficient” customers, “we are well positioned to preemptively extend our growth and capitalize on a tightening supply chain,” Stewart said.
Three additional Tier 4 fracture fleets and wireline trucks are on order, all to be deployed in the Permian Basin in response to strong demand.
“Once delivered, these additional fleets will increase our total hydraulic horsepower to more than 1.3 million hhp,” with nearly 800,000 hhp in the Permian concentrated in the Delaware sub-basin,” said the CEO.
“Improving market signals throughout 2017 have resulted in customer discussions regarding committed newbuild fleets with pricing that now satisfies our margin requirements and capital return thresholds,” said CFO Greg Powell.
Keane now is in “advanced discussions with both existing and new customers and expect to execute dedicated agreements for the new fleets by the end of the first quarter of 2018,” Powell said.
“Further, our established relationships with component and assembly providers have allowed us to optimize newbuild cost and secure beneficial delivery dates, with two fleets expected to be delivered and deployed by the end of the second quarter of 2018, and a third by the end of the third quarter of 2018.”
The newbuilds initially should generate annualized adjusted gross profit of more than $20 million/fleet, he said.
Total capital expenditures for the three fleets are estimated at $115 million, or $770/hhp, which would be funded by cash on hand and expected cash flow from operating activities. About 20% of the cost would be due on signing with the balance due upon delivery.
“This favorable price per hydraulic horsepower is driven by our established supplier relationships, timing of orders, as well as technological advancements to optimize our wellsite footprint,” Powell said. “We expect that growth from these newbuilds, in addition to the profitability for our existing 26 fleets, will generate attractive cash flow in 2018.”
Keane, said the CFO, remains committed “to assessing all potential opportunities to maximize shareholder value over the near and long-term, including organic growth, acquisitions, capital return and debt repayment.”
Keane is considered one of the largest pure-play providers of integrated well completion services in the United States. Its primary service offerings include horizontal and vertical fracturing, wireline perforation and logging, engineered solutions and cementing. , as well as other value-added service offerings.