The three biggest pressure pumping providers serving U.S. operators -- Halliburton Co., Schlumberger Ltd. and Baker Hughes Inc. -- are facing a class action antitrust lawsuit over alleged price manipulation, which comes two weeks after the U.S. Department of Justice (DOJ) launched an investigation.
Baker and Halliburton in filings last month indicated that they had received civil investigation demands (CID) from the DOJ to provide documents and information on their pressure pumping businesses (see Shale Daily, July 26). Schlumberger, headquartered in Paris, has not indicated if it also has received a CID.
Texas-based Cherry Canyon Resources LP last Wednesday filed the lawsuit in U.S. District Court for the Southern District of Texas (Cherry Canyon Resources LP v Halliburton Co. et al, No. 2:13-cv-00238). The limited partnership is controlled through Purdy Energy LLC by Texas ranchers Mark and Caroline Forgason of Hungerford, TX.
Halliburton, based in Houston, is the largest provider of pressure pumping services in the United States, with an estimated 26% market share. Schlumberger, the second largest hydraulic fracturing (fracking) provider, has an estimated 19% share, while Houston's Baker and subsidiaries control around 13%. However, the lawsuit notes, the defendants "are the only companies that provide full-service operations in all regions of the United States."
"By use of capacity restrictions and other means, defendants, which combined control nearly 60% of the market and constitute 100% of the market participants providing full-service operations nationwide, have enabled themselves to overcharge, and actually overcharge, persons or entities that purchased fracking pressure pumping services in the United States from at least May 29, 2011 through the present..."
The operators and "potentially others...colluded to restrict and manipulate supply in order to increase prices and market share toward their pre-entry 'boom year' levels," the lawsuit indicates. "They succeeded. Despite the continued presence of numerous smaller additional service providers, defendants' prices and market shares have increased -- both individually and collectively."
Following a period of falling prices in 2008-2009, "prices for fracking pressure pumping services turned around in 2010," notes the lawsuit. "Indeed, demand and prices were soaring as demand far outstripped supply prior to and during the early part of the class period in 2011. The rising demand and prices drew new entrants to the pressure pumping services market.
"While the new entrants could not offer the breadth of services or geographic reach to compete with the [defendants], the new entrants in the market, the independents, caused a temporary oversupply of fracking pressure pumping services. This temporary 'disruption' of the market (from the defendants' perspective) led to a modest decrease in prices and a modest decrease in defendants' market shares..."