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Sharp Decline Forecast For Horizontal Drilling, Frack Demand Due to Falling Oil Prices

Service providers and equipment manufacturers haven't seen a big market change yet on lower oil prices, but it's coming, and with it, a much lower forecast for North American horizontal drilling and hydraulic fracturing (fracking) in 2015, PacWest Consulting Partners LLC said Thursday.

The forecasts have been revised to the downside since Thanksgiving on the sharp drop in crude oil pricing, which in turn is going to sharply impact drilling and completion (D&C) activity and for fracking services, the IHS Inc. subsidiary said. In September PacWest was forecasting that fracking and D&C activity to continue to escalate (see Shale Daily, Sept. 3).

In the revised scenario, a 12% decline is expected in the number of horizontal wells fracked in the U.S. land market. An 8% drop is forecast in frack demand.

"The frack industry is preparing for a tough 2015," said project lead Ryan Carbrey. "Many service providers have just begun to see improvements in pricing and margins. This downturn will drive a focus on improving efficiencies and cost containment. Additional industry consolidation is also expected."

Last month Halliburton Co. and Baker Hughes Inc. agreed to combine in a $34.6 billion deal, one of the largest ever in the oilfield service (OFS) industry (see Shale Daily, Nov. 17).

"Despite the imminent downturn, equipment delivery books still appear strong for 2015, particularly for the first half of the year," PacWest said.

In its base case scenario, PacWest expected 1.4 million hp net capacity additions to be delivered into the U.S. Land market next year, representing an 8% jump in fracking capacity from 2014. In the revised downside scenario, it expects only a "moderate" reduction in net capacity additions to 1.1 million hp from 1.4 million hp.

"In this scenario, PacWest expects some first half 2015 orders to be delayed to second half 2015 and 2016, and some orders to be cancelled."

Declining fracking demand and increasing capacity should lead to falling utilization in the coming year, which should create challenging market conditions "for many service providers and equipment manufacturers," PacWest said.

Schlumberger Ltd., the largest global OFS provider, already is seeing a downturn in the market from lower oil prices. Patrick Schorn, president of operations and integration, discussed the downturn at the Cowen and Co. 4th Annual Ultimate Energy Conference in New York City.

"Lower commodity prices have brought a distinct lack of short-term visibility, but one thing that has become immediately apparent, however, is a very strong focus from our customers on short-term cost cutting," Schorn told the audience.

In response to "anticipated lower growth" in exploration and production spending next year, Schlumberger is reducing its workforce. "This will enable us to enter 2015 with the right size to match activity as we begin to realize benefits of the transformation program," begun last year to streamline operations.

Schlumberger has "limited visibility of customer budgets, and we now expect year-end purchases of products, software and multi-client seismic licenses to be less than we indicated at the end of the third quarter," Schorn said. "Partly as a result of this, we now expect overall revenue for the quarter to be roughly flat sequentially."

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