The decade-long romance between horizontal drilling and hydraulic fracturing (fracking) shows no signs of burning out, much to the delight of the parents -- onshore oilfield services companies -- according to a compilation of industry data.

Specifically, the pressure pumping segment of the oilfield services market, which includes fracking, cementing and sand control, likely will surpass offshore drilling to become the largest segment in the world by the end of 2012, said Richard Spears of Spears & Associates Inc. He shared insight from the firm's latest report in a recent conference call hosted by Canaccord Genuity.

"Since last summer, in every quarter it's been shown that we have to raise the pressure pumping bar. The market is growing much faster than even my wildest imagination could forecast," Spears said. "2011 has turned out to be one of the most amazing years pressure pumping service companies have had in history; it's been a remarkable year."

An estimated 1,000 horizontal wells a year were drilled "through the natural gas unconventional shale boom in 2006, 2007 and 2008, and eventually peaked at 2008," Spears said. The economic collapse of 2009 sent tremors through the oilfield market, but by 2010 "it immediately began to climb again. In 2011 we are back essentially on a drilling record, with the United States matching 2008."

The benefits of horizontal drilling have made believers out of everyone. The technique, combined with fracking, took off at a rapid pace in 2003 and has steadily grown, noted Spears. The market "exploded to 12,000 horizontal wells last year, 16,000 this year and 19,000 next year...Some of those wells are natural gas, some are oil and gas liquids..."

Onshore drilling has climbed "by a growth factor of three times running in a very, very short period of time."

Gas drilling may have lost its luster with the slide in prices and an abundant supply, a switch to multi-pad drilling and more efficiencies has prevented a complete collapse, Spears said.

"If you are no longer drilling natural gas wells by the thousands, there's not a lot of need to ramp up contracts in pressure pumping services," he said. However, "in the last several years producers have switched from drilling one well at a time to drilling 500 to develop a field. They went away from putting compression at the well site to centralized gas systems for compression."

As Spears explained, "that's one of the things going on here. They are not drilling as many [single] gas wells but they are drilling hundreds to centralize compression."

Pricing at the field level, including frack-related services, have been increasing about 3-5% a quarter and probably will continue to escalate, he said. Many unconventional basins are undergoing "true field development," which requires a lot of services in a smaller amount of space.

"We've gone from one frack job at a time to 100 at a time. The fracking pricing drops, but [the service providers] get to sell three stages instead of one...I don't see anything that tells me that any of the fracking companies will see any declining sales over the next four quarters, except maybe in Canada."

What's driving the North American onshore market are higher oil prices, combined with the successful transfer of unconventional drilling technology to the oilfields.

"I believe the oil price outlook will be somewhere north of $85/bbl in 2012, which is realistic and fairly easy to assume," he said. "In fact, we may be a bit conservative. Pressure pumping will be the No. 1 driver of all growth in the oilfield service equipment sector, the driver of most land-based services going forward."

The only way the growth could be suppressed, he said, would be if exploration and production (E&P) companies were to materially shift their spending plans, which likely would require a sustained drop in oil prices below $80.

The oilfield services market is rocking, but none more than in fracking services, which are "by far the largest piece" of the pressure pumping segment, capturing 70% of the total, said Spears. "Of that...the largest portion is in North America, which is about 85%."

Some may believe the United States doesn't manufacture much anymore, but it can manufacture oil and gas. Observers need only look at the oilfield services business, Spears said.

Market watchers "follow the number of horizontal wells in the United States because the number of horizontal wells has an impact on oilfield demand and services" in the world. "The U.S. has the greatest impact on demand growth or shrinkage year after year."

In the long-ago days before fracking and horizontals became a duo, energy analysts zeroed in on the drilling rig count. No more, Spears said.

"Prior, it was drilling rigs, if you looked at the wells drilled in the United States...but...the U.S. drilling rig count has around 1,800 drilling rigs" working on both vertical and horizontal wells. Today, many producers "are going back into existing wells, making the laterals longer." With so many older, formerly completed wells getting a once-over, the rig count may be a misleading indicator.

As an example, he pointed to the uptick in oil well drilling in the U.S. onshore. In 3Q2009 about 3,000 oil wells were drilled, versus 9,000 in 3Q2011.

Better-than-expected results in 3Q2011 by most of the publicly traded oilfield service operators led Spears' firm to reexamine industry data to determine how strong the unconventional drilling segment had become. Vertical wells still are being drilled, but they've been nearly eclipsed by horizontals.

What Spears found was that horizontal drilling now is in "lockstep" with horsepower capacity, which shows up in some of the growing uncompleted well count. "It's a very simple rudimentary analysis, but it suggests that there is a shortage situation for horsepower," he said.

"By the end of this year close to 16,000 horizontal wells will have been drilled in the United States, and that number could reach 19,000 by the end of 2012," said the consultant.

Many E&Ps, using the gains from drilling manufacturing, have made capital investments in oilfield equipment, including Chesapeake Energy Corp. The E&P has done well enough in fact to make plans to spin off its new oilfield unit in 2012, according to CEO Aubrey McClendon.

Chesapeake Oilfield Services LLC (COS) was created in September with a goal to become a top-five U.S.-focused provider (see Shale Daily, Sept. 20). COS may be worth as much as $10 billion in 2012, said McClendon.

It looks to be a good business to start. Based on data compiled by Spears from engineering firms in 14 basins across North America, oilfield service prices rose 3.5-5% in 3Q2011 and "leading edge" prices are continuing to rise.

"The oilfield is converting from science fair to manufacturing, with E&P customers able to buy frack jobs in larger quantities, effectively decreasing per-stage frack costs," said Canaccord's Scott Burk. "However, the per-stage pricing decline is offset by increased volumes per day, as pumping companies are able to sell more guaranteed stages in a given day."

At the end of this year about 14 million hp will be available for frack operations, with 4 million hp of new pumping capacity entering the market in 2012. It still won't be enough to satisfy the cravings of onshore drillers, Spears said.