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North America's Frack Attack Coming Back

The Denver-Julesburg (DJ) and Permian basins, and the Utica Shale, should lead all onshore plays for horizontal fracturing (fracking) this year as drilling and completion (D&C) activity continues to escalate, according to PacWest Consulting Partners LLC.

The Houston-based consultancy last week highlighted findings from its recent PumpingIQ and WellIQ reports to detail the increasing pace it sees in the land markets. PumpingIQ analyzes the global fracking services market, while WellIQ offers a play-by-play forecast of North American rig markets, well completions and fracks for three years into the future.

Everything is looking strong for North America, particularly in the re-emerging onshore plays, said partner Christopher Robart. He discussed the findings during a conference call.

"We forecast strong market growth in the North American market for hydraulic fracturing [fracking] services through 2016 due to robust drilling and completion activity, with frack pricing increases expected through 2015. Tightening market conditions are resulting in supply chain constraints in key growth plays."

Horizontal (HZ) wells fracked in North America are seen increasing 9% this year, with HZ fracked stages up by 19%.

In the U.S. land market, strong growth is expected from the DJ, Permian and Utica, and from continued strong growth in the Eagle Ford, Marcellus and Bakken shales, raising all D&C activity metrics: rig count, well spuds, wells fracked and frack stages. In the Canadian market, strong growth in the Montney and Duvernay plays, in addition to growth in the Cardium and Deep Basin, should drive gains.

The land market continues to trend in the HZ direction only, swamping vertical/directional drilling.

Through 2016, PacWest is predicting that total wells fracked in the United States should increase by 3%/year, driven by an 11%/year increase in HZ wells fracked. Fracking stages "are expected to increase by 15% a year between 2013 and 2016, from 378,000 to 575,000," said Robart.

Two key technical trends are impacting the U.S. land market, said Robart, who pointed to:

  • Shortening stage widths in many developed and mature plays (e.g. Marcellus, Eagle Ford, Bakken); and
  • Increasing lateral length/stages width optimization in many developing plays (Permian, DJ, Utica).

"We expect that the total number of frack stages will increase by 51% between 2013 and 2016, from 377,000 to 574,000 equivalent to 15% a year," Robart said. HZ fracked stages "will increase from 86% of total frack stages in 2013 to 93% in 2016." In addition, multi-well pad penetration is approaching 80% of U.S. land today, he said.

Canada's well spuds also are higher, and should continue to be robust, equivalent to 8%/year growth between 2013 and 2016. Wells fracked in Canada also should increase by 8% every year over the same time period. The shift toward HZ wells likely will result in a 17%/year increase in frack stages through 2016.

Growth in the number of HZ wells fracked has increased in nearly ever Canada play from a year ago, with the Montney and Duvernay formations in the Western Canadian Sedimentary Basin (WCSB) leading the way, Robart said. HZ frack stages now contribute more than 90% of total stages in the WCSB, and in the first half of this year, more than 60% of the wells were drilled on multi-well pads.

Stronger demand will result in tighter oilfield services supplies. "Constraints in the availability of frack sand, and the logistics capacity to transport the frack sand, are leading to cost escalation and work delays," Robart said.

PacWest Managing Partner Nilesh Dayal said the rapidly tightening market conditions already are resulting in price increases for many producers. "After more than three years of pricing pressure in the frack market, the dam has finally broken for pricing, and service providers are finally having success in negotiating higher pricing."

Market conditions are driving price increases, but costs recovery on key consumables, including sand and chemicals, are a big part of the escalation. North American frack sand demand is expected to increase by nearly 30% in 2014, compared with 2013, resulting in logistics constraints for both rail and trucking capacity, and price increases across the sand value chain.

Not all pumpers consistently are benefiting from price increases. "There has been wide variance in price increases across pumpers/customers, with some reporting price increases as high as 20% in key growth plays where market conditions are most tight," Robart said. "However, price negotiations will continue to be on-going and in many cases higher prices will not be implemented until late 2014."

Given the evolving demand landscape and operational requirements, including aging fleets, continuous pumping operations, and increased refurbishment activity, PacWest has begun analyzing the frack market in terms of marketed capacity and effective utilization. Its analysis revealed that utilization quickly is improving, and estimated that raw utilization is 84% in 3Q2014, while effective utilization is 90%, with higher rates in key growth plays.

In response to increased demand, pumpers have upgraded 2014 newbuild programs and have begun committing to sizable 2015 newbuild programs, with 1.4 million hydraulic hp (hhp) in net capacity additions estimated for 2014 and 1.6 million hhp in 2015, according to PacWest.

"While capacity additions may allow some pumpers to secure more work, it will be supply chain execution and delivery that will make or break their bottom lines," Dayal said.

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