Denver-based Liberty Oilfield Services Inc., which provides completions services across North America’s onshore, saw headwinds begin to strengthen midway through the third quarter, with the usual year-end slowdown by customers beginning earlier than usual.

CEO Chris Wright and his team discussed the slowing demand for hydraulic fracturing (fracking) during a conference call to discuss quarterly results.

“The slowing pace of frack activity in the second half of 2019 is leading to a further reduction of demand for frack fleets, resulting in pricing pressure on services,” Wright said. “We expect that the industry slowdown in fourth quarter completions may be more severe this year than it was last year as operators face capital constraints and manage completions to fixed capital expenditure budgets.”

Efficiency gains have proved somewhat of a balm, he told analysts.

“I would say we’re definitely coming into a period of diminishing returns,” with the “low hanging fruit” of less efficient fleets on their way out. “I think we’ll see good growth in efficiency from here going forward. It’s certainly at a significantly slower rate than it’s been in the past few years,” but “you’ve got a leaner number of fleets running that are higher quality. You’ve got customers that are almost across the board now more focused on efficiency and throughput.

“I would say our throughput in the Permian Basin is outstanding; In fact, it is probably the highest of any basin we have today…I think you’ll see Liberty get a little better, but I don’t think you’ll see the huge increases in average frack efficiency the next two years, that you’ve seen in the last two years.”

Over the first nine months of this year, Liberty pumped the same volume of sand that it did for all of 2018. Total industry stages in North America are projected to be up only marginally year/year.

“However, efficiency gains across the industry have raised the number of frack stages completed by each fleet by 10-20%, which implies a 10 or so decrease in the required active frack fleets,” Wright said.

Still, there are gaps in the completion schedules, which have negatively impacted fleet use, and Liberty has no plans to expand. “We are seeing a reduction in the supply of staffed frack fleets in the market and even announcements about a permanent retirement of older equipment,” he noted.

No. 1 Lower 48 pressure pumper Halliburton Co. is stacking fracking equipment. Patterson-UTI Inc. has begun idling fracking spreads in the U.S. onshore and evaluating the economics of working versus shutting down more equipment through the end of the year as customers drop rigs. Patterson-UTI ended the third quarter with 14 active spreads, and it idled another early in the fourth quarter.

Stacking equipment is helpful, Wright said, “but there continues to be an oversupply of frack fleets in the market, which is holding down pricing. We would not expect pricing to improve until supply of actively staffed frack equipment better balances with demand.”

Liberty management is predicting U.S. oil production may “plateau in early 2020,” because of the declining rig count, “which could help tighten oil markets and provide upward bias on oil prices.

“While timing is uncertain, we appear to be making progress towards a healthier U.S. oil and gas industry as supply of frack fleets…are both facing significant downward pressure,” Wright said. “As I said last quarter, the cure is two-fold: more disciplined investing and time…Short-market cycles can present unique opportunities as well as challenges.”

Net income fell to $19 million (15 cents/share) in 3Q2019 from year-ago profits of $66 million (50 cents). Revenue decreased to $515 million from $559 million and was off 5% sequentially.