Pressure pumpers in the Lower 48 struggled through 2019, with hydraulic horsepower (hhp) demand falling about 10% sequentially in the final quarter, according to estimates by IHS Markit.
The consultancy said demand in 4Q2019 fell to about 13.2 million hhp, with most of the decline blamed on lack of hydraulic fracturing activity in the Marcellus Shale, with an estimated drop of around 450,000 hhp.
The “only silver lining for suppliers is that no such large changes are anticipated for the next few quarters,” principal research analyst Jesus Ozuna and his team said.
The more significant story, however, has been falling supply, as pressure pumpers continue to stack fleets, scrap aging equipment and write off large portions of their fleets.
For the third quarter, Schlumberger Ltd., the world’s largest oilfield services operator, recorded a $1.6 billion writedown for its North American fracturing business, which is within its OneStim umbrella.
“As we exited the quarter, OneStim activity decelerated as fracture programs were either deferred or canceled due to customer budget and cash flow constraints,” Schlumberger CEO Olivier Le Peuch said in October.
IHS Markit estimated that Schlumberger is writing down around $1.3 billion in pressure pumping equipment in 4Q2019, “and given no anticipation of improving market conditions, 2020 could see similar actions taken by other suppliers.”
Lower 48 wellsite specialist Basic Energy Services Inc. in mid-December said it was selling its pressure pumping services assets to bolster core production-focused well servicing and water logistics businesses.
Pressure pumping expert ProPetro Holding Corp. deployed 25.1 fleets in the Lower 48 during the third quarter, but utilization in the final three months was expected to decline to 18-20 because of “customer budget exhaustion, seasonality and overall softening industry demand,” CEO Dale Redman said in the 3Q2019 conference call.
“These actions are all a symptom of the high number of suppliers in the market, where differentiation of services continues to be a challenge given the fragmented competitive landscape,” said Ozuna. “At this point, pumping horsepower is essentially commoditized, and as a result services continue to be fungible only to the extent that providers are willing to race each other to the bottom on price.”
During 2020, changes in fracturing supply “could drive prices upwards if more equipment providers exit the market, however a significant challenge will be managing the pricing expectations of operators moving forward. Keeping in mind the current, bearish industry sentiment, our conversations with some operators lead us to believe they are expecting material price concessions off-the-bat from suppliers for them just to have the hope of sticking around for the year.”
The lone exception has been in electric-powered fracturing (fracking) fleets, aka e-fleets. While still a small piece of the overall market, “the buzz these services seems to be generating with operators points to them taking a larger piece of the pie in the future,” Ozuna said.
The oilfield services sector may not want to invest millions to establish e-fleets as a lot of conventional HHP is on the sidelines, “but the operators looking for this type of equipment don’t care for excuses, they just want access.”
Established e-fleet operators are securing intellectual property to close off entry to more players, and they are not building out fleets without long-term contracts.
“This strategy is in hopes of avoiding the mistakes made over several boom-and-bust cycles by traditional fracking companies,” Ozuna said. “From our vantage point, if anyone has any strength in the fracking market, it’s these suppliers.”
The “traditional” HHP operators may have to leverage other factors to stand out, such as their safety records and customer relationships.
“The sense of urgency hanging over them is real: overall utilization was 55% for 4Q2019, so the financial fuse is lit, and cash is burning quickly due to idled crews.”
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