The downturn in shale drilling has been so steep and brisk that oilfield corporations are taking the unprecedented step of scrapping total fleets of fracing gear.
With virtually half of U.S. frac firepower anticipated to be sitting idle inside weeks, shale specialists together with Patterson-UTI Energy Inc. and RPC Inc. are retiring truck-mounted pumping items and different tools used to shatter oil-soaked shale rock. Whereas in earlier market slumps, fracers parked unused tools to await a revival in demand, this time it’s completely different: Gear is being stripped down for components or bought for scrap.
As stagnant oil costs and investor strain discourage new drilling, the fracing business that was rising so quick it couldn’t discover sufficient staff as lately as two years in the past now finds itself buried in a mountain of pumps, pipes and storage tanks. The contagion is spreading past fracing specialists to sand miners and the truckers who haul it. U.S. Silica Holdings Inc., the highest provider of frack sand, tumbled 38% on Tuesday after saying plans to close mines on the again of disappointing quarterly outcomes.
“We don’t be taught from our errors on this business, can we?” stated Joseph Triepke, founding father of Infill Thinking LLC and a former analyst at Citadel LLC’s Surveyor Capital. “The U.S. oilfield-service sector has overshot the expansion cycle once more leading to a capability glut. There’s an excessive amount of of every thing, from horsepower to sand.”
Fracing an oil effectively includes surrounding the outlet with an array of pumping vans and different tools that shoot high-pressure jets of water, sand and chemical compounds deep underground. For that purpose, capability is measured in horsepower.
About 2.2 million horsepower, or roughly 10% of business capability, already has been earmarked for the scrap heap, in response to Scott Gruber, an analyst at Citigroup Inc. In addition to Patterson and RPC, Gruber stated business titans Schlumberger Ltd. and Halliburton Co. in all probability are retiring components of their fleets, and not less than one other 1 million horsepower must be eradicated to halt the slide in fracing charges.
A spokeswoman for Halliburton declined to remark. A spokesman for Schlumberger referred to feedback by CEO Olivier Le Peuch on a third-quarter earnings name, the place the manager stated it was too early to offer specifics about exercise ranges.
“Much wanted attrition is (lastly) materializing,” analysts at Tudor Pickering Holt & Co. wrote in a notice to shoppers. “We wouldn’t be shocked to listen to different pumpers bounce aboard the fleet retirement prepare within the coming weeks.”
The Philadelphia Oil Services Index has climbed three% since RPC kicked off the spherical of pump-scrapping bulletins final week.
On a latest day in Odessa, Texas, within the coronary heart of the Permian Basin, greater than a dozen well-worn sand-hauling vans sat parked in a dusty lot owned by RPC’s Cudd Energy unit. It was an analogous scene at close by tools yards, the place every thing from drill pipe hooks to rigs sat idle.
Land-based oilfield corporations have been extra pitiless than their offshore counterparts who stalled and delayed for years earlier than demobilizing a few of their most subtle and costly gear. Transocean Ltd. parked deepwater drilling vessels in Caribbean waters at a price of about $15,000 a day every to await an offshore revival. When it by no means got here, the Swiss-based operator and rivals scrapped rigs that value billions of to assemble.
Estimates for complete U.S. fracing capability range however Bank of America Merrill Lynch places the determine at virtually 25 million horsepower. Just 13 million of that’s forecast to nonetheless be at work through the last months of this yr, down from 17 million through the second quarter of 2018, in response to Bank of America’s Chase Mulvehill.
And subsequent yr doesn’t look a lot brighter. Baker Hughes Co., which owns a stake within the frack supplier BJ Services, warned buyers Wednesday that explorer spending in North America may drop by a price that’s within the low double digits.
The variety of…