Frackers scrap idled equipment amid downturn in shale
The downturn in shale drilling has been so steep and brisk that oilfield companies are taking the unprecedented step of scrapping entire fleets of fracking gear.
With almost half of U.S. fracking firepower expected to be sitting idle within weeks, shale specialists including PattersonUTI Energy Inc. and RPC Inc. are retiring truck-mounted pumping units and other equipment used to shatter oil-soaked shale rock.
Whereas in previous market slumps, frackers parked unused equipment to await a revival in demand, this time it’s different: Gear is being stripped down for parts or sold for scrap.
As stagnant oil prices and investor pressure discourage new drilling, the fracking industry that was growing so fast it couldn’t find enough workers as recently as two years ago now finds itself buried in a mountain of pumps, pipes and storage tanks.
The contagion is spreading
beyond fracking specialists to sand miners and the truckers who haul it. Stock for U.S. Silica Holdings Inc., the top supplier of frack sand, tumbled 38 percent Tuesday after announcing plans to shut mines on the back of disappointing quarterly results.
“We don’t learn from our mistakes in this industry, do we?” said Joseph Triepke, founder of Infill Thinking and a former analyst at Citadel’s Surveyor Capital. “The U.S. oil field-service sector has overshot the growth cycle again, resulting in a capacity glut. There’s too much of everything, from horsepower to sand.”
Fracking an oil well involves surrounding the hole with an array of pumping trucks and other equipment that shoot highpressure jets of water, sand and chemicals deep underground. For that reason, capacity is measured in horsepower.
About 2.2 million horsepower, or roughly 10 percent of industry capacity, already has been earmarked for the scrap heap, according to Scott Gruber, an analyst at Citigroup. In addition to Patterson and RPC, Gruber said industry titans Schlumberger and Halliburton Co. probably are retiring parts of their fleets, and at least another 1 million horsepower needs to be eliminated to halt the slide in fracking fees.
A spokeswoman for Halliburton declined to comment. A spokesman for Schlumberger referred to comments by CEO Olivier Le Peuch on a third-quarter earnings call, where the executive said it was too early to give specifics about activity levels.
On a recent day in Odessa, in the heart of the Permian Basin, more than a dozen well-worn sand-hauling trucks sat parked in a dusty lot owned by RPC’s Cudd Energy unit. It was a similar scene at nearby equipment yards, where everything from drill pipe hooks to rigs sat idle.
Estimates for total U.S. fracking capacity vary but Bank of America Merrill Lynch puts the figure at almost 25 million horsepower. Just 13 million of that is forecast to still be at work during the final months of this year, down from 17 million during the second quarter of 2018, according to Bank of America’s Chase Mulvehill.
And next year doesn’t look much brighter. Baker Hughes Co., which owns a stake in the frack provider BJ Services, warned investors Wednesday that explorer spending in North America could drop by a rate that’s in the low double digits.