Crew shortages hinder output

Shale explorers pushing to expand oil production are struggling to find enough fracking crews after thousands of workers were dismissed during the crude rout.

Independent U.S. drillers underspent their first-quarter budgets by as much as $2.5 bil- lion collectively, largely because they couldn’t find enough fracking crews to handle all the planned work, according to Infill Thinking LLC, a research and consulting firm focused on oilfield services and exploration. If the scarcity holds, output increases planned for this summer may get pushed into 2018, creating an unanticipated production bulge with “scary”

implications for oil prices, said Joseph Triepke, Infill’s founder.

In some cases, active crews are walking away from jobs they signed up for months ago — and paying early-termination penalties — to take higher-paying assignments with other explorers. Workers earn anywhere from $29,000 to $72,000 a year before overtime, depending on the company and the region.

The tight fracking market “means U.S. oil production growth this year will be back-half weighted, and we may not understand the full extent of U.S. production growth until early 2018,” said triepke, who previously was an analyst at Citadel LLC’S Surveyor Capital unit. “This point is particularly scary if you are rooting for higher oil prices.”

Oilfield-service companies contributed the largest chunk of more than 441,000 jobs slashed globally as prices plunged from more than $100 a barrel over the last three years, according to Houston-based industry consultant Graves & Co.

Now, with the price of oil settling at around $50 a barrel, shale drillers are once again gearing up in areas such as the Permian Basin, where break-even costs are as low as $30 a barrel. The result: rising competition for workers and equipment, which means higher costs. Fracking companies are now charging 60 percent to 70 percentmore than a year ago as explorers engage in bidding wars to lock up crews, according to Infill data.

In response, servicers are scrambling to re-hire hands and retrieve gear from storage, said Andrew cosgrove, an analyst at Bloomberg Intelligence.

A crew typically consists of 25 to 30 workers who operate a huge array of powerful truck-mounted pumps, storage tanks for fluids and sand, hoses, gauges and safety gear. Fracking, which involves pumping tons of water, sand and chemicals into awell to smash open the surrounding oil- and gas-soaked rock, is the most expensive part of drilling awell, usually accounting for about 70 percent of the total cost.

So far, independent shale drillers are confident they’ll find ample fracking capacity and are leaving their ambitious double-digit output growth targets intact. West Texas Intermediate crude, the U.S. benchmark, is heading for a second weekly advance as U.S. stockpiles decline while Saudi Arabia and Russia indicate a willingness to extend price-boosting production cuts.

Those efforts could be dashed in coming months, however, if shale explorers deliver a larger-than-expected bubble of supply.

“Every single pressure pumper is saying their or- der books are full through the third quarter and some as far ahead as the first quarter of ’18,” Cosgrove said.

EQT Corp. was left short of fracking crews during the first quarter when some pumping companies walked away for higherpaying contracts.

Still, the Pittsburghbased shale driller expects to attract enough fracking capacity by the beginning of June to stay on track and hit its full-year growth forecast.

“A couple of our frack contractors decided to pay us the penalties to take their frack crews to jobs that were more profitable,” EQT Chief Executive Officer Steven Schlotterbeck said during an April 27 conference call with analysts. “So we will get some penalty fees but that obviously is far less than the value of having the wells fracked on the schedule that we would have liked.”