A Chevron fracking site in Texas, US, August 22 2019. Picture: REUTERS/JESSICA LUTZ
A Chevron fracking site in Texas, US, August 22 2019. Picture: REUTERS/JESSICA LUTZ

Houston — 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 US fracking firepower expected to be sitting idle within weeks, shale specialists including Patterson-UTI Energy and RPC 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. US Silica Holdings, the top supplier of frack sand, tumbled as much as 33% on 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 US oilfield-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 high-pressure jets of water, sand and chemicals deep underground. For that reason, capacity is measured in horsepower.

About 2.2-million horsepower, or roughly 10% of industry capacity, has already 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 are probably retiring parts of their fleets, and at least another 1-million horsepower needs to be eliminated to halt the slide in fracking fees.

A spokesperson for Halliburton declined to comment. A spokesperson for Schlumberger referred to comments by CEO Olivier Le Peuch on a third-quarter earnings call, at which the executive said it was too early to give specifics about activity levels.

More pumpers boarding the retirement train

“Much needed attrition is [finally] materialising,” analysts at Tudor, Pickering, Holt & Company wrote in a note to clients. “We wouldn’t be surprised to hear other pumpers jump aboard the fleet retirement train in the coming weeks.”

On a recent day in Odessa, Texas, 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.

Land-based oilfield companies have been more pitiless than their offshore counterparts who stalled and delayed for years before demobilising some of their most sophisticated and expensive gear. Transocean parked deepwater drilling vessels in Caribbean waters at a cost of about $15,000 a day each to await an offshore revival. When it didn’t come, the Swiss-based operator and rivals scrapped rigs that cost billions of dollars to construct.

Estimates for total US 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 2019, down from 17-million during the second quarter of 2018, according to Bank of America’s Chase Mulvehill.

The number of fracking crews deployed to well sites across the US already has fallen to the lowest in more than two years, according to Primary Vision.

The Tudor analysts wrote, “We’ll need to see oodles (and oodles) more attrition from other pumpers to clean up this market, absent a notable demand boost.” 

With Kriti Gupta and Rachel Adams-Heard


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