HOUSTON — Many high-horsepower pumps are sitting idle at the nation’s largest oil patches, even after they reignited U.S. energy production and stirred national debate over a process called hydraulic fracturing.
But others are being hauled across the country to find work in the plains of West Texas, about the only place where fracturing companies have been able to escape a crippling glut in equipment.
Rigs designed for horizontal drilling made a big move last year into the Permian Basin, the last major U.S. oil patch to remain a stronghold for older vertical units.
That means a lot more business for the $31 billion fracturing industry, which shoots pressurized payloads of water, sand and chemicals deep into the earth to break open dense shale rock. Horizontal operations access more of a reservoir and require more pressure pumping.
But that’s small relief two years after a surge of oil field services startups left the U.S. market with far too much fracturing equipment and sent prices for fracturing jobs plummeting.
“I’m not going to kid you and say it’s not a challenge to survive,” said Greg Lanham, chief executive of FTS International, the fourth-largest U.S. hydraulic fracturing company by horsepower, a measure often used for fracturing companies’ capacity. “But we’ve been able to adapt quickly enough, and we’ve been able to maintain our market share.”
The West Texas oil patch, where FTS International hired another 50 employees to its roster of 275 workers last year, has quickly become the most competitive oil basin in the U.S. — though it’s still the most lucrative, Lanham said.
He said moving some of the company’s mobile fleet to Odessa, in the heart of the Permian, has improved revenue, and the company is planning to hire more crew members and move more equipment from less active regions to West Texas.
On Jan. 17, the number of active horizontal rigs in the Permian Basin was 249 — up more than 100 from a year before, according to Baker Hughes. That’s more than five times the number added in the second-most active region, the DJ Basin centered in Colorado.
“It’s the one basin we’re seeing tremendous growth — the other basins have flat-lined,” said Bill Herbert, an analyst at Houston-based Simmons & Company International. “I think the Permian is going to continue to move up.”
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Oil field services companies, Herbert said, should see a more active market in the first half of 2014 if oil prices remain high enough to drive drilling activity.
Still, it could be years before prices for fracturing recover.
That corner of the oil field services industry became the fastest-growing sector after U.S. production companies figured out how to release oil and gas from tightly packed shale rock by combining hydraulic fracturing with horizontal drilling.
Demand for pressure pumping surged. Midsize fracturing companies and private equity-backed startups built their fleets to make up more than half the fracturing market by the end of last year.
“Too many people added too much capacity,” said Alex Robart, a partner at Houston-based consulting group PacWest. “Really, it was just a matter of over-exuberance.”
When prices dropped
But startups and established fracturing companies alike were unprepared for a massive drop in natural gas prices that began in late 2011. It steered oil producers away from gas-rich reservoirs that require higher horsepower to fracture, like the Haynesville Shale in Arkansas and Louisiana.
“It happened a lot quicker than we anticipated,” Lanham said.
Still a ways off
PacWest forecasts price tags for fracturing jobs will not see much improvement until at least 2015. New efficiencies that enable oil producers to do more with less have been the biggest hurdle, Robart said.
The U.S. rig count fell flat last year, as technological advances enabled oil companies to increase the number of horizontal wells they drilled. Companies also sped up post-drilling operations including fracturing by hiring more experienced crews and implementing more rigorous schedules, according to PacWest.
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Some began working around the clock, increasing the use of individuals companies’ pressure pumps but effectively cutting market demand for hydraulic horsepower in many key oil basins, PacWest data shows.
Now the swarm of startup pumps are following larger services companies to the Permian. The region’s demand has been steady at around 2.1 million hydraulic horsepower for the past two years, and fracturing supply has climbed from 1.8 million to 2.9 horsepower in the same span, according to PacWest.
The consulting group expects demand to rise to 2.3 million horsepower by the end of 2014.
Rig count to rise?
Still, the Permian Basin may drive the U.S. rig count up moderately this year, Halliburton CEO Dave Lesar told investors in a conference call last week.
Halliburton, the world’s largest provider of fracturing services, expects the number of horizontal rigs to grow to 50 percent of the market in the Permian this year, up from 35 percent at the beginning of last year.
“There are a lot of rigs running in the Permian right now, and I think that gives us confidence in driving the numbers for 2014 and even beyond that,” Lesar said. “Let’s say the Permian is only at 50 percent at the end of 2014. That still leaves a pretty tremendous upside there.”
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Falling between Halliburton and FTS International in the horsepower rankings are oil field services giants Schlumberger and Baker Hughes.
Of about 50 pressure pumping companies in the U.S., 80 percent have operations in the Permian — and the region may continue to draw new entrants, companies and analysts say.
Many of the drilling efficiencies that have permeated other shale plays, including the Bakken in North Dakota and Marcellus in the Northeastern U.S., still have a long way to go in the Permian – leaving room for the fracturing business to grow, said Denny Smith, director of corporate development for Nabors Industries.
“Things do appear to be bottoming out and stabilizing,” Smith said. “The business is finally no longer contracting, we think, though it’s a little early to say.”
Either way, Houston-based Nabors Industries knows which way it is betting: The company moved fracturing equipment by truck from as far away as Canada to the Permian Basin. It will start pumping this month, Smith said.
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