Despite a lower US rig count, drilling and frac efficiency improvements and a higher number of horizontal wells is driving growth in total frac stages. Increased frac efficiency is restraining a recovery in demand despite increased D&C activity. PacWest Consulting Partners does not expect meaningful improvement in market pricing until 2015.
PacWest has just published the 13Q2 release of PumpingIQ, which monitors and forecasts the global hydraulic fracturing market and unconventional oil and gas activity on a regional basis. This comes on the heels of the publication of the 13Q2 release of WellIQ, which tracks and forecasts rig counts, wells frac’ed, frac stages, and multi-well pad penetration across all key oil and gas producing regions in North America.
E&Ps increased the pace of D&C activity on US Land during the quarter, with an estimated 11% quarter-on-quarter increase in the total number of wells frac’ed. Horizontal wells in unconventional plays such as the Eagle Ford, Permian Basin, and Bakken continue to account for a growing share of overall D&C activity in the US – these three plays together accounted for just over half of all wells frac’ed and more than 60% of horizontal wells frac’ed in the US during 13Q2.
Despite the strong growth in activity levels, frac demand growth was restrained, up 6% sequentially, from 11.4 million HHP in 13Q1 to 12.1 million HHP in 13Q2. Frac service providers have achieved efficiency improvements through an increasing shift toward 24-hour operations, improved well-site productivity, and multi-well pad operations. These efficiency gains allow service providers to pump more frac stages per day per fleet of equipment, which drives higher asset utilization and higher revenue per day per fleet.
“However, the net effect of these efficiency gains is a decrease in overall market demand, as less frac equipment is needed to satisfy the same number of wells,” says Christopher Robart, Principal of PacWest’s Market Intelligence business.
Despite the challenging market conditions, PacWest expects service providers to add 750,000 HHP in net capacity additions to the North American market in 2013, for a total market capacity of 18.5 MM HHP at year-end. Although capacity utilization improved in 13Q2, from 73% in 13Q1 to 76% in 13Q2, PacWest forecasts that capacity utilization for the industry will average 74% for the year. The fall in frac pricing has moderated over the last 6 months and is expected to stabilize by late 2013 across all plays. After a tough year for frac service providers in 2012, where market pricing fell over 14%, PacWest forecasts that market pricing will fall 6% over 2013.
PacWest continues to closely monitor hydraulic fracturing markets and unconventional activity in all emerging international plays. At the end of 2013, we expect global frac capacity to reach 24.3 million HHP, with regions outside of the US and Canada accounting for nearly one-quarter of the total. Although there is optimism about certain regions, large-scale, commercial production of unconventional oil and gas is not likely in the near-term.
As part of the 13Q2 release of PumpingIQ, PacWest published the first detailed study of the hydraulic fracturing market in Mexico. PacWest concludes that, although the market has major potential for unconventional oil/gas development activity and hydraulic fracturing activity, significant growth in this market is highly unlikely unless meaningful political reform is achieved. PacWest estimates that there will be 225,000 HHP of hydraulic fracturing capacity in the market at year-end 2013. If political reform passes, capacity could increase to 470,000 HHP by year-end 2017, growth of 343%.
PacWest will host a conference call on Wednesday, August 21st, 2013 at 10:00 AM Central Time to brief its customers and all other interested parties on its view of the market. Call details are provided below.