A few quick observations from recent industry discussions.

  • Frac crews continue to be idled.  We updated with another private frac player today who is suspending frac operations.  This company’s primary customer ceased well completion operations recently.  Unfortunately, our contact sees this slowdown as quarters, not months. It won’t reactivate the fleet until it has sufficient utilization and pricing to justify doing so.
  • In the first Daniel Energy Partners note published last week, we called for a bottom of 50-75 working frac fleets in the U.S. this year and conveyed our view the Permian frac crew count could be below 50 crews.  If field data points and channel checks are all correct, this lead us to believe our forecast could prove optimistic.  In fact, we wouldn’t be surprised to see the Permian frac crew count total less than 40 working crews within the next month as the tone from Permian contacts suggests many customers are racing to shut down.
  • How many companies won’t generate revenue in Q2? This was an inbound question from a Permian completions contact.  The company raised this question as a number of small Permian companies created during the last several years all have one similar characteristic: significant customer concentration. This concentration had been a virtue as E&P customers were often name brand Permian operators thus a perception of vulnerability. With many E&P’s entering frac holidays and others potentially shutting down for the balance of the year, this concentration may now prove to be an Achilles heel.
  • The slowdown in activity will have a pronounced impact on capital equipment sales.  With little-to-no fleets operating, the need for fluid ends and other consumables will be down materially. We visited with a small frac company who expects no fluid end purchases for the remainder of the year.  A second frac company will see its Q2 fluid end consumption cut in half and at this point expects to maintain Q2 purchases for the balance of the year. A third frac company purchased 18 fluid ends in Q1, but no more purchases are expected this year.  A fourth frac company purchased 11 in Q1 and expects 6, 9 and 12 respectively the balance of the year.  In some cases, fluid ends are refurbished, thus not in the count.  Lastly, a forging contact reports little-to-no orders from fluid end manufacturers through early 2021.  We are working on a more comprehensive survey on fluid end demand, so frac companies and/or fluid end contacts please reach out if you would like to assist.
  • Well Service company closes its doors.  We are tracking a 10+ rig company in the Mid-Con who purportedly closed its doors earlier this month.  We will look to see where the rigs go.  This would be the second Mid-Con well service company we are tracking who may be shutting down completely.  We will be passing though Oklahoma soon to investigate as the original boots-on-the-ground OFS research team is ready to hit the road.
  • A private Permian well service company tells us it has already witnessed a ~60% reduction in its working fleet and is presently charging less than $200/hour for a rig.  The owner admits this pricing is not sustainable, but the company is doing everything possible to retain key employees.
  • As an FYI, I will be interviewing Ryan Sitton, Texas Railroad Commissioner tomorrow for a podcast on Oilfield 360 Media. Let me know if you have any questions which you would like me to ask. I’ll do my best to squeeze them in.
  • Finally, while all field data points continue to be universally bad, we maintain our glass-half full view as the current situation is untenable.  The economy will eventually re-open and demand for energy will slowly rebound.  U.S. oil production will grind lower as no frac activity and no well maintenance is generally not good for production (at least not the last time we checked….).   OPEC+ appears willing to take and maintain action to stunt global supply.  And, the U.S. energy complex, while undergoing significant strife, will emerge leaner than before as shutdowns and consolidation are inevitable.  Well capitalized companies should survive, but realistically, it feels as if we are in the midst of a two-year hangover that no amount of Advil can cure.  The oil service complex and its leadership teams can’t simply wait for an eventual rebound.  Massive restructurings and consolidation are needed in advance of the eventual activity rebound.  Moreover, 2019-type oil service pricing for many sectors really needs to be about 20-30% higher, but sustainable returns and improved pricing can only be achieved in a rationalized marketplace.

One day we will report good news. In the meantime, be safe out there and please follow Daniel Energy Partners on LinkedIn.  It only takes a second to click the link!  Thank you.


Daniel Energy Partners is pleased to announce the publication of its first market research note. In this note, we reached out to executives across the oil service and E&P sectors to gauge leading edge sentiment.

Comments are closed.

Pin It