A few quick observations from the first two days on the road:

  • To state the obvious, it’s really, really bad out there.
  • We believe there are now 19-20 frac crews working in the Permian.
  • There is some chatter that E&P’s are seeking to renegotiate leases with land owners to allow them flexibility to defer completions, yet still hold acreage.
  • We don’t know how widespread this is, but it would seem such actions could lead to a further decline in frac activity.
  • That said, we have multiple indications of companies potentially looking to add crews in July/August.  Not big numbers by any means, but a glimmer of hope.
  • In the near-term, we believe we are approaching ~50 fleets in the U.S. 
  • Hotels are empty – go figure, but the combination of COVID and low oil prices clearly having an impact on hotel utilization rates.
  • As we noted in our LinkedIn post, our rate is a blended $92/night.
  • If you don’t follow Daniel Energy Partners on LinkedIn, please do – it builds my self-esteem.
  • We drove by the airport just to check things out and were shocked to see how many cars were still parked out in the grass.
  • Makes us wonder if people simply walked away from their vehicles.
  • We doubt they are simply away on vacation.
  • Plenty of rental cars and one really nice private jet.
  • We learned from one contact whose neighbor left his home after losing their job in order to return to Alabama.
  • They left everything in the house.
  • Probably not good for the credit rating.
  • Bigger takeaway – if this downturn lasts quarters and not months, what will it take to bring those folks from outside TX back to the oilfield?  A lot.
  • Actions have consequences…a theme we expressed on Saturday.
  • In keeping with that theme, we also highlighted in our note the various yard closures.
  • The following comment is not meant to pick on anyone, but a good example is HAL’s closure of its Kilgore, TX facility.
  • Based on news media, HAL has been in Kilgore for over 80 years.  The closure is a sign of the times.
  • Today, we heard of two OFS firms electing to shut down their Hobbs, NM operations.
  • More of this will happen and ultimately it’s the E&P’s who will suffer.
  • Well service utilization remains soft with one well service vendor reporting utilization in the 25% range based on its internal study.
  • We’ve now heard from two sources of one well service company offering a rig for $100/hour.  Stupid, if true.
  • While well servicing in recent years has been about as exciting as a Cincinnati Bengals game, there is reason to look at this business.
  • Industry consolidation coupled with the likely wellbore/tubing repair needs which will develop as a consequence of shut-in’s gives reason for hope.
  • We intend to dig into this topic in detail soon.
  • Yesterday, we drove here from Houston and passed through Voca/Brady.
  • Depressing.
  • Back in the day, this was a hot spot for sand mines.  Not so much today.
  • True, most of these mines began idling before the current downturn, but seeing all of the mines inoperable is really telling.
  • We didn’t see one pneumatic transporting sand from Voca to Midland or returning from Midland to Voca.
  • Perhaps driving by on Sunday explains the situation, but we doubt it.
  • Not sure how one remediates these types of mines, but sand plants are not small operations and at some point, someone will need to tear these things down.
  • Here’s one which hits closer to home – an acute effort by the industry to slash G&A.
  • As a subscription-based business, we really appreciate open check books and frothy spending.
  • Our contacts are key decision makers and when we hear about line-by-line reviews of expenses, this is telling as to how bad the market really is.
  • Best-in-class companies (both E&P and OFS) are in shut-down mode where even the smallest of expenditures are questioned. 
  • While we personally wish this wasn’t the case, it is reflective of the fear in the business.
  • People are prepping for an extended downturn.
  • Cash is king and no one seems willing to part with it because of the uncertainty over the duration of the current market weakness.
  • We’ll be in Midland tomorrow and then heading up to Canadian, TX.
  • Stay tuned for more observations.

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.

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