There is no shortage of folks trying to pinpoint the U.S. frac crew count. Some rely on predictive models which we surmise is based on rig count and permit data; some use satellite imagery and others, such as DEP, simply call field contacts and ask. What we know is the numbers tend to vary, but we are all directionally in the same ballpark. A respected provider recently cited a frac crew count of 78 fleets. If not mistaken, the provider had also reported a crew count sub-50 not too long ago. We aren’t here to quibble with their data or reporting methodology as we are (and have been) directionally in-line with their views. That said, the rapid increase this most reporting period prompted some inquiries from industry friends as the jump caught them off guard. Therefore, we reached out to industry contacts today to gather their latest observations. We will have more calls tomorrow, but here are today’s takeaways:
Frac Crew Count: Based on our working tally, we believe actively marketed fleets today range between 70-75 crews. However, active vs. effectively utilized are two different metrics and this is an important distinction. We had several companies describe crews as “active” but who have had spotty work throughout Q2. So on any given day, the crew could be considered working, but once that job finishes, the crew is back to being parked. One company noted its active fleet count has remained steady in Q2, but at certain points during the quarter, only 2/3 of the equipment worked. Another company reactivated a crew a couple weeks ago to complete a project, but that crew is now once again parked. Other companies report low calorie work which leads to 1-2 day jobs (i.e. one-off tubing jobs). Yes, while some of the equipment is working, these contacts don’t necessarily view this as a “frac” job. We are aware of a couple companies who have been running crews, but we believe this is vertical work. Not that this is bad, but it’s not really apples-to-apples with HZ pad-type work. If one were to ascribe an effective utilization rate, our sense is the crew count would then be in the vicinity of 60-65 crews. That’s admittedly a guess, in part because the working crew count changes daily. We are in the camp that the directional trend is more important than the absolute count on any given day.
Frac Crew Outlook: The U.S. frac crew count is moving higher. This is a message we have been preaching for weeks and it is now coming to fruition. We chatted today with industry contacts at a basket of companies. Collectively, this group will see its active crew count increase by 14 crews within the next 1-2 months. If we extrapolate this count across a broader segment of the U.S. competitive landscape, one could assume the crew count could rise somewhere in the 30-40 fleet vicinity. That feels high right now as some frac companies tell us the current pricing environment prohibits them from activating fleets, at least not without a sizeable price increase and/or commitment for dedicated work. A key point to emphasize is the incremental fleets are not all dedicated. Some of this is short-term work. In specific cases, frac companies are advising us to not get too giddy since their customers indicate some projects are short-term in nature. This is due to restrained budgets. Therefore, we are being warned of a Q3 increase followed by a Q4 seasonal/budget related slowdown. We tell them they are party poopers, so we’ll just have to wait and see. Nonetheless, the bringing forward of activity is occurring.
Frac Pricing: Still very weak, but two companies report attempts to increase rates in recent bids. The increases are purportedly very small, but given a sharp rise in quoting activity, some see this as a chance to test the market. To be fair, one player claims it is not seeing this. Our take – the market still stinks and if you don’t think you will win the work and/or you have no intent to work at weak pricing, we say – dare to be great and throw out a higher price just to see what happens. That said, with frac utilization showing signs of improvement, a key question for all public frac companies on their respective Q2 calls will be pricing strategy surrounding fleet reactivations. In addition, we believe any opportunities for short-term work should be priced at a big premium in the event companies have to rehire employees in order to catch the work or fix equipment. Sorry E&P friends.
Recent Note Feedback. We appreciate comments on our notes. With the recent publication of our rig count forecast, we had mixed reviews. One really smart E&P exec disagreed with our optimism (shame on him), but one land driller agreed with an increase in quoting activity (that person is brilliant). Neither company embraced a specific forecast, but the divergence of views from two really smart people illustrates just how cloudy everyone’s medium-to-long-term crystal balls really are.
One More Thing: Frac companies who didn’t return our call yet today. We’re still awake. Having a glass of wine, but the bottles running out – then it’s time for bed. 832-247-8215.