New Frac Company:  Another new frac player will emerge in Q4.  The company is assembling at least 50 pumps, but based on discussions with the owner, the company hopes to grow to as many as five fleets.  The first fleets will be comprised of assets purchased via recent auctions and one-off sales (i.e. PumpCo, BJ and Legend).  A portion of the equipment will soon undergo the rebuild/upgrade process at a leading equipment fabricator and in time, owners of the equipment will evaluate new generation frac equipment.  The initial purchases, however, are driven by: (i) low entry costs due to excess industry capacity and (ii) E&P customers willing to use legacy equipment.  We will elaborate on this player after our next Permian trip.

BKR U.S. Land Rig Count:  Continued gains again with a +5 rig count improvement w/w.  The BKR U.S. land rig count now stands at 490 rigs.  We will update the DEP land rig forecast this week and publish next Sunday evening.

FTS International Tour:  Two weeks ago we toured FTS International’s Aledo, Texas facility in order to learn more about the company’s vibration sensing technology called MachineIQ (“MIQ”).  The trip included an opportunity to see the construction of FTSI’s new Tier 4 DGB fleet as well as visit with the company’s National Operations Center.  The following are our thoughts on FTSI’s initiatives and how we see the benefits of FTSI’s technology investments.

MachineIQ is a third-party technology which FTSI has been developing for over five years.  From our vantage point, the benefits are just now being realized.  Simplistically, FTSI places two sensors on its fluid end and another two sensors on the power end.  These sensors measure equipment harmonics and identify anomalies.  The benefit for FTSI is its history of system utilization, such that with over five years of data from the sensor technology, the company developed an algorithm in December 2019 that can now identify “trained” events, such that certain vibration anomalies serve as early warning signs for potential equipment issues.  In fact, the company claims through the years it has collected over 1 billion equipment health data points and with this history and through automation, MIQ can take automated action to shut down equipment early which avoids potentially expensive repairs.  Ahead of the tour, our initial supposition assumed the value of MachineIQ surrounded longer fluid and power end lives, but it’s actually much more than this.  Yes, early warning detections via MachineIQ have allowed FTSI to nearly double its fluid end life in recent years, but the ability to predict failures on the entire trailer before failures happen, in theory, provides FTSI more consequential benefits such as (i) requiring less backup horsepower on site and (ii) less potential downtime which could arise from an equipment failure.  In addition, enhanced automation, such as allowing a computer to make a recommendation instead of human assessment, provides faster decision making while a key benefit of the technology is the ability to maintain continuous rate, thereby increasing pump utilization.  For instance, FTSI contends the system can detect potential equipment faults and automatically adjust pump usage to rebalance a job to healthier pumps.  Through the MIQ technology this can occur in milliseconds whereas if handled by an equipment operator it could take a few minutes.

It is our understanding similar vibration monitoring technology exists and/or the third-party MIQ developer can sell to other frac companies.  However, we do not believe other companies have as much historical data as FTSI since FTSI was a first mover.  In fact, many years ago, we conducted our first tour of FTSI’s NOC center and wrote about the technology while under a different label.  What is clear to us following years of multiple NOC tours is a more refined system with a more seasoned team running the technology.  The tricky part for FTSI is quantifying these benefits into hard dollars.  That said, the company’s third-party provider supplied data found in FTSI’s IR slide deck which purports greater pumping hours/day for fleets outfitted with MIQ vs. those without, but in fairness, the slides just show bar charts without numbers on either axis, thus it’s hard to audit the data.  We do note, however, that FTSI has MIQ on all of its working fleets.  Also, the company offers perhaps the best operational disclosure of any public frac company as it publicly comments on completed stages/quarter as well as pumping hours/day.  That tells us FTSI is happy with its pumping performance and is not afraid to have comparisons – a validation of its efforts, in our view.

Basic Energy Services Bankruptcy.  For the second time, Basic Energy Services filed for bankruptcy.  In concert with this filing, three entities have submitted stalking horse bids to buy the Basic assets.  Axis Energy Services is expected to purchase the Basic rig business (ex-California assets) for $25M.  Select Energy Services has agreed to purchase the Basic water business for $20M while Berry Petroleum has agreed to buy the California well service operations for $27M.  For now, we’ll assume no one tops these offers.  Here’s our thoughts on the implications to the well service sector.

Loyal readers know we have written repeatedly about the woes within well servicing.  Notably, depressed pricing, low margins and market fragmentation.  These lingering challenges are the culprit behind multiple bankruptcy filings by both public and private well service companies.  In some cases, balance sheet challenges forced company liquidations (mostly smaller players) while larger companies required recapitalizations.  Now, the necessary consolidation process is unfolding at an accelerated pace.  Go back to March 2020 when BAS combined with the well service assets from NexTier (the old CJES business).  At that point, we had hoped more deals would follow but instead consolidation stalled largely due to weak Boards and naïve creditors who failed to see the forest through the trees.  Then in May 2021, Axis Energy Services purchased the well service assets of Forbes Energy Services. Within two months, Patterson-UTI announced the purchase of Pioneer Energy Services.  This transaction, which hasn’t closed yet, is expected to result in PTEN’s sale of the Pioneer well service assets, which we would assume will eventually be sold to a strategic player.  Now, BAS, which is technically the largest U.S. well service player based on total rigs owned, goes away too.  That’s telling when the largest player folds and it’s a reason for E&P clients to pay attention.

So, what happens from here?  First, further consolidation will occur as we assume PTEN will remain committed to its sale of the Pioneer Well Service assets (~123 rigs).  One would assume a strategic buyer takes ownership given the need for synergies and industry pricing power.  The question is whether a strategic can come up with the cash necessary to do a deal.  Also, Superior Energy’s commitment to its well service business appears to be nil.  Recall, many months ago, SPN publicly disclosed it had a deal in the works to merge the company’s well service business with the Forbes well service business.  That didn’t happen and eventually SPN restructured with select members of SPN leadership having recently departed.  Today, SPN is pruning select businesses.  Several weeks ago, SPN sold its legacy Complete Energy business to Select Energy Services while in its July 30th operational update, the company stated an intent to exit U.S. Land commodity businesses.  To us that sounds like the well service business, thus we assume SPN is likely marketing its workover operation.  Unfortunately, lack of disclosure with SPN is a challenge, but we believe the company owns ~250 rigs of which probably ~70-80 are active (total guess on our part).

By our math, the potential sale of PES and SPN well service businesses mean five of the top ten U.S. well service providers may not exist by YE (i.e. BAS, CJES, Forbes, PES, SPN).  Moreover, large well service companies today all profess a strategy to cut up rigs – a departure from what occurred years prior when rigs were sold for cash.  Reminder, Key announced in June the demolition of ~300 rigs with plans to potentially cut up another 150 rigs.  Brigade Energy Services, meanwhile, kicked off its Project Dinosaur Decommissioning process where it too is cutting up rigs.  To the extent other leading well service companies honor what is a totally rational and sensible decision, the competitive landscape will begin to heal.  Moreover, once larger well service consolidation materializes, which seems reasonable, then we would expect some larger players to make tactical small, regional deals.  The smaller companies typically have good local relationships, an attribute which remains a critical purchasing consideration with customers.

U.S. Well Service Market Share.  Below is our updated estimate of the U.S. well service market, excluding California.  This table assumes Axis secures control of the BAS fleet.  Importantly, we assume the total U.S. market has ~3,500 rigs, but we adjust for the estimated ~335 rigs in California, per the legacy AESC data.  What the table shows is a market whereby the top six providers control roughly 55% of the market.  Now, if we were to assume the Pioneer and Superior assets find homes within the other leading strategic players, the market quickly begins to resemble the oligopoly days of yesteryear when Key and Nabors collectively owned +50% of the market.  Recall returns for well service companies back in the 2000-2004 timeframe weren’t all that bad.  Now, a couple considerations.  First, U.S. market share estimates are admittedly worthless as well servicing remains a Balkanized business where local market share matters more.  Two, just because one is bigger doesn’t mean it is better.  We submit some of the best run well service enterprises are those businesses operating only 1-2 yards. The risk to buying these enterprises is the prospect of enriching a seller who may eventually decide to do it again – we can name several examples to support this contention.  On the other hand, if larger companies merge, the regular yard/division employees generally receive little-to-no financial upside; therefore, without capital, there is less flight risk for these employees leaving to go start newco.  And, if there are less used rigs being sold via auction, it is more difficult to start cheap, i.e., the frac company noted above.  Consequently, without PE and/or banks willing to give capital to the sector, the notion of sizeable startups with new equipment is difficult to see.  Assuming one concurs with this logic, we wonder if the right M&A strategy would be a scenario where larger companies merge and trim costs, followed by the tactical pursuit/acquisition of the best-in-class locally run businesses (with earnouts) which then results in a reintroduction of pricing power to the U.S. well service sector.

Estimated Rig Counts – September 2021
Company Rigs Share
Key Energy Services 550 17%
Axis Energy Services 514 16%
Superior Energy Services 250 8%
Brigade Energy Services 150 5%
Ranger Energy Services 138 4%
Pioneer Energy Services 123 4%
Sun Well Service / Black Hawk 57 2%
Eastern Colorado Well Service 48 2%
Ensign Energy Services 48 2%
Shebester-Bechtel 47 1%
Mesa Group 45 1%
American Well Services 40 1%
Viva Well Service 33 1%
Other 1,122 35%
Total 3,165 100%


Sources:  Company press releases, filings, websites.  DEP estimates.  Note, the table is for U.S. land ex-California, however, a portion of the Ensign fleet is located there.  We do not make an attempt to adjust.  Also, this table is total rigs, not working.

Rolls-Royce MTU / Liberty Announcement:  OTC week normally brings forth some new announcements, so no surprise to see one along the lines of emission-friendly engine technology.  On the prior Monday, Liberty announced its agreement with MTU by which MTU will provide 14 MTU 2.6MW gas generator sets to Liberty this year.  The gensets will be used to power Liberty’s digiFrac solution which, we believe, is in field trials now, but should go live in 2022.  The benefit of the MTU solution is its ability to run on LNG, CNG and/or field gas, thus providing a lower emissions profile relative to the solutions.  We believe this is the first formal announcement by MTU with regard to its gas genset technology, but greater adoption is underway as a leading fabricator and MTU, we believe, are working on an asset package for an existing frac player while according to industry contacts, we believe penetration of MTU’s genset technology will soon extend into the land drilling market.  The magnitude of new orders, whether it be for MTU or one of its engine peers, remains a tad opaque, but what’s clear is the frac industry is assertively moving to provide cleaner solutions, something we’ve addressed ad nauseum in recent months.  Lastly, with respect to the LBRT/MTU arrangement, we believe the ratio of gensets to digiFrac units is 1×1 initially, thus we see the 14 units initially supporting one fleet.


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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