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Succeeding in the New Pressure Pumping Environment

Pressure pumpers of the future need to overhaul their business models and become efficiency fanatics to succeed in a permanently changed environment, said Energy and Industrial Advisory Partners (EIAP) in its recent The Pressure Pumper of the Future Report.

According to the boutique strategy consulting firm, pressure pumpers faced challenging conditions even before the current industry downturn from decreasing demand, an oversupplied and fractured market, weak frac pricing, and margin erosion from lower pricing and decoupling of sand and chemicals.  

The rapid demand destruction from the COVID-19 pandemic and OPEC+ supply increases could not have found pumpers more ill-prepared, said Sean Shafer, EIAP managing partner, as both public and private companies faced balance sheets that were already raising questions about the need for widespread restructurings in the sector.

The 25-page EIAP report attempts to answer the following questions.

  • Why have pumpers not benefited from continuous improvements in operational performance?

  • How will adoption of technologies such as electronic frac and dual fuel be impacted?

  • How can pressure pumpers adapt to meet the environment/social/governance (ESG) goals of their customers and the expectations of the investor community?

  • How could changes in the regulatory environment impact pressure pumpers?

  • How will the changed landscape of the future impact industrial companies who supply to the industry and suppliers of consumables such as sand, chemicals, iron, and fluid, and power ends? 

  • Given the structural problems of the sector, debt loads, and the likelihood of both incredibly challenging near-term conditions and lower long-term demand levels, how can pressure pumpers adapt to the new normal?

Among the report’s findings are the following.

  • Even with a recovery in oil prices, horizontal completion activity in 2022 will likely be lower than in 2019 as the universe of developing unconventionals consolidates, uneconomic wells on noncore acreage are not drilled and completed, and well spacing increases.

  • The rapid drop in active frac fleets compared to other activities is driven by two primary factors: 1) operators’ unwillingness to complete wells they have no intention of producing immediately; and 2) lack of firm contracts for frac fleets compared to drilling rigs.

  • As operational efficiency improves, the number of fleets needed to support a given level of completion activity will continue to decline.

  • Supply reductions and increased efficiency will continue to reduce demand.

  • Equipment is much more likely to be scrapped vs. stacked or sold at auction.

  • As pumpers have increased efficiency and borne the costs of doing so, the gains have been captured by E&P companies and revenue per fleet has steadily declined. Pumpers need to deploy technology that will reduce maintenance and labor costs and allow them to reduce hydraulic horsepower (HHP) on location without impacting operational efficiency.

  • Dual fuel should be a new baseline.

  • Electric frac interest will continue, but adoption will slow.

  • The future for next-generation technology will be pushed out 2 to 4 years because of the current downturn. And although electric frac is the most widely discussed technology, pumpers should also consider direct drive and other technologies that meet ESG requirements and enable them to deploy more HHP per trailer.

  • Efficiency objectives of pumping 18 to 20 hours per day on location with no frac-related nonproductive time can be accomplished through proactive and preventive maintenance including real-time diagnostics, upgraded pumping equipment, and a culture focused on key metrics.

  • Pumpers need to focus on working collaboratively with their top 10 customers and gain commitment from them to use the most up-to-date technology to meet their realistic ESG requirements and to understand how those requirements may change over time.

  • Business models and balance sheets must be streamlined to the “absolute essentials” to meet the requirements of the customer and the market.

  • Pumpers need to maintain capital and pricing discipline, including being willing to decline jobs to emphasize to E&Ps that, in the long run, cheaper prices with poor operations does not save money.

In addition to these findings, EIAP reported these conclusions.

  • Customers in general are not willing to pay for chemical technology and sand packaging.

  • Customers will pay for efficiency technology if it pays for itself.

  • Customers expect superior HSE performance on location.

  • Customers may pay for greener technology but will be dependent on in-field capabilities and overall economics.

  • Market consolidation and equipment retirement are inevitable.

The full report provides more details.

Succeeding in the New Pressure Pumping Environment

Judy Feder, Technology Editor

23 June 2020

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