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'Frac' intensity in shale wells wears out equipment faster: Halliburton

  • Author
  • Starr Spencer
  • Editor
  • Bob Matyi
  • Commodity
  • Oil

Houston — The intensity of oilfield equipment used in hydraulic fracturing of shale wells is wearing out parts and machinery faster than ever today and should keep the pressure pumping market tight for the rest of 2018, Halliburton's top executive said Monday.

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* Should result in a tight market for the rest of 2018

* Market equipment undersupply seen at 1-1.5 million hp

* But perhaps half of added horsepower is for replacement

Even as companies move to bulk up the North American pressure pumping fleet used in well completions, a large chunk of the reported additions are believed to simply replace degraded equipment, rather than expanding the overall size of the fracking fleet capacity, Jeff Miller, CEO of the giant oilfield services and equipment provider, said during the company's first-quarter 2018 earnings conference call.

Roughly 50% of additional horsepower announced does not translate into new crews, said Miller, who projected a market shortage of about 1 million to 1.5 million horsepower.

"Despite incremental horsepower coming into the market, I believe this undersupply will persist as wear and tear continues to degrade equipment," he said. "We've analyzed the difference between horsepower additions announced and the related number of crews produced. It means about half the newbuild equipment is being used to replace or add to crews already in the field."



Miller estimated "headline" horsepower in the market at roughly 18 million hp, with newbuilds and reactivations around 4.5 million hp.

"We suspect maybe half of that gets ploughed back into existing fleets," he said.

Service intensity - with more and more equipment and materials used in the production of horizontal shale wells in recent years, an expansion which is ongoing - translates to shorter equipment lives and higher maintenance costs, Miller said.

"Today, we pump three to four times the sand volumes per equipment that we did in 2014," he said. "We've moved away from gel-based fracs to slickwater fracs, increasing the abrasion on our equipment."

At the same time, the rate of pumping has increased, compounding wear and tear on equipment, he added.

As the industry continues to ramp up after the 2015-2016 downturn that saw oil prices plummet by half or more from levels well over $100/b in mid-2014, activity levels are booming, particularly in North America.

Fracking is used in completing wells prior to placing them on production. That activity should flourish especially this year as US producers move to take advantage of current prices in the $60s/b and complete some of the nearly 7,700 wells drilled but "banked" when oil prices were lower.

SUPPLY CHAIN TIGHTNESS SEEN IN RAIL, LABOR

Miller said major areas of supply chain tightness include sand and also sand deliveries, as well as labor.

The company's completions and production division was negatively affected by delays in sand delivery due to weather-related rail disruptions in Q1, but by the end of March this had been remedied and margins were in the mid-to-upper teens. Miller said the issue was temporary and is "behind us."

Increased use of localized sand, particularly in the Permian Basin, which is by far the most active US basin and produces the most oil at about 3.1 million b/d, appears to be the ultimate solution, Miller and others are saying.

Initially and even now, Northern white sand was used from states such as Wisconsin, a type that has "incredibly high resistance to crush," S&P Global Platts Analytics analyst Sami Yahya said. "You want that resistance. Also, [white sand] is more uniform in size versus brown sand sourced locally from Texas mines."

Halliburton intends to increasingly use locally sourced sand as more mines come online in the second half of 2018, Miller said.

Also, the US labor market is tight. Qualified crews exist and are being hired, but wage inflation is a reality and Miller warned that additional price hikes are likely.

In addition, non-North American markets are improving this year, as those areas put out more tenders for greater planned activity over the rest of this year and into 2019. That should prompt higher pricing for Halliburton and its peers next year, Miller said, echoing comments on Friday by Schlumberger CEO Paal Kibsgaard.

One Halliburton "low light" for the quarter was the writedown of its remaining assets in Venezuela owing to political unrest, continued currency devaluations and a change in the foreign currency exchange system, and US sanctions, Miller said.

The company took a $312 million charge in Q1 net of tax, Halliburton Chief Financial Officer Chris Weber said.

That left for Q1 income from continuing operations at $46 million or 5 cents/share, compared with a loss from continuing operations of $32 million or 4 cents/share in the same period a year ago.

Even so, "we continue to work in Venezuela and carefully manage our exposure," he said, while Miller said: "We believe the ultimate path for Venezuela involves oil and gas."

--Starr Spencer, starr.spencer@spglobal.com

--Edited by Keiron Greenhalgh, newsdesk@spglobal.com