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Shale boom benefits accrue to operators at expense of fracking fleet providers

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Shale boom benefits accrue to operators at expense of fracking fleet providers

The benefits of booming shale oil production are increasingly accruing to the oilfield operators at the expense of oilfield services companies, former Schlumberger Ltd. Chairman and CEO Andrew Gould said Sept. 12.

Gould headed the oilfield services company from 2003 to 2011.

"One of the most extraordinary features of the industry is the way that pressure pumping has completely changed as a business," Gould told attendees at a Sept. 12 event at the Center for Strategic and International Studies in Washington, D.C. "We always used to make money in pressure pumping through the sale of chemicals and products. We actually never made money through providing pumps at the well sites. And now we're in a situation where the operators, given the scale of what they do, have taken away from the frack service companies the provision of chemicals and products — sand or proppants — and left them with purely the right to put equipment on site and pump."

Gould said "probably with the exception of Halliburton Co. and one or two specialist players in other basins," fracking service companies are not generating enough cash flow to renew their equipment at a time when the demand for fracking fleets is projected to decline as operators cut spending.

"The whole industry has about 300 frack fleets," Gould said. "Projections next year see the need to be somewhere below around about 200."

At the same time, operators are beginning to favor electric fracking fleets, which use the Permian Basin's abundant natural gas — essentially an undesired byproduct of oil production, a large amount of which is flared — to provide energy for pumping, rather than diesel.

Gould said electric frack fleets cost at least $10 million more than conventional frack fleets to put into service. "And most of the benefits, if the operators are as smart as they usually are, will accrue to the operators because the biggest single one is the fact they don't have to provide diesel to operate the frack fleets anymore," he said. "And in fact I think there's probably a case, particularly for the very large operators, where they should purchase the frack equipment for themselves."