A lawsuit accusing oilfield service giants Halliburton, Schlumberger and Baker Hughes, the three largest providers of fracking services in the US, of price fixing is unlikely to gain much traction because of fracking's highly competitive nature, an industry analyst said Monday.
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"There's been a tremendous amount of new players entering into the market," said Alexander Robart, an analyst with PacWest Consulting. "There's been a tremendous amount of competition. The prices have dropped aggressively in the last year and a half."
The suit, filed in US District Court for the Southern District of Texas in Corpus Christi last Wednesday, names as defendants Halliburton, Schlumberger and Baker Hughes and some of their affiliates. It claims the companies improperly used their market power to fix prices and discourage competition.
The three oilfield services giants, all based in Houston, together control about 60% of the pressure pumping services market and comprise 100% of the market for providing the full range of oilfield services on a nationwide basis.
Cherry Canyon Resources, a limited partnership based in Hungerford, Texas, which filed the suit, claims to have suffered from price manipulation when purchased fracking pressure pumping services from one or more of the defendants.
The attorneys representing Cherry Canyon Resources are seeking class action status for the suit, identifying as the class all entities that purchased pressure pumping services in the US from one or more of the defendants between May 29, 2011, and the present. Calls to the law firm were not returned.
In email messages, Halliburton and Schlumberger declined to comment on the suit. Baker Hughes did not immediately return requests for comment.
Attorneys for the plaintiff filed the suit just days after Halliburton and Baker Hughes disclosed that they were under investigation by the US Justice Department in regard to the $31 billion US pressure pumping market.
"My suspicion is this is a couple of lawyers who saw the DOJ inquiry and they saw blood in the water and they're filing a class action lawsuit to hopefully rake in some dollars," Robart said.
While the federal investigation might turn up some isolated incidents of predatory pricing practicing by the three oilfield services companies, the probe "won't show all that much, in terms of a pattern of behavior," he added.
"There may very well be a couple of abuses," Robart said. "But widespread and consistent abuse seems very unlikely given the structural nature of the market."
The number of players in the US fracking industry "has more than doubled in the last three to five years and that by its very nature doesn't indicate the ability of leading players to manipulate prices and abuse," he said.
The suit alleges the defendant companies violated the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914 "with their unlawful combination and conspiracy to restrain trade in the market for fracking pressure pumping services in the United States."
According to the suit, demand and prices for fracking pressure pumping services began to increase in 2010, following a 2008-2009 price downturn in the wake of the global recession. This price uptick brought a number of new entrants into the market to compete with the three big firms in the pressure pumping services business.
"In response, Defendants colluded to restrict and manipulate supply in order to increase prices and market share toward their pre-entry 'boom year' levels," the lawsuit alleges.
The suit claims that beginning in May 2011, the defendant companies took part in meetings and other communications to discuss pricing for fracking pressure pumping services in the US in order to retain their respective market share of the business and discourage competition from their new rivals.
Under antitrust law, the plaintiffs could be entitled to receive triple the damages and injunctive relief they would otherwise have been entitled to, if successful in their suit.
DOJ last Tuesday confirmed it was investigating competitive practices in the pressure pumping industry, which is the primary component of the fracking process.
Halliburton and Baker Hughes had previously disclosed in their quarterly earnings filings that they were cooperating with the DOJ in an investigation of the pressure pumping industry.