PacWest Consulting Partners reports that drilling and frac efficiency improvements and a higher number of horizontal wells are currently driving growth in total frac stages. PacWest analysts say that increased frac efficiency is restraining a recovery in demand despite increased D&C activity, and that they do not expect meaningful improvement in market pricing until 2015.
The 13Q2 releases of PacWest’s “PumpingIQ” and “WellIQ” reports say that E&Ps increased the pace of D&C activity on US Land during the quarter, with an estimated 11% quarter-on-quarter increase in the total number of wells fraced. Horizontal wells in unconventional plays such as the Eagle Ford, Permian Basin, and Bakken continue to account for a growing share of overall D&C activity in the US – these three plays together accounted for just over half of all wells fraced and more than 60% of horizontal wells fraced in the US during 13Q2.
Despite the strong growth in activity levels, frac demand growth was restrained, up 6% sequentially, from 11.4 million HHP in 13Q1 to 12.1 million HHP in 13Q2. Frac service providers have achieved efficiency improvements through an increasing shift toward 24-hour operations, improved wellsite productivity, and multi-well pad operations. These efficiency gains allow service providers to pump more frac stages per day per fleet of equipment, which drives higher asset utilization and higher revenue per day per fleet.
"However, the net effect of these efficiency gains is a decrease in overall market demand, as less frac equipment is needed to satisfy the same number of wells," says Christopher Robart, principal of PacWest's Market Intelligence business.
Despite the challenging market conditions, PacWest expects service providers to add 750,000 HHP in net capacity additions to the North American market in 2013, for a total market capacity of 18.5 MM HHP at year-end. Although capacity utilization improved in 13Q2, from 73% in 13Q1 to 76% in 13Q2, PacWest forecasts that capacity utilization for the industry will average 74% for the year. The fall in frac pricing has moderated over the last six months and is expected to stabilize by late 2013 across all plays. After a tough year for frac service providers in 2012, where market pricing fell over 14%, PacWest forecasts that market pricing will fall 6% over 2013.
PacWest continues to monitor hydraulic fracturing markets and unconventional activity in all emerging international plays. At the end of 2013, it says that it expects global frac capacity to reach 24.3 million HHP, with regions outside of the US and Canada accounting for nearly a quarter of the total.
As part of the 13Q2 release of PumpingIQ, PacWest published the first detailed study of the hydraulic fracturing market in Mexico, concluding that, although the market has major potential for unconventional oil/gas development activity and hydraulic fracturing activity, significant growth in this market is highly unlikely unless meaningful political reform is achieved. PacWest estimates that there will be 225,000 HHP of hydraulic fracturing capacity in the market at year-end 2013. If political reform passes, capacity could increase to 470,000 HHP by year-end 2017, growth of 343%.