In addition to the forecasts contained in these latest reports on drilling and completion activity and hydraulic fracturing – published Oct. 24 and Nov. 14, respectively – PacWest will present a revised set of downside forecasts that reflect changes in the market since the US Thanksgiving holiday.
PacWest acknowledges that the North American market for hydraulic fracturing services is preparing for a downturn in 2015 due to rapidly falling oil prices. Service providers and equipment manufacturers report that the market and their customers have not yet changed, but all expect changes in the immediate future and are developing plans to deal with the downturn.
In its revised downside scenario, PacWest expects a 12% decrease in the number of horizontal wells undergoing fracturing in the US Land market in 2015 and an 8% decrease in frac demand for 2015. These figures represent a significant downgrade from the base-case scenario forecasts published in the recent WellIQ and PumpingIQ reports – a 6% increase in the number of horizontal wells undergoing fracturing and an 8% increase in frac demand for 2015.
Despite the imminent downturn, equipment delivery books still appear strong for 2015, particularly for the first half of the year. In its base-case scenario, PacWest expects 1.4MM horsepower (net capacity additions) to be delivered into the US Land market in 2015, representing an 8% increase in hydraulic fracturing capacity from the previous year. However, in its revised downside scenario, PacWest expects only a moderate reduction in net capacity additions, from 1.4MM to 1.1MM horsepower. In this scenario, PacWest expects some orders in the first half of 2015 to be delayed to the second half of 2015 and 2016 and some orders to be canceled.
Falling frac demand and increasing frac capacity will quickly lead to falling capacity utilization in 2015. This will create challenging market conditions for many service providers and equipment manufacturers.
"The frac industry is preparing for a tough 2015," said Ryan Carbrey, project lead at PacWest. "Many service providers have just begun to see improvements in pricing and margins. This downturn will drive a focus on improving efficiencies and cost containment. Additional industry consolidation is also expected."
PacWest’s Dec. 11 conference call is open to the public. To dial in, call +1-800-830-3581 (internationally, dial in to 262-320-4698). The passcode is 2922791.