Tag Archives: Frac sand cost per ton

Oilfield Service trends from last week’s earnings calls – Part 2

Allan D. Hasty

The major oilfield service companies reported their results for the second quarter over a week ago. Last week, it was the turn of some of the smaller/niche service providers. Here are some of the industry trends highlighted in last week’s calls.

Hi-Crush Partners LP (provider of Frac sand)

  • Q2 average selling price was $64 per ton, up $4 (7%) on Q1 and up $19 (42%) on Q2 2016
  • Price rises will continue in Q3 as demand will remain strong due to the backlog of wells drilled but not completed.
  • The average well now uses 5,500 tons of frac sand per well, up from 5,250 at the end of Q1 (this is contradictory evidence to Halliburton who stated that average sand per well dropped in Q2. After the Halliburton call, analysts speculated it was a temporary blip as operators had to cut back as sand was in such short supply).
  • Became the first frac sand supplier to open a mine in the Permian basin (a converted ATV park!). (Sand sourced in the Permian basin will have lower transport costs, however it is coarser than the fine-grain sand supplied by the mines in Northern Wisconsin. Many E&P operators will still demand the finer sand for fracturing their wells).

Keane Group (Pressure Pumping)

  • Due to longer drilling laterals and multi-well pad drilling, average size of their frac fleet has increased from 40,000 horsepower to 45,000 horsepower.
  • As contracts come up for renewal, moving price adjustments on customer contracts from every six months to quarterly.
  • Average price for frac services in the third quarter should increase 15%-20% as old contracts roll over.
  • Expects the rig count to drop by up to 200 rigs by the end of the year.
  • A new frac spread costs $20 million, commissioning a previously idled spread costs about $2 million in capex. No plans to add new capacity.

Nabors Industries (Land drilling contractor)

  • 15% of US customers outside of Alaska have indicated plans for a light reduction in rig counts in the second half of 2017, one third plan to add rigs.
  • Spot rates in Texas for higher end rigs are close to $20,000 a day, though many of their rigs are working on existing contracts with an average rate of $18,500. 80% of their US land rigs will roll off existing contracts by the end of 2017.

Transocean (Offshore drilling contractor)

  • Breakeven costs in multiple deepwater basins around the world are consistently coming in below $50 per barrel.
  • Tenders for projects requiring deepwater floating drilling rigs well ahead of last year.

A handful of E&P companies announced capital expenditures cuts, though the big news concerned Pioneer Natural Resources 

The company cut $100 million from its capex budget as it delayed completion on 30 wells in the Spraberry/Wolfcamp play in the Permian basin to 2018. The CEO called them ‘train-wreck wells’. This also caused the 2017 production growth to drop to the low end of the guidance range of 15%-18% growth.  The shares have dropped almost 20% since the results were announced as Wall Street realized there is a risk that the company is producing too fast and in danger of prematurely depleting and damaging the formation. For the record, the CEO said that the issue is solved and there are no long-term concerns. Time will tell.

 

Devon Energy cut $100 million from its capex budget citing sourcing improvements (by supplying its own frac sand and diesel). The company made no changes to drilling and production activity.

Marathon Oil announced that it cut its 2017 capital expenditure program from $2.4 billion to $2.1-$2.2 billion while increasing its production outlook. Capex cuts will be in the Bakken and Oklahoma due to efficiency improvements

SandRidge Energy (based in Oklahoma) went against the grain increasing 2017 production and 2017 capex from $210-$220 million to $250-$260 million.

The previous post on the quarterly earnings can be found here

Oilfield Service trends from Q2 earnings calls – week ending 28 July