Frac Demand, Pricing Continue to Fall; Frac Fleet Utilization Ends 2015 at 46%

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We are pleased to announce IHS-PacWest will be hosting a conference call on Thursday, December 17th at 9:30 am CST to discuss its outlook for the hydraulic fracturing market, based on our recently published PumpingIQ and WellIQ reports.

We forecast 15Q3 as the low point for the North American hydraulic fracturing services market. D&C activity, previously expected to begin recovery in 15Q4, is now expected to reach its lowpoint during that quarter. Looking to 2016, we forecast a 10% decline in horizontal wells spud, along with an 8% decline in horizontal wells frac’ed.

Frac demand in the US Land market has fallen by 47% since 14Q4. Total US Land frac capacity saw a net decrease of 209k HHP, as newbuild equipment deliveries in 15H1 were outpaced by retirements and fleet attrition.  Equipment  manufacturers report empty order books for new frac equipment and significantly lower prices for consumables. Due to decreased D&C activity, an increasing percentage of frac capacity has been stacked, reaching a total of 9.1 million HHP in 15Q4. Nearly 30% of stacked capacity is considered cold-stacked and increasingly likely to transition to “effectively retired” status.

Frac pricing fell nearly 38% in 2015 compared with year-end 2014.  While the majority of concessions have now taken effect, we anticipate small decreases in some basins over the course of 2016.Despite continuing declines, an increasing number of frac services providers have been willing to stack equipment rather than work at pricing that would not allow them to service and maintain equipment.

The market update conference call is scheduled for Thursday, December 17th at 9:30 am CST. To receive webcast details, register here. The call is open to the public.

PacWest/IHS presents on Responding to Change in the O&G Industry at Leadership Conference

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Divya Parambi, Senior Consultant and Business Development Director presented to a packed audience at the 12th Women’s Global Leadership Conference in Energy  on October 27-28 in Houston, Texas. The topic was “Responding to Change: The New Normal” in which she discussed  the cyclical nature of the O&G industry, stating,  “Coming into it we all know that oil and gas is cyclical and has always been cyclical, but the time between cycles and recovery has changed over time.”  Parambi points out that in the market today, supply has exceeded demand since early 2014 and the gap won’t narrow until Q3 2016. It will be a bumpy road to recovery. Supply will not retreat, nor will demand grow swiftly enough to sustain a status quo, resulting in the downturn being low and prolonged.

One of the biggest take-aways from the presentation is centered around the strategies companies will use in response to lower oil price and the decline in activity.  Parambi suggests 1) Survival: Driving Cost Efficiencies:  H15/2016 will have maximum capital efficiency of NAM shale production, but part of that driven by shift in focus back to the best wells. Additionally, we’ll see ~25%/~35% improvement in drilling/completions costs respectively.  And 2) Differentiation: Capital Discipline in which we’ll see upstream spending decline 26%/8% in 2015/2016; then recovery starts. Engineering redesign & standardization will continue to drive down complexity costs; and innovations in digital & automation technology & re-think of project concepts.

15Q3 Is Trough In Frac Pricing, D&C Activity; Small, Slow Recovery in 15Q4

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PacWest Consulting Partners, an IHS Inc. company, is pleased to announce it will be hosting a conference call on Wednesday, September 2nd at 9:30 am CST to discuss its outlook for the hydraulic fracturing market, based on its recently published PumpingIQ report. IHS forecasts 15Q3 as the low point for the North American hydraulic fracturing services market. D&C activity continued to fall through the quarter, though a small, slow recovery should improve the market during 15Q4. Frac demand in the US Land market will fall by 37% in 2015 and the number of frac stages is expected to fall by 34% in 2015, compared to a 45% fall in rig count American frac capacity additions continue to be pushed back, as manufacturers have reported very few orders for newbuild equipment, and retirements have been limited. The majority of excess equipment from closures and bankruptcies has found its way to new firms rather than exiting the market, adding to an already high 7.9 million HHP in stacked frac capacity. Frac pricing is expected to fall by 35% by year-end 2015 (compared with year-end 2014 pricing). The first major round of pricing concessions in 15Q1 sent frac pricing down 19%. A second round of concessions in 15Q2 has seen pricing drop another 12%, with incremental pricing reductions through 15H2 expected. Operators continue to report that unsolicited bids are common and many pumpers are engaging in aggressive price discounts to win work and position themselves for the eventual recovery. Unless the recovery in D&C activity ramps up more quickly than current forecasts, substantial recovery in frac pricing is not expected until early 2017. Frac pricing is expected to fall by 37% by year-end 2015 (compared with year-end 2014 pricing). There does not appear to be much room for further pricing concessions despite the persistence of below-cost bids by

some service providers. Many frac service providers have cited pushback from vendors already operating at, or just above, costs. We believe that the recent temporary recovery in oil prices has delayed shutdown for many frac services firms pursuing unsustainable pricing and that some of those firms will confront decisions on whether to continue operations in late 2015. Substantial recovery in frac pricing is not expected until early 2017. PacWest will hold a conference call on Wednesday, September 2nd at 9:30 am CST to discuss its outlook for the market. To receive webcast details, register here. The call is open to the public.

ProppantIQ 15Q1 Market Update Call on 7/22

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NAM proppant market consumption forecast downgraded due to reduced frac activity; increasing frac sand consumption per horizontal well is a silver lining

As per the most recent ProppantIQ, published June 2015, NAM proppant consumption expected to decline 23% in 2015.  Year-over-year, frac sand, RCS and ceramics volumes are forecast to decline 21%, 41% and 59%, respectively.  RCS and ceramic volumes impacted more due to lower activity in key regions such as the Bakken, Permian and Canada, as well as some substitution of RCS and ceramics with cheaper sand.

The one bright spot remains increasing frac sand consumption per horizontal well due to greater number of stages per well and increasing proppant volumes per stage.  On a related note, over the trailing four quarters, frac sand consumption per horizontal well increased 15%.

Proppant supply growth especially frac sand remains robust, resulting in a weak pricing environment.  We forecast that proppant prices will decline by 9% per annum over the next 3 years.

The shortage of railcars and specialized trailers for hauling frac sand has reversed to a surplus and we expect the surplus to continue for many years.

Rail companies remain reluctant to lower freight rates, albeit overall rates are lower now due to lower fuel surcharge.  This has a direct impact on the delivered cost of proppant: we estimate greater than 75% of all sand is transported by rail and freight costs comprise greater than 40% of the delivered cost of proppant to the frac site.  As a result, Frac sand mines in Texas and the southeast, which are closer to the frac site, and have lower delivered cost of proppant to the frac site due to the avoidance of rail freight charges are experiencing higher volumes.

Proppant prices could trend below full cycle costs in the short-term and the period of supernormal profits for the proppant industry is over.  In fact, Samir Nangia, Managing Director, estimates prices could decline below full-cycle costs due to excess inventory and price recovery in the future could be slow and gradual due to low capacity utilization.

We also expect slower adoption of new technologies and innovation due to lower oil prices, as producers focus on cutting costs relatively more than boosting productivity through adopting more advanced well completion techniques.

Please join us for a conference call on Wednesday July 22nd at 9:30am CST to discuss our perspectives on the North American proppant market. Register here to receive webex call details. The call is open to the public.

For more information, please contact Jennifer Thomas 713.929.3285

PacWest/IHS Unconventional Market Update, 15Q1 Conference Call June 25th

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Pricing Down 35% in North American Frac Market; Slow Recovery Expected

We are pleased to announce we will be hosting a conference call on Thursday, June 25th at 9:30 am CST to discuss its outlook for the hydraulic fracturing market, based on our recently published PumpingIQ reports.

We forecast a slow recovery in the North American market for hydraulic fracturing services.  D&C activity in North America should find a bottom in 15Q3, before beginning a slow but steady improvement. Despite some recovery in oil prices in 15H1, rig count is less than half the level of 14Q4. Low utilization and falling prices are creating major challenges for frac companies.

Frac demand in the US Land market will fall by 35% in 2015 and the number of frac stages is expected to fall by 32% in 2015, compared to a 44% fall in rig count. North American frac capacity additions have been scaled back significantly from 6 months ago. While most capacity contracted for 15H1 delivery has been received, capacity slated for 15H2 delivery has largely been pushed back to 2016.

Frac pricing is expected to fall by 35% by year-end 2015 (compared with year-end 2014 pricing).  The first major round of pricing concessions in 15Q1 sent frac pricing down 19%. A second round of concessions in 15Q2 has seen pricing drop another 12%, with incremental pricing reductions through 15H2 expected.  Operators continue to report that unsolicited bids are common and many pumpers are engaging in aggressive price discounts to win work and position themselves for the eventual recovery.  Unless the recovery in D&C activity ramps up more quickly than current forecasts, substantial recovery in frac pricing is not expected until early 2017.

The market update conference call is scheduled for Thursday, June 25th at 9:30 am CST. To receive webcast details, register here. The call is open to the public.

 

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