PacWest Market Update 2014Q2 Conference Call Playback

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PacWest Market Update Conference Call for 2014Q2

PacWest hosted an open call on the hydraulic fracturing market on August 28th, 2014 at 9:30am Central Time.

You can download the audio from the call here: PacWest Market Update 14Q2

For questions or information on our latest WellIQ 0r PumpingIQ release, please contact Jennifer Thomas, jthomas@pacwestcp.com, 713 929 3285

PacWest Market Update Conference Call August 28th

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Frac is Back: Robust D&C Activity is Heating up the Frac Market in North America

Our 14Q2 release of PumpingIQ report, just published on August 15, 2014, provides an in-depth analysis and set of forecasts for the North American and International frac markets. We forecast strong market growth in the North American market for hydraulic fracturing services through 2016 due to robust drilling and completion (D&C) activity, with frac pricing increases expected through 2015.  Tightening market conditions are resulting in supply chain constraints in key growth plays.  Constraints in the availability of frac sand and the logistics capacity to transport the frac sand are leading to cost escalation and work delays.

D&C activity is robust in both the US Land and Canadian markets, with HZ wells frac’ed increasing 9% in 2014 and HZ frac stages increasing by 19%.  In the US Land market, significant growth in key plays – the Permian, DJ Basin, Utica – and continued growth in the Eagle Ford, Marcellus, and Bakken is driving growth across all D&C activity metrics, including rig count, well spuds, wells frac’ed, and frac stages.  In the Canadian market, strong growth in the Montney and Duvernay plays, in addition to growth in the Cardium and Deep Basin, is driving increases in D&C activity.

According to Managing Partner, Nilesh Dayal, “Rapidly tightening market conditions have resulted in price increases for many E&Ps.  After more than 3 years of pricing pressure in the frac market, the dam has finally broken for pricing, and service providers are finally having success in negotiating higher pricing.”

While market conditions are driving price increases, costs recovery on key consumables, including sand and chemicals are driving a large part of the increases. North American frac sand demand is expected to increase by nearly 30% in 2014, compared to 2013.  This has resulted in logistics constraints in both rail and trucking capacity and price increases across the sand value chain.

However, not all pumpers are consistently benefiting from price increases. Chris Robart, Partner notes that, “There has been wide variance in price increases across pumpers/customers, with some reporting price increases as high as 20% in key growth plays where market conditions are most tight. However, price negotiations will continue to be on-going and in many cases higher prices will not be implemented until late 2014.”

Given the evolving demand landscape and operational requirements, including aging fleets, continuous pumping operations, and increased refurbishment activity, we have begun analyzing the frac market in terms of “Marketed Capacity” and “Effective Utilization.”  Our analysis reveals that utilization is quickly improving, and estimates that raw utilization is 84% in 14Q3, while effective utilization is 90%, with higher rates in key growth plays.

In response to increased demand, pumpers have upgraded 2014 newbuild programs and have begun committing to sizable 2015 newbuild programs, with 1.4 million HHP in net capacity additions estimated for 2014 and 1.6 million HHP in 2015.  “While capacity additions may allow some pumpers to secure more work, it will be supply chain execution and delivery that will make or break their bottom lines,” adds Mr. Dayal.

We will hold a conference call on Thursday August 28, 2014 at 9:30am CST to discuss these and other views on the market. Call details are provided below. The call is open to the public.

Conference Call:

Dial-in: +1 (800) 830 3581

International Dial-in: (262) 320 4698

Passcode: 2922791

Presentation Link:

https://join.me/PacWest_Market_Update

 

For more information, contact Jennifer Thomas, 713.929.3285, jthomas@pacwestcp.com.

 

 

Mexico Hopes to Attract Drillers to its Shale Fields in the North

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The Mexican Senate is outlining the framework under which foreign companies will drill for oil and natural gas in Mexico, noted in the August 6th Dallas Business  News. “As a part of President Enrique Peña Nieto’s ambitious economic overhaul, the law is expected to open the door to what some believe could be more than $1 trillion in investment and create a new energy paradigm for North America.”

The Mexican government hopes it will draw activity to its shale fields in the north, just as the Eagle Ford Shale has done in Texas. However, there still exists the lack of geological data, as well as other struggles along the border, so it remains unclear on the region’s potential. “Everyone says it’s the same as the Eagle Ford, but there has not been much there in terms of exploration,” said Caldwell Bailey, senior consultant with PacWest Consulting Partners in Houston.

Full article at: http://www.dallasnews.com/business/energy/20140806-mexican-senate-passes-plan-to-radically-expand-energy-sector.ece

PacWest Cited on China Oilfield Services Market

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PacWest was quoted in the South China Morning Post last week in an article on Anton Oilfield Services Group (one of mainland China’s largest privately controlled oilfield services providers), as their share price fell 4.1% due to project delays and pricing pressure.

Neil Beveridge of Sanford Bernstein said “Anton’s aggressive expansion of capacity on pressure pumping for enhancing oil and gas output had proved to be “the wrong strategy”. This was because as industry capacity grew rapidly, demand was weaker than expected since corruption probes into oil giant PetroChina saw delays in new project approvals.”

Beveridge cited PacWest Consulting as tipping industry pressure pumping capacity utilization to return to 60 per cent in next year’s second half, after falling to 52 per cent in this year’s first half from 76 per cent a year earlier.

Read full article by Eric Ng at http://www.scmp.com/business/companies/article/1566274/anton-tumbles-profit-warning

WSJ Article Quotes PacWest Sand Consumption Forecasts

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In an August 4th Wall Street Journal article on frac sand demand, it explains that it will continue to increase.

Piling up image

“Frackers are expected to use nearly 95 billion pounds of sand this year, up nearly 30% from 2013 and up 50% from forecasts made by energy-consulting firm PacWest Consulting Partners a year ago.”

Energy analysts at RBC Capital Markets indicated that about a fifth of onshore wells are frac’ed with extra

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sand, but that could reach 80% of all shale wells in the near future. The article continues, noting that Industry leaders agree that there is really “no limit on the demand side.”

With large industrial sand companies raising prices, some companies, such as Pioneer Natural Resources and Halliburton are experimenting with using more than sand.

Full article by Alison Slider at http://online.wsj.com/articles/demand-for-sand-takes-off-thanks-to-fracking-1407193760

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