Painting a Picture: The Perils of US Shale

PanXchange Blog

The team at PanXchange wanted to shed some perspective on how calamitous of a downturn this has been for the US OFS and frac sand markets. The week ending February 28 (the first full week after Black Monday), the frac spread count (a key performance indicator for US shale) in the US lower 48 was 318. As of May 15, the frac spread count was 45. In a 10-week time frame, Approximately 275 frac crews were taken offline (86% of the total fleet). On average, according to the Houston Chronicle, there is an average of roughly 30 on-site workers per frac crew, which equates to likely over 8,000 workers released, furloughed, or soon to be one of the former. Keep in mind this just accounts for workers in the field related to fracturing, let alone drilling, other operational functions, or even in the corporate office of the E&P company or the service provider!

According to a study by Bank of America, there was an aggregate capacity of approximately 25 million hydraulic horsepower in the US as of Q4 2019. Based on a simple calculation of average hydraulic horsepower per frac spread, PanXchange estimates 12 million out of 13 million active hydraulic horsepower sidelined since mid-late Q1. This yields a woeful 4% utilization rate for estimated US total frac capacity. Also, it should be noted that 10% of the available capacity in 2019 (2.5 million hydraulic horsepower) was already earmarked for use as scrap metal.

PanXchange estimates that the current daily US frac sand demand (using an average annual sand tonnage per frac spread of 330,000 short tons per year per spread) is down approximately 90%, from approximately 340,000 tons per day in 2019 to only 40,000 tons per day based on the latest Primary Vision frac spread count.

Despite the recent rally in oil prices (with particular attention paid to the WTI benchmark price, which has risen above $30 per barrel), rig counts and frac spread counts continue to trend lower. While crude oil storage concerns have been easing and prices have risen, the fact remains that a substantial amount of domestic production has been shut-in. Until capital expenditure on drilling and completing new wells makes economic sense with respect to the crude oil market overprint,  this remains a harsh reality for oilfield services and product suppliers.