OKLAHOMA CITY – An energy industry consultancy predicts that fracking services demand in the U.S. will not return to pre-pandemic levels for at least five years.
Reuters news agency reported the claim from Rystad Energy, an energy research and business intelligence company based in Houston, Texas.
Recovery in demand for hydraulic fracturing services will be “slow and painful,” said Thomas Jacob, vice president of shale research at Rystad. Even if U.S. oil prices climb back to above $60 per barrel, Jacob said, between 250 and 300 fracking f leets will be enough to meet demand, versus a peak of more than 400 fleets in 2018.
Rig activity today is lower than that requirement, Rystad Energy reported. However, the industry still has approximately two to three quarters of leverage, based on the current drilled-but-uncompleted (DUC) count, to achieve a smooth transition from a DUC-driven activity phase to a regular operations mode, Rystad said. The nationwide DUC inventory reached a peak of about 5,800 wells before starting to decline in July, records reflect.
DUCS WILL SUPPORT FRACKING FOR AWHILE
“Fracking activity for the rest of this year and early 2021 will be supported by the existing, abnormally high level of DUCs, though not all DUCs will be brought online quickly, said Artem Abramov, Rystad Energy’s head of shale research. “Large, well-established operators will stay committed to capital discipline, only increasing their completion spend gradually in the current price environment.”
The number of active drilling rigs operating across the nation averaged 256 in September, Baker Hughes ledgers showed.
Oklahoma counted 12 active oil/gas rigs on September 25. Almost all new wells spudded in Oklahoma “are fracked to bring them into production,” said Matt Skinner, public information officer for the state Corporation Commission.
U.S. oil and gas activity collapsed in March 2020 as COVID-19-related lockdowns and a brief price war crushed oil prices. Although some fracking activity has resumed, oil was trading in the lower $40 range September 25.
OilPrice.com reported U.S. benchmark West Texas Intermediate crude commanded $40.04/barrel, and Brent crude brought $41.92/barrel. MarketWatch reported WTI for November delivery was trading at $40.25, and November Brent was trading at $41.92.
Rystad Energy forecast six weeks ago that if WTI remained at $40, more than two dozen additional exploration and production (E&P) companies would file for Chapter 11 bankruptcy this year.
On another front, energy company stocks took a beating on Wall Street last week.
MERGERS, BANKRUPTCY THINNING THE INDUSTRY
Rystad’s Jacob warned that oversupply in the U.S. fracking market would stretch into 2021, and said more consolidation is needed to help balance the industry despite a significant amount of equipment being scrapped.
In that vein, Devon Energy, an independent oil/ gas E&P based in Oklahoma City, announced Monday its acquisition of WPX Energy, a Tulsa-based independent energy producer.
Also, oilfield services provider Schlumberger Ltd., based in Houston, announced September 1 it is selling its U.S. and Canadian fracking business to Liberty Oilfield Services of Denver, Colo., in exchange for a 37% stake in Liberty.
“We need more deals like that to come through,” Jacob told Reuters. Several shale-focused exploration and production companies face financial distress or have already filed for Chapter 11 bankruptcy protection, Rystad Energy noted.
Fracking services company FTS International filed September 23 for bankruptcy protection after reaching an agreement with creditors on a debt-for-equity swap. FTS, headquartered in Fort Worth, Texas, has field offices in Elk City and in Louisiana, Pennsylvania and Utah.
Oklahoma City’s Chaparral Energy filed for Chapter 11 reorganization bankruptcy on August 16, after previously declaring bankruptcy in 2017. And Chesapeake Energy in Oklahoma City sought Chapter 11 bankruptcy protection in late June.