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U.S. Frackers Arise From Oil-Price Rout on a Course to Dominate 2018


January 12, 2018 by David Wethe
(Bloomberg)
Less than two weeks in, 2018 is shaping up to be the year of the fracker.

The world’s two biggest oilfield service providers, Schlumberger Ltd. and Baker Hughes, are the best performers in the Standard & Poor’s 500 Energy Index this year. Even smaller rivals are cashing in on investor enthusiasm over a 50 percent rise in oil prices since late June.

Enter Liberty Oilfield Services Inc., the Denver-based provider of hydraulic fracturing that climbed 28 percent in its Friday debut as a public company. After pricing its IPO at $17 a share, Liberty jumped to $21.77 in New York trading, boosting its market value to $2.6 billion.

“The timing has turned out well for us,” said Chris Wright, chief executive officer for the 6-year-old company, in a phone interview. “We’re basically a bunch of highly competitive tech nerds that built organically from the ground up a frack company.”

Oilfield-service providers, which oil companies hire to do everything from mapping prospects to maximizing field output, were the first to get clobbered when the worst crude-market crash in a generation kicked off in 2014. They accounted for the largest chunk of job cuts that cast hundreds of thousands out of work and incurred massive financial losses.

Now, the service providers are poised to benefit more than any other subsector of the oil industry, according to Bloomberg Intelligence.

Blasting Rock
One key profit driver for that tranche of companies has been ever-more-complex hydraulic fracturing, or fracking, which entails blasting water, sand and chemicals deep underground to release trapped hydrocarbons, analysts Mark Rossano and Peter Pulikkan of Bloomberg Intelligence wrote in a report Friday.

“Technology is a major part of Liberty’s competitive advantage,” said Wright, a Massachusetts Institute of Technology-trained electrical engineer. “It’s a massive part of the reason for why even in the downturn we grew our business meaningfully in 2015 and 2016.”

Halliburton Co., Schlumberger and closely-held BJ Services are the Big 3 of fracking, each with more than 2 million horsepower in rock-blasting pumps, according to Tulsa-based industry consultant Spears & Associates.

While the size of Liberty’s frack fleet doesn’t crack the top 10, there is one metric where it shines: the company generated the most sales-per-available-horsepower last year at $1,961. Liberty is expanding its fleet and expects to have 1.03 million horsepower by the end of the second quarter, Wright said.

‘Pretty Strong’
Expansion by other frackers is being closely watched. North American fracking capacity probably will grow 8 percent this year to 24 million horsepower, according to Spears. Prices charged for fracking climbed nearly 30 percent last year and are on pace to grow another 5 to 10 percent this year, said Samir Nangia, a director at industry consultant IHS Markit Inc.

“By our view of it, those horsepower additions are still lower than the increase in demand for horsepower this year,” Liberty’s Wright said. “It looks like the frack market will be pretty strong this year.”

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