PacWest Pressure Pumping Presentation, Aug 2011
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PacWest Consulting Partners 7941 Katy Freeway, Suite 309
Houston, TX 77024
Overview of Key Pressure Pumping Markets Market Update – August 31, 2011
Christopher Robart
Principal, PacWest Consulting Partners
crobart@pacwestcp.com
CONFIDENTIAL FOR INTERNAL USE ONLY
TERMS & CONDITIONS Information furnished in all reports produced by PacWest may be used by Client for internal purposes, as Client deems beneficial, as long as due care is taken to hold the information confidential within Client’s organization and PacWest is not liable for the information provided. All rights to the information remain with PacWest. PacWest represents that it will not breach any obligation of confidentiality with respect to information contained in the study. PacWest will maintain in confidence and not disclose any information related to Client, without prior written consent of the Client. PacWest will not disclose to any person, including, without limitation, any of the Client’s competitors or suppliers, the fact that Client has engaged PacWest in this project scope, the scope of the assignment or any other information relating to Client.
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 2
Agenda
PacWest’s Market Intelligence Services
Pressure Pumping Market Overview
Frac Crew Deployment
Bakken Case Study
Questions
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 3
PacWest Market Intelligence Services
PacWest has provided its strategic intelligence capabilities to oil and gas clients for years and has recently begun to make them more widely available.
Our suite of Market Intelligence services spans the following:
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 4
Actionable Intelligence for Decision Makers
Actionable Intelligence
The PacWest team:
■ Transforms volumes of disparate market data, insider industry activity and expert input into strategic and actionable recommendations for decision-makers
■ Aggregates, organizes and distills a wide range of data and intelligence to provide information to our clients that is comprehensive, focused and strategic
■ Analyzes this information to assess its strategic implications and provide a clear path of action for each stakeholder
Decision Makers
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 5
Comprehensive Methodology
Many of the insights are based on:
■ Surveys from operators and suppliers
■ In-depth interviews and conversations with operators and suppliers
■ Industry-leading experts and technical specialists
■ Budgetary estimates
■ PacWest proprietary databases
Primary Research
These sources are regularly consulted:
■ Market research and reports
■ Company annual reports, 10-Ks, 10-Qs
■ Speeches and presentations by company leadership and other industry experts
■ Analyst reports from leading banks
■ Government data
Secondary Research
PacWest uses a multi-pronged approach to develop its market intelligence offerings. The team:
1) Gathers and reviews all information available publicly and via proprietary databases
2) Engages its diverse network of industry contacts to gather real-time intelligence
3) Processes and synthesizes raw information into actionable intelligence
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 6
Agenda
PacWest’s Market Intelligence Services
Pressure Pumping Market Overview
Frac Crew Deployment
Bakken Case Study
Questions
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 7
2011 Supply and Demand Balance – US Land Pressure Pumping
Source: CIBC World Markets; Macquarie; PacWest analysis
The US Land pressure pumping market is significantly under-supplied
100%
131%
9%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
Supply Demand
Pre
ssu
re P
um
pin
g C
apac
ity
Uti
lizat
ion
Backlog
New Completions
8,534,250 HP
735,890 HP
11,935,890 HP
11,200,000 HP
The under-supply is not expected to be relieved until late 2012 or early 2013
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 8
The tight supply market is driving up prices for pressure pumping prices, with cost escalation most severe in hot liquids plays
Forecast of Pressure Pumping Price Increases (2011 – 2014)
Source: PacWest Shale Market Research Service, 2011 Q2 Release
19.4%
6.9% 5.3% 6.0%
29.3%
9.9%
7.4% 8.2%
26.1%
8.9% 6.7% 7.4%
12.5%
4.8% 3.9% 4.4%
0%
5%
10%
15%
20%
25%
30%
35%
2011 2012 2013 2014
An
nu
al C
ost
In
cre
ase
US Land
Bakken
Eagle Ford
Marcellus
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 9
Manufacturers of pressure pumping equipment are operating at full capacity and are experiencing order backlogs up to 1-yr for critical parts
Frac Pump Backlogs
Backlog currently extends into 2012 Q1, with lead times close to 1 year
New Destiny pump line at capacity for 2011 as of late July
Growth driven largely by OE orders, which were 180% ahead of plan; now account for 55% of input vs. 36% 1 year ago
Early 2012 customer discussions positive; potential for frac pump business to be $500MM+ in H2
Weir SPM Backlog current extends
into 2012 Q1 and backlogs are currently at record highs
Have seen 100%+ YoY increase in both pump and fluid end orders
Current OE/AM mix stands around 75/25; expect to be 60/40 in 1-2 years
Management is concerned frac unit and component, particularly engines, constraints holding back pressure pumping market growth
Gardner Denver Backlog extends into 2012
with nearly 40% of 2012 capacity tentatively committed, though expect to see some of 2012 demand released in H2
Fluid Control backlog currently at a record $421MM
Currently looking at 9-12 month lead time for pumps and 2-4 weeks for flow iron
FMC
Source: PacWest analysis
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 10
Manufacturers are responding with major capital investments to fuel capacity expansions, and other actions to satisfy demand
Frac Pump Capacity Expansion Initiatives
In midst of $40MM upgrade to Ft. Worth facility; increase pump capacity 30-35% by Apr 2012
Just announced incremental $75MM investment; increase pump capacity additional 20-25% by EOY 2012
Weir SPM Halfway through
$20MM upgrade of Fort Worth and Tulsa pump manufacturing facilities; doubling capacity by Apr 2012
Aggressively increasing aftermarket fluid end capacity; already doubled YoY and plan on another doubling in next year
Gardner Denver Unclear what portion
of a $200MM spend is going towards pump capacity expansion
Portion of pump capacity expansions coming online in H2, with full completion targeted for year-end
Flowline capacity expansions coming online in H2
FMC AXON: launching 2nd
generation frac pump and expanding capacity to support it
OFM: recently expanded mfg. facility 40-60%
J-Mac: recently launched frac pump line
Dixie/MSI: recently launched frac pump
Southwest/Global Energy: potentially launching frac pump
New Entrants
Oth
er
Init
iati
ves
Cap
ital
Inve
stm
ents
Implemented lean mfg. to increase throughput
Implemented lean mfg. and re-engineered processes
Extended H1 capacity 20-25% through outsourcing components, reliance on 3rd party machining
Expanding use of machine tools around the world to extend frac pump capacity
Source: PacWest analysis
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 11
0
500
1,000
1,500
2,000
2,500
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Lan
d R
igs
US Land Rig Count (Aug 2009 – Aug 2011)
Source: Baker Hughes
On the demand side, US Land rig count has rebounded dramatically since 2009, driving demand of pressure pumping services
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 12
The focus on oily plays is evident in the US Land rig count: oil drilling activity finally overtook gas drilling activity in early 2011
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Pe
rce
nta
ge o
f La
nd
Rig
s
Oil
Gas
US Land Rig Count – Oil vs. Gas (Aug 2009 – Aug 2011)
Source: Baker Hughes
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 13
The dominance of unconventionals is also evident in the US Land rig count: increases in directional drilling has driven the rig count
0
500
1,000
1,500
2,000
2,500
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Lan
d R
igs
Directional/Horizontal
Vertical
US Land Rig Count – Dir/Hor vs Vert (Aug 2009 – Aug 2011)
Source: Baker Hughes
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 14
1,709
1,950 2,020
2,089
0
500
1,000
1,500
2,000
2,500
2011 2012 2013 2014
Lan
d R
igs
US Land Average Rig Count Forecast (2011-2014)
Source: PacWest Analysis; Macquarie
Most analysts expect the rig count to increase through 2014
Current: 1,740 rigs (8/19/11)
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 15
The Marcellus, Bakken, and Eagle Ford account for nearly 30% of US Land drilling activity
0
500
1,000
1,500
2,000
2,500
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Lan
d R
igs
Other US Land (69% of US Land)
California shales (2% of US Land)
Appalachian (8% of US Land)
Bakken (10% of US Land)
Eagle Ford (12% of US Land)
Rig Count: Key Plays (Aug 2009 – Aug 2011)
Source: Baker Hughes
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 16
Eagle Ford and Bakken are in a major growth phase, California is still an emerging play, and the Marcellus is a relatively mature play
-50%
0%
50%
100%
150%
200%
250%
300%
350%
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Lan
d R
igs
Eagle Ford (+309%)
Bakken (+276%)
Appalachian (+50%)
California shales (+258%)
US Land (+100%)
Rig Count Growth Rate: Key Plays (Aug 2009 – Aug 2011)
Source: Baker Hughes
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 17
Liquids-rich Eagle Ford is projected to be one of the most active plays in the country
0
50
100
150
200
250
Au
g-0
9
Oct
-09
Dec
-09
Feb
-10
Ap
r-1
0
Jun
-10
Au
g-1
0
Oct
-10
Dec
-10
Feb
-11
Ap
r-1
1
Jun
-11
Directional/Horizontal
Vertical
Land Rigs
193
240 270
300
0
50
100
150
200
250
300
350
2011 2012 2013 2014
Current: 229 rigs (8/19/11)
Land Rigs
Source: PacWest Analysis; Macquarie; Baker Hughes
Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast
Eagle Ford Rig Count & Forecast
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 18
18% 18%
17%
13% 12% 12%
8%
1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Mar
ket
Shar
e
Eagle Ford Pressure Pumping Market (Jan 2011 – Jun 2011)
Source: PacWest Frac DB (under development)
Frac Tech, BJ, and SLB are the dominant pumpers in 2011 H1 in the Eagle Ford, while Chesapeake is the dominant operator
35%
17% 16%
6% 5% 3% 3% 3% 3% 2% 2% 2% 1% 1% 1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Ch
esap
eake
Pet
roh
awk
An
adar
ko
El P
aso
Shel
l
Pen
n…
Pio
nee
r
Cab
ot
XTO
Ener
vest
Talis
man
Fore
st
Pla
ins
Ch
evro
n
Hes
s
Mar
ket
Shar
e
Supplier Market Share Operator Market Share
PRELIMINARY ANALYSIS
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 19
Analysts expect higher gas prices through 2014, which will drive significant rig count growth in the Appalachian
0
20
40
60
80
100
120
140
160
180
Au
g-0
9
Oct
-09
Dec
-09
Feb
-10
Ap
r-1
0
Jun
-10
Au
g-1
0
Oct
-10
Dec
-10
Feb
-11
Ap
r-1
1
Jun
-11
Directional/Horizontal
Vertical
Appalachian Rig Count & Forecast
Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs
145
175 200
250
0
50
100
150
200
250
300
2011 2012 2013 2014
Current: 147 rigs (8/19/11)
Source: PacWest Analysis; Macquarie; Baker Hughes
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 20
27%
16% 14%
11% 11%
8%
5% 4% 3% 1%
0%
5%
10%
15%
20%
25%
30%
Mar
ket
Shar
e
Marcellus Pressure Pumping Market (Jan 2011 – Jun 2011)
Source: PacWest Frac DB (under development)
Halliburton is the dominant pumper in 2011 H1 in the Marcellus, while Chesapeake is again the dominant operator
27%
11% 11% 9%
7% 7% 5% 4% 4% 3% 3% 3% 3% 2% 2%
1% 0% 0%
5%
10%
15%
20%
25%
30%
Ch
esap
eake
Cab
ot
Talis
man
An
adar
ko
Shel
lEQ
T
Atl
as
Exco
Ran
ge
Will
iam
s
Ch
evro
n
Sen
eca
EOG
Sou
thw
es…
Ener
gy…
PD
C…
XTO
Mar
ket
Shar
e
PRELIMINARY ANALYSIS
Supplier Market Share Operator Market Share
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 21
California shales are still a question mark in the mind of most analysts and they have not yet factored in its impact on the market
0
5
10
15
20
25
30
35
40
45
50
Au
g-…
Oct
-09
Dec
-…
Feb
-10
Ap
r-1
0
Jun
-10
Au
g-…
Oct
-10
Dec
-…
Feb
-11
Ap
r-1
1
Jun
-11
Directional/Horizontal
Vertical
California Shale* Rig Count & Forecast
Note: California Shale rig count is focused on counties in shale plays. It includes Colusa, Fresno, Kern, Kings, Los Angeles, and Sutter counties, although the majority of drilling activity is in Kern county.
18
22
26
30
0
5
10
15
20
25
30
35
2011 2012 2013 2014
Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs
Source: PacWest Analysis; Macquarie; Baker Hughes
Current: 43 rigs (8/19/11)
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 22
Bakken continues to experience growth challenges, which will be discussed later in this presentation
0
20
40
60
80
100
120
140
160
180
200
Au
g-0
9
Oct
-09
Dec
-09
Feb
-10
Ap
r-1
0
Jun
-10
Au
g-1
0
Oct
-10
Dec
-10
Feb
-11
Ap
r-1
1
Jun
-11
Directional/Horizontal
Vertical
Bakken Rig Count & Forecast
Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs
180 200
210 220
0
50
100
150
200
250
2011 2012 2013 2014
Current: 184 rigs (8/19/11)
Source: PacWest Analysis; Macquarie; Baker Hughes
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 23
Agenda
PacWest’s Market Intelligence Services
Pressure Pumping Market Overview
Frac Crew Deployment
Bakken Case Study
Questions
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 24
Staffing experienced crews is a critical challenge faced by pressure pumping service providers
■ Completion increases = HHP increases = Frac crew increases = Need for trained staff!!
■ North American pressure pumping industry is expanding rapidly (~20% YoY increase 2010-2011) and needs to add new hires to meet expansion targets
■ Major increases in completions require major increases in frac crews, for example:
- Typical 25K HHP frac fleet in the Bakken requires 2-3 crews of 30 staff = 60 – 90 experienced employees
- PacWest forecasts an increase in frac fleets in the Bakken from 38 fleets (May 2011) to 52 fleets (year-end 2011) = 840-1,260 experienced employees
■ Fact: Critical driver of oilfield safety = experienced staff
■ Problem: There are no more experienced field workers left; pumpers are forced to manage deployment of large numbers of inexperienced employees
The Quality vs. Quantity Dilemma
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 25
Pressure pumpers are deploying equipment and staff from other regions when possible, but there are limitations to this approach
Frac Fleet Redeployment
Pumpers are deploying staff and equipment from nearby plays
However, the prevalence of dedicated contracts and ‘take-or-pay’ relationships is constraining the number of available staff and equipment for redeployment
Majority of US Fleets dedicated
Pressure Pumper % Dedicated BJ Services 50% Cudd 60% Frac Tech 70% Schlumberger 60%-70% Pumpco 74% Superior 80%-90%
Few Existing Deployment Options
Roughly 60-65% of fleets
dedicated
■ For example: Calfrac has redeployed frac fleets from its Colorado base to the Bakken but it still does not have a sufficient facilities for major maintenance so it drives frac trucks back to Colorado every 1-2 months to service equipment
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 26
Most pressure pumpers depend heavily on non-local employees to meet staffing needs
■ Flex crews = non-local employees working at a local base on a temporary basis
■ Flex crews typically spend 2-3 weeks working 17 hours or more per day and then have 1-2 weeks off before returning to the local base
■ All service companies have reported using flex crews to some degree
- Larger companies (e.g. Halliburton) often meet half of their staffing needs with flex crews in some areas
- Smaller new entrants are sometimes forced to depend entirely on flex crews
■ Companies trying to hire locally, but there are few suitable potential hires in many hot areas (e.g. Eagle Ford, Bakken)
■ Pumpers have admitted that they will never be able to eliminate flex crews entirely in more remote areas
Pressure Pumping “flex crews”
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 27
There are significant differences in the commitment of pressure pumping companies to safety
…
Employee Training & Management
Staff Deployment Training
All pressure pumpers have training programs to orient ‘greenhats’ to the oilfield and provide them with the basic knowledge and skills to safely and effectively operate frac equipment
Programs vary widely in structure, duration, and effectiveness
However, no training programs can substitute for solid field experience
More important is how companies balance the deployment of inexperienced employees vs. experienced employees in a crew
Good = Majority experienced employees + minority inexperienced, which provides mentors upon which greenhats can depend
Bad = Minority experienced + majority inexperienced… a recipe for disaster
■ For example: A former Sanjel employee in the Bakken reports often being deployed in crews where the majority of staff had less than two months of oilfield experience
- Outcome: Multiple cases of splitting iron and debilitating injuries
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 28
Agenda
PacWest’s Market Intelligence Services
Pressure Pumping Market Overview
Frac Crew Deployment
Bakken Case Study
Questions
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 29
Overwhelming demand in the Bakken is expected to lead to a significant under-supply of pressure pumping capacity for 2011
100% 133%
166%
199% 21%
28%
35%
42%
0%
50%
100%
150%
200%
250%
15 20 25 30
Pre
ssu
re P
um
pin
g C
apac
ity
Uti
lizat
ion
Average Stages per Well
2011 completions + backlog
2011 completions
121%
161%
201%
241%
Sensitivity Analysis of 2011 Bakken Pressure Pumping Capacity Utilization
Sources: CIBC World Markets; Macquarie; PacWest analysis
100%
utilization of
2011
capacity
The Bakken will be 61% under-supplied in 2011, conservatively assuming 20 stages/well
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 30
114% 109% 104% 100%
45% 43%
42% 40%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
30% 40% 50% 60%
Pre
ssu
re P
um
pin
g C
apac
ity
Uti
lizat
ion
Capacity Growth (2011 – 2012)
2012 completions + backlog
2012 completions
159% 152% 146%
140%
Sensitivity Analysis of 2012 Bakken Pressure Pumping Capacity Utilization
100% utilization
of 2012
capacity
Source: CIBC World Markets; Macquarie; PacWest analysis
Demand will continue to outpace supply for pressure pumping capacity into 2012 in the Bakken
Note: Sensitivity analysis assumes an average of 20 frac stages / well in 2012, a conservative estimate
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 31
Drilling & completion activity in the Bakken is up considerably and continued increases are forecast
49
184
0
20
40
60
80
100
120
140
160
180
200
Au
g-0
9
Sep
-09
Oct
-09
No
v-0
9
Dec
-09
Jan
-10
Feb
-10
Mar
-10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
Dec
-10
Jan
-11
Feb
-11
Mar
-11
Ap
r-1
1
May
-11
Jun
-11
Jul-
11
Rig
Co
un
t
Forecast Bakken D&C Activity Metric 2011 2012 2013 2014 Average rig count 180 200 210 220 Drilling days / well 32 31 30 30 New completions 2,053 2,355 2,555 2,677
Sources: Baker Hughes, Macquarie, CIBC World Markets, PacWest analysis
Bakken Rig Count (Aug 2009 – Aug 2011)
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 32
Pressure pumping companies are significantly expanding their capacity in the Bakken in response to increased demand…
1
2
2
2
3
5
3
7
1
1
1
1
4
5
2
1
1
2
3
1
2
2
0 2 4 6 8 10 12 14
Cudd
Pumpco
Calfrac
Superior
BJ Services
Frac Tech
Schlumberger
Sanjel
Halliburton
Current dedicated fleets* Current spot fleets* Future 2011 fleet additions
Sources: company documents, interviews
Bakken Pressure Pumping Equipment
Fleets
Current dedicated 25 Current spot 14 Total current 38 Future additions 14 Total year-end 52
HHP Current 773 Year-end 1,074
Bakken Pressure Pumping Supply (May 2011)
Note: “Spot” fleets are not necessarily available; only implies not in long-term dedicated contract; little to no scheduling availability remains for most spot fleets in the 2011
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 33
… but supply chain constraints are holding back the deployment of new equipment and the ability to consistently supply pumping services
Logistics ■ Railway (primarily BNSF) import capacity into the Bakken is limited for all products,
particularly proppant due to the large volumes required (1 railcar has capacity of 200K lbs of proppant; average 3 million lbs frac job requires 15 railcars)
Proppant ■ Global proppant consumption has reached unprecedented levels and most domestic
producers are essentially sold out of product
■ Greatest constraint is in 20/40 raw sand
Guar ■ Demand has reached record highs and the guar supply chain is not highly responsive
due to its length (90% of raw guar seed grown in rural India)
Equipment ■ Manufacturers of pumping equipment reporting order backlogs of up to 1 year
Labor ■ Local labor force in the Bakken is limited and unemployment is extremely low
Bakken Supply Chain Constraints
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PRESSURE PUMPING MARKET UPDATE
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Bakken pressure pumping supply has been unable to keep pace with demand so well completion backlogs are growing
90 67
85 76 50
87 72
96
57 81
67 82
80 81
103 99 95 98 103
107 93
118
172
0
60
120
180
Day
s b
etw
ee
n W
ell
Spu
d a
nd
Co
mp
leti
on
Uncompleted Drilling Permitted
Bakken 429 162 413
Montana 57 6 67
North Dakota 372 156 346
0
100
200
300
400
500
Nu
mb
er
of
We
lls
Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis
Days Required for D&C in North Dakota
Bakken Well Count (May 2011)
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PRESSURE PUMPING MARKET UPDATE
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Operator D&C performance varies, in some cases depending on contracting practices
Sources: Montana Board of Oil & Gas; North Dakota Industrial Commission; PacWest analysis
4.5
3.6
3.4
3.0
2.8
2.7
2.6
2.4
2.0
1.9
1.8
1.0
0 1 2 3 4 5
Oasis Petroleum
Marathon
EOG Resources
Newfield
Slawson
Hess
ConocoPhillips
Brigham Oil & Gas
Zenergy
Whiting Oil & Gas
Continental Resources
Anschutz/OXY
Bakken Ratio of Uncompleted Wells to Active Rigs (May 2011)
7
45
29
12
17
13
48
17
15
34
25
27
Well
Backlog
7
25
15
6
7
5
18
6
5
10
7
6
Rigs
Note: Well backlog is best estimate based on data from Montana and North Dakota oil/gas regulators; rig count is from April 2011
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 36
The Bakken supply/demand imbalance is not expected to improve drastically anytime soon so operators must contract accordingly
■ It is important to be proactive to develop long-term solutions rather than short-term fixes, while considering other infrastructure challenges
■ Operators should include terms in contract to incentivize for safety improvements, performance improvement
■ Avoid safety incidents by forcing service companies to provide their best crews, when possible
■ Consider using greenhat clauses or crew continuity incentives, similar to drilling contracts
Implications for Contracting Strategy in the Bakken
Client Confidential
PRESSURE PUMPING MARKET UPDATE
© PacWest 2011 | All rights reserved | 37
Agenda
PacWest’s Market Intelligence Services
Pressure Pumping Market Overview
Frac Crew Deployment
Bakken Case Study
Questions
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