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 [email protected]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.
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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
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.
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:
■ 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
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
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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.
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Rig Count – Dir/Hor vs Vertical Average Rig Count Forecast Land Rigs Land Rigs
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
■ 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
There are significant differences in the commitment of pressure pumping companies to safety
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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
Pressure pumping companies are significantly expanding their capacity in the Bakken in response to increased demand…
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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
… 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