ProPetro’s Low-Carbon Future Still Begins and Ends in the Permian

Hot on the heels of ProPetro's 2022 divestiture and an acquisition campaign, CEO Sam Sledge’s high convictions for the company focus on resiliency and sustainability in the backdrop of the Permian Basin.

Founded in 2005, the Midland, Texas, company grew from a frac fleet and a half in 2010 to 27 frac fleets in 2019.

“It was massive, aggressive growth,” said Sledge, who joined the company in 2011 and was named its CEO a decade later. “We were built to do that very well.”

But the company has shifted focus to ensure it’s equipped with the right resources to be successful in the long run, he said.

“As a public company, you get pushed to manage on a quarter-by-quarter basis by investors,” he said. “But our highest priority is evolving and building a company that can sustain whatever future cycles are to come and take advantage of the tighter times like we’re seeing right now.”

That means optimizing the current business, transitioning the company’s assets for a lower carbon future and making strategic and opportunistic investments and entering partnerships.

“We are internally shifting our mindsets and our processes toward being more sophisticated [and] more efficient internally than we were in the past, when [ProPetro] was just more focused on adding the next crew, the next piece of equipment [or] the next team,” Sledge said.

Part of optimizing the business included selling the company’s noncore coiled tubing assets in September to STEP Energy Services in an equity transaction with a small cash component deal for roughly $13 million.

Another part is the company’s twofold “Regen and Defend” program. Regen focuses on efficiently moving equipment out of the shop, while Defend focuses on preserving and lengthening the life of equipment on location through consistent maintenance practices in the field.

“It’s fixing it faster at the shop, and it’s breaking it slower in the field,” Sledge said.

“We are internally shifting our mindsets and our processes toward being more sophisticated, more efficient internally than we were in the past when it was just more focused on adding the next crew, the next piece of equipment [or] the next team.”—Sam Sledge, ProPetro

At the same time, ProPetro is winding down investment in equipment that burns only diesel in favor of a “pretty aggressive” increasing investment into dual-fuel equipment that also burns natural gas, as well as electric equipment.

At the end of 2021, ProPetro had 12 fleets running only diesel and one dual-fuel fleet. By the end of 2022, shifted to 10 diesel-only fleets and five dual-fuel fleets. Sledge said by third-quarter 2023 only eight fleets will run on diesel, seven dual-fuel and two electric. ProPetro’s goal is for 80% or more of the fleet on offer to run on electric or dual-fuel, he said.

Aiming for sustainability

In November, ProPetro acquired Silvertip Completion Services Operating LLC for $150 million. The acquisition included 23 wireline units that provide wireline perforating and pump down services. Like ProPetro, the cased-hole wireline business solely focused on the Permian Basin.

Sledge said ProPetro has avoided, to a certain extent, moving into the wireline side of the services sector, partly to avoid downtime on location.

“Wireline downtime has been more or less engineered out of the system,” he said.

Advances in wireline technology, coupled with the maturation of completions programs with larger pad sizes, have “helped us warm up to having a complementary service line,” he said.

Silvertip will help ProPetro produce more sustainable, consistent profits. And because ProPetro has not been involved in cased-hole wireline work in the past, the integration will be straightforward, he said.

“When you’re talking about integration and service businesses, you’re talking about people,” Sledge said.

Silvertip’s management team has been encouraged to come aboard and bring along the team they have built, he said, adding that there will be some back-office integration on the administrative front.

“We continue to ask ourselves with this very positive backdrop for oil and gas in general, ‘what other opportunities are there, like Silvertip to add complimentary service lines or businesses, and what other opportunities are there to continue to add scale to our business?’” he said.

Sledge said the question comes down to what a pressure pumping completion-oriented services company should look like in five years to 10 years. “Is it more diversified and more integrated or less? It’s likely more diversified, more integrated and probably bigger as well.”

With that in mind, ProPetro is “analyzing everything that’s complimentary to us from a horizontal and vertical integration standpoint.”

From here to the Permian

From the outset, ProPetro has been focused on operations in the Permian Basin, and according to Sledge, the company is open to expanding in other basins.

He said ProPetro has considered other locales, but the Permian has provided so much business that the company hasn’t felt compelled to expand its footprint.

The Permian “remains the lowest cost place to produce a hydrocarbon molecule on this side of the world, and it’s become the most productive oil field in the world,” he said. “We haven’t had to go anywhere else.”

The fact that the company focuses on its own backyard also helps make for happier personnel, Sledge said.

“We’re not asking a team of people to go to the Bakken or to South Texas or East Texas on a whim to go help us with another project. So, our employees are working basically within a hundred miles of where we're sitting every day,” he said. “One of our competitors might need to fly a crew on a whim across the country to help with a certain project. That’s not even an option from us.”