The state of the pressure pumping bus­iness is increasingly brutal, as evidenced by Keane Group’s recent deal for the U.S. assets of Calgary-based Trican Well Service Ltd. Keane agreed to acquire more mothballed horsepower in a single transaction than it already owned.

Such is the desolate world of oilfield service companies, which have cut rates to the bone to win business from E&Ps savaged by the commodity price collapse. Trican’s U.S. operations were running at roughly a quarter of their strength when the deal was announced in late January.

Last year, pressure pumping transactions were a rarity. Schlumberger Ltd. bought $500 million in service technology companies, but potential acquirers showed little interest in oil and gas equipment. Assets on the block at Ritchie Bros. auctions steadily dropped in value through the second and third quarters.

In December, Osmar Abib, global head of oil and gas at Credit Suisse, told a media roundtable that service and equipment M&A was likely to be uneventful until the roughest part of the commodity price ride had ended.

In rodeo terms, it appears the service industry has been thrown.

Some are better-positioned than others to make it to the bell. Since its formation in 2011, Keane has been intentionally kept small and run with low overhead, said James Stewart, chairman and CEO.

Now, expansion is in order, because the opportunities are too great to let pass by: Through just the $247 million Trican acquisition, the privately held Houston company will triple its frack horsepower, vaulting it to the rank of eighth largest pressure pumper in the nation. It did so without adding debt.

Keane’s private equity backer, Cerberus Capital Management LP, has a strong appetite to grow in the downturn. “We would very much like to continue along this mode of acquiring the right assets or the right companies at the right price during this downturn,” Stewart said. “This is a high-maintenance-capex business. If you have leverage, heavy debt, you can’t afford to keep running negative cash flow.”

As Abib of Credit Suisse suggested, these are rocky times. “I would call it a blood bath in terms of pricing,” Stewart commented.

Oppenheimer analyst James Schumm noted that RPC Inc. witnessed a clustering of bids for services during the first quarter of this year, indicating that “pressure pumpers may be approaching the limits of their ability to provide further pricing concessions.” Schumm said that RPC is likely to endure another six quarters of losses, until mid-2017.

Stewart’s broader read on the service sector is that companies are carrying too much debt and can’t survive the current market conditions. Pricing may have stabilized, but “it’s stabilized in a bad spot,” he said. “I think that will result in more consolidation, maybe bankruptcies.”

Trican, the largest pressure pumping company in Canada, has shared the same hardships as its U.S. counterparts.

The company has cut costs in its Canadian operations by 15% to 25% and downsized its employee base by 60%. It has reduced U.S. employees from 1,700 to about 600.

The Trican deal unfolded through Stewart’s industry relationships. As he and Trican CEO Dale Dusterhoft began initial discussions, the two men hit it off. “We saw eye to eye on how the business should be run,” Stewart said.

In addition to cash, Trican came away from the deal with a 10% stake in Keane as upside. “He’s very confident we have a team that can create value out of the platform that they had put here [in the U.S.],” Stewart said.

Working his way up from his start as a field engineer at Schlumberger in the mid-1980s, Stewart built the business on a foundation of exceeding customer expectations while operating at maximum safety. Keane delivered positive EBITDA in 2015 and stayed ahead of its competitors by remaining conservative early in the downturn.

The company also has strategically aligned its business to work with majors and large independents that are well-capitalized for the current environment.

Stewart said candidates for future M&A will mirror his company’s approach. “It's going to depend on what assets come up, how we value them and how they fit in culturally with what we do at Keane,” he said.

Available horsepower on the market may shrink considerably from what it was at the end of 2014. But that won’t help service providers in the near term. The number of North American pumpers may have fallen to fewer than 30, but their capacity overhang “is still enormous,” Schumm said.

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