Got your frack crews lined up?

If not, grab a ticket and get in line. Spot market waits are well beyond 90 days and, in some cases, now extend into 2018, especially for smaller oil and gas operators finding that bigger players have locked up a majority of new stimulation capacity.

The well stimulation sector is in the midst of the largest mobilization it has ever experienced. Examples include announcements in the first half of 2017 that promised 36 new crews and 1.4 million in additional hydraulic horsepower (HHP), most coming online by mid-year 2017.

And that’s before adding in Halliburton’s announced effort to be fully deployed in stimulation capacity by the third quarter, or Schlumberger’s intent to commit to market the combined HHP of its OneStim joint venture with Weatherford by year-end. Nor does it include capacity from the newly reconstituted BJ Services, formerly Baker Hughes’ pressure pumping division. The big three are coy on numbers, but let’s call line-of-sight on 70 additional crews and 3 million HHP in 2017.

The industry was rounding the halfway point of 2017 with 11 million HHP in effective capacity, roughly double the 5.6 million HHP at work at year-end 2016. Furthermore, this expansion is occurring as frack fleets grow in size. Nameplate frack spreads are expanding from 40,000 HHP to 50,000 HHP as the size of wellsite jobs increase, thanks to longer laterals, more stages and proppant by the trainload. The increase incorporates extra standby equipment in case something goes wrong during today’s high-intensity fracks, or units rotating through scheduled maintenance.

The 20% jump in nameplate fleet size is reflected in the actual HHP required onsite to frack a single job. That requirement rose from an average 25,000 HHP in third-quarter 2016 to more than 30,000 HHP in first-quarter 2017. Typical frack spreads now include up to 20 pieces of equipment at the wellsite vs. 12 to 15 a couple years back.

Other evidence of a resurgent completion sector is found in a record-setting surge in oil service IPOs since October 2016. That IPO extravaganza opened investor access to 1.8 million HHP in stimulation capacity, sophisticated downhole tools and last mile solutions to proppant delivery.

Prices for stimulation services reflect the mobilization effort and were up 58% on average per stage at mid-year 2017. A majority of the increase incorporates rapidly rising proppant volumes for closer stage spacing and longer laterals. With 200,000 to 500,000 pounds of proppant per stage as the new normal, crews were spending more time per lateral, further tightening the market.

Meanwhile, stimulation mobilization was occurring as oil and gas operators returned to zipper frack completions in 2017 as the industry sought to complete drilled but uncompleted wells in the face of rising costs, even while simultaneously completing newly drilled wells.

As expected, rapid mobilization came with growing pains after a two-year devastating downturn that saw stimulation dollar volume decline more than 80%. Layoffs eliminated tens of thousands of employees, and not all plan to return. Aggregate well stimulation revenues for the five major tight formation plays fell from $40 billion in 2014 to $10 billion in 2016. At first-quarter 2017 run rates, stimulation revenues could easily top $18 billion in 2017, or about 2015 volumes.

Closing in on the first half of 2017, oil and gas operators faced an economic squeeze play as the inefficiency of green crews, sophisticated completion recipes and soft commodity prices converged.

How that tension plays out will determine the extent of the recovery in the stimulation sector. In aggregate, the stimulation sector was operating below cash cost across the board at year-end 2016. Competition for market share at all levels kept price per stage from rising even faster in the second quarter, while start-up cost, at an average $7 million per fleet, pushed positive operating margins out until the second half of 2017 for many service providers. That makes 2017 a reset year for the stimulation sector.

Where the reset goes depends on commodity prices, but demand for stimulation services was accelerating at mid-year following the surge of newly drilled wells from steadily rising 2017 rig counts, coupled with improved cycle time on drilling. There is good news. The stimulation sector is within reach of financial breathing room just in time to accommodate the accelerating evolution to completions as the main driver in oil services.

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