![ProPetro CEO: Next-gen Equipment Demand High Despite Market Headwinds](/sites/default/files/styles/hart_news_article_image_640/public/image/2023/11/propetro-ceo-next-gen-equipment-demand-high-despite-market-headwinds.jpg?itok=Sh-b9zBv)
ProPetro CEO Sam Sledge, speaking at Hart Energy’s Executive Oil Conference and Exhibition, said he’s skeptical that DUCs will be a source of oilfield service activity as E&Ps have shifted to a “just-in-time” approach to inventory. (Source: Hart Energy)
MIDLAND, Texas—Headwinds from upstream consolidation to slacking equipment utilization are bearing down on the frac service market.
But as customers increasingly demand cleaner, next-generation equipment, Midland, Texas-based ProPetro is seeing new growth opportunities across the Permian Basin.
Oilfield service supply and demand dynamics have been volatile as the sector emerged from the COVID-19 pandemic, ProPetro CEO Sam Sledge said during Hart Energy’s Executive Oil Conference and Exhibition on Nov. 16.
Drilling activity collapsed when the oil market crashed early in the pandemic in 2020. Service companies eventually gained a better footing on contract pricing as commodity prices increased into last year and drilling activity ramped back up.
But oil and gas prices have come down from the sky-high levels seen in 2022. Drilling activity has also cooled off. Across the Lower 48, 597 onshore drilling rigs were deployed during the week ending Nov. 17—down around 21% from 762 rigs during the same period a year before, according to Baker Hughes Co. rig count data.
With a dip in activity earlier this summer, ProPetro is seeing new challenges in the frac services sector again.
“I think it’s safe to say approximately 20% of rigs and frac crews have been parked or come off the market throughout the back half of this year,” Sledge said.
But where things get a bit more interesting is the emerging next-generation equipment market, Sledge said.
ProPetro is seeing strong demand for its dual-fuel frac equipment—which use both diesel and natural gas as fuel—and its electric frac equipment.
ProPetro commissioned its first electric frac fleet during the third quarter; the company recently deployed its second electric fleet, Sledge said at the conference.
“If you’re playing in that next-generation market, it’s a very good place to be today,” Sledge said. “The savings, the incentives and the motivations for our customers to burn more gas and less diesel are very much there, and we’re playing head-first into that at ProPetro.”
ProPetro sees an opportunity to save on maintenance costs with its electric equipment. The company operates an around-the-clock maintenance operation with hundreds of employees—and most of those efforts are going toward maintaining pieces of diesel equipment.
As the company gets deeper into electric-powered equipment over time, ProPetro aims to cut down on its maintenance spend.
“So it creates more internal efficiencies as well,” Sledge said.
Waiting on the rebound
U.S. crude oil and natural gas prices are expected to be higher on average next year than in 2023, according to Energy Information Administration (EIA) forecasts.
The thesis among other service players is that activity will rise along with commodity prices. Speaking during Halliburton’s third-quarter earnings call in October, CEO Jeff Miller said he expects higher oil prices to drive a certain amount of activity going forward.
But Sledge is skeptical that an uptick in drilling and completion activity is going to follow the anticipated growth in commodity prices.
One of the main drivers of ProPetro’s doubts: DUC inventories.
“In previous cycles, there was always this padding of DUCs and frac activity might move a little bit less dramatically than drilling activity,” Sledge said. “That’s not the case today.”
As the Permian Basin has matured over time, the region’s top blue-chip operators—many of which are ProPetro customers—have migrated toward “a just-in-time inventory model” in the past few years, Sledge said.
Compared to the early days of the play last decade, Permian E&Ps “have very much dialed in” a manufacturing-style cadence to drilling rigs and frac crews, he said.
DUCs are at their lowest levels in nearly a decade: There were 4,524 DUC wells in basins across the Lower 48 in October 2023, down over 11% year-over-year and down nearly 50% from May 2020, according to EIA figures.
Customers consolidate
The Permian Basin is also awash in a wave of upstream consolidation, leaving the service sector with a shrinking number of customers to serve.
RELATED: Halliburton Sees Tighter Market as E&P Consolidation Continues
Exxon Mobil Corp. is paying $60 billion in stock, excluding debt, to acquire Midland Basin giant Pioneer Natural Resources. Smaller Permian operators, including Permian Resources, Matador Resources and Civitas Resources, have spent billions of dollars this year to acquire more Permian inventory.
With so much consolidation happening upstream, certain service players have set out to get larger through M&A. Patterson-UTI Energy Inc. and NexTier Oilfield Solutions Inc. combined earlier this year in a merger valued at $5.4 billion.
ProPetro is smaller than some of its competitors, but Sledge said the company likes its operating density and singular focus on the Permian Basin, the nation’s top oil-producing region.
But the company is adding scale in certain areas. Last year, ProPetro acquired Silvertip Completion Services Operating LLC, a wireline perforating and pumpdown services provider, in a transaction valued at $150 million.
“That was a service line we weren’t previously in until we made that acquisition, and that was both a scale and integration play for us,” Sledge said. “And we’ve been very inquisitive for other opportunities to add more scale, integration and operating density to what we do here in the Permian Basin.”
RELATED: Patterson-UTI Energy, NexTier Complete $5.4B Merger
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