Schlumberger Ltd. (NYSE: SLB) and Weatherford International Plc (NYSE: WFT) plan to roll out one of the largest hydraulic fracturing fleets in North America with a joint venture (JV) to create OneStimSM, which on paper will overtake chief competitor Halliburton Co. (NYSE: HAL).

The JV, which gives Schlumberger scale and Weatherford cash, will create a nearly 3 million horsepower pressure pumping fleet upon closing and seems likely to upend the pressure pumping market for U.S. and Canadian E&Ps.

Schlumberger will own 70% of the JV and Weatherford 30%. The agreement fuses the companies’ land hydraulic fracturing pressure pumping assets, multistage completions and pump-down perforating businesses into one.

Weatherford will also receive a one-time $535 million cash payment from Schlumberger.

OneStim will have the top U.S. frack market position with 2.75 million hydraulic horsepower (HHP), followed by Halliburton with 2.55 million HHP, RBC Capital Markets said.

“We estimate that the top five players will now control 50%-60% of U.S. frack HHP and that the top three players will account for one-third of all the idle frack HHP in the U.S.,” said Kurt Hallead, an analyst at RBC.

J. David Anderson, an analyst at Barclays, said the JV is worth roughly $3.8 billion.

“The rest of the industry is being put on notice,” Anderson said. “With HAL and SLB having the lowest industry cost structures and both looking to gain share or protect share, expectations for higher pricing may need to be recalibrated.”

Schlumberger will manage the OneStim JV, which is expected to help fill a void in U.S. completions. Smaller pumping companies may see their pricing power diminish as a result. Schlumberger’s March 24 announcement came the day after Halliburton said it would shift its strategy toward market share.

For Weatherford, the JV immediately helps the company’s balance sheet with a cash infusion while it keeps a 30% stake to reap the benefits of a recovery, Anderson said.

Schlumberger “really checked two boxes” with the deal, Anderson said. The company fills out its undeveloped U.S. onshore completions business and gains pressure pumping scale with Weatherford “on the hook for some capex,” he said.

Schlumberger CEO Paal Kibsgaard, speaking at Scotia Howard Weil Conference on March 27, said the JV will serve as a launchpad for the company’s future hydraulic fracturing and completions technology.

“In addition to a market leading position in hydraulic horsepower … the JV will also have a very strong position in multistage completions through the cost-effective and fit for purpose offering contributed by Weatherford,” he said.

Kibsgaard said most of the cash paid to Weatherford was linked to the company’s multistage completions business, “which is an area we have been looking to invest in for a number of years.”

For larger plays, the hydraulic fracturing market could get slightly tighter, said Brad Handler, an analyst at Jefferies LLC.

Following several consolidating transactions over the past few months, the number of frack service providers with at least 1 million HHP will fall to nine companies with about 70% of the HHP that is plausibly in the supply mix in North America.

“Although 40-odd frack service providers in the U.S. alone and the prevalence of slickwater completions points to fragmentation and commoditization pressure, we imagine there is winnowing down of competition in larger frack programs for large oil companies,” Handler said. “As such, the consolidation points, on the margin, to more pricing leverage in frack service over the coming cycle.”

The JV is expected to close in the second half of 2017, Schlumberger said. Latham & Watkins LLP represented Weatherford in the transaction.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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