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Frac is Back: Robust D&C Activity is Heating up the Frac Market in North America

HOUSTON, Aug. 21, 2014 /PRNewswire/ -- PacWest Consulting Partners forecasts strong market growth in the North American market for hydraulic fracturing services through 2016 due to robust drilling and completion (D&C) activity, with frac pricing increases expected through 2015.  Tightening market conditions are resulting in supply chain constraints in key growth plays.  Constraints in the availability of frac sand and the logistics capacity to transport the frac sand are leading to cost escalation and work delays.  PacWest provides an in-depth analysis and set of forecasts for the North American and International frac markets in the 14Q2 release of its PumpingIQ report, just published on August 15, 2014. 

D&C activity is robust in both the US Land and Canadian markets, with HZ wells frac'ed increasing 9% in 2014 and HZ frac stages increasing by 19%.  In the US Land market, significant growth in key plays – the Permian, DJ Basin, Utica – and continued growth in the Eagle Ford, Marcellus, and Bakken is driving growth across all D&C activity metrics, including rig count, well spuds, wells frac'ed, and frac stages.  In the Canadian market, strong growth in the Montney and Duvernay plays, in addition to growth in the Cardium and Deep Basin, is driving increases in D&C activity. 

According to PacWest Managing Partner, Nilesh Dayal, "Rapidly tightening market conditions have resulted in price increases for many E&Ps.  After more than 3 years of pricing pressure in the frac market, the dam has finally broken for pricing, and service providers are finally having success in negotiating higher pricing." 

While market conditions are driving price increases, costs recovery on key consumables, including sand and chemicals are driving a large part of the increases. North American frac sand demand is expected to increase by nearly 30% in 2014, compared to 2013.  This has resulted in logistics constraints in both rail and trucking capacity and price increases across the sand value chain.

However, not all pumpers are consistently benefiting from price increases. Chris Robart, PacWest Partner notes that, "There has been wide variance in price increases across pumpers/customers, with some reporting price increases as high as 20% in key growth plays where market conditions are most tight. However, price negotiations will continue to be on-going and in many cases higher prices will not be implemented until late 2014."

Given the evolving demand landscape and operational requirements, including aging fleets, continuous pumping operations, and increased refurbishment activity, PacWest has begun analyzing the frac market in terms of "Marketed Capacity" and "Effective Utilization."  PacWest analysis reveals that utilization is quickly improving, and estimates that raw utilization is 84% in 14Q3, while effective utilization is 90%, with higher rates in key growth plays.

In response to increased demand, pumpers have upgraded 2014 newbuild programs and have begun committing to sizable 2015 newbuild programs, with 1.4 million HHP in net capacity additions estimated for 2014 and 1.6 million HHP in 2015.  "While capacity additions may allow some pumpers to secure more work, it will be supply chain execution and delivery that will make or break their bottom lines," adds Mr. Dayal.

PacWest will hold a conference call on Thursday August 28, 2014 at 9:30am CST to discuss these and other views on the market. Call details are provided below. The call is open to the public.

Conference Call:
Dial-in: +1 (800) 830 3581  
International Dial-in: (262) 320 4698
Passcode: 2922791 

Presentation Link:
https://join.me/PacWest_Market_Update

For more information, contact Jennifer Thomas, 713.929.3285, [email protected].

SOURCE PacWest Consulting Partners

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