Shale explorers pushing to expand oil production are struggling to find enough fracking crews after thousands of employees were rejected during the course of its petroleum rout.
Independent U.S. drillers underspent their first-quarter budgets by as much as $2.5 billion collectively, largely because they couldn't find enough fracking crews to manage all the schemed run, according to Infill Thinking LLC, a research and consulting firm focused on oilfield services and exploration. If the dearth holds, output increases planned for this summer may get pushed into 2018, creating an unanticipated production bulge with “scary” implications for oil prices, said Joseph Triepke, Infill's founder.
In some suits, active crews are walking away from jobs they signed up for months ago — and paying early-termination penalties — to take higher-paying assignings with other explorers. Employees earn anywhere from $29,000 to $72,000 a year before overtime, depending on the company and the region.
The tight fracking marketplace” entails U.S. oil production growth this year will be back-half weighted, and we may not understand the full extent of U.S. production growth until early 2018 ,” said Triepke, who previously was an analyst at Citadel LLC's Surveyor Capital division.” This phase is especially scary if you are a rooting for higher oil prices .”
Oilfield-service companies contributed the largest chunk of more than 441,000 jobs slashed globally as prices plunged from more than $100 a barrel over the last three years, according to Houston-based industry consultant Graves& Co.
Now, with the price of oil settling at around $50 a barrel, shale drillers are once again gearing up in areas such as the Permian Basin, where break-even costs are as low as $30 a barrel. The outcome: rising competitor for workers and equipment, which entails higher costs. Fracking companies are now charging 60 percent to 70 percent more than a year ago as explorers engaged in bidding wars to lock up crews, according to Infill data.
In response, servicers are scrambling to re-hire hands and retrieve gear from storage, said Andrew Cosgrove, an analyst at Bloomberg Intelligence.
A crew typically consists of 25 to 30 workers who operate a huge array of powerful truck-mounted pumps, storage tanks for liquids and sand, hoses, gauges and safety gear. Fracking, which involves pumping tons of water, sand and chemicals into a well to smash open the surrounding oil- and gas-soaked rock, is the most expensive part of drilling a well, usually accounting for about 70 percent of the total cost.
So far, independent shale drillers are confident they'll detect ample fracking the abilities and are leaving their ambitious double-digit output growth targets intact. West Texas Intermediate crude, the U.S. benchmark, has climbed 7 percentage in a week as U.S. stockpiles decline while Saudi Arabia and Russia indicated a willingness to extend price-boosting production cuts.
Those endeavours could be dashed in coming months, however, if shale explorers deliver a larger-than-expected bubble of supply.
” Every single pressure pumper is saying their order books are full through the third one-quarter and some as far ahead as the first quarter of' 18 ,” Cosgrove said.
EQT Corp. was left short of fracking crews during the first one-quarter when some pumping companies walked away for higher-paying contracts. Still, the Pittsburgh-based shale driller expects to attract enough fracking capability by the beginning of June to stay on track and hit its full-year growth forecast.
” A couple of our frack contractors decided to pay us the penalties to take their frack crews to jobs that were more profitable ,” EQT Chief Executive Officer Steven Schlotterbeck said during an April 27 conference call with analysts.” So we will get some penalty fees but that obviously is far less than the value of having the wells fracked on the schedule that we would have liked .”
The last time the shale patch boomed, Parsley Energy Inc . CEO Bryan Sheffield remembers personally delivering breakfast and giving away World Series tickets to get into good graces with fracking companies.
That was late 2011, when booming demand for fracking capacity mean service companies could fire clients to take better-paying gigs, Sheffield said in an interview. The 39 -year-old Parsley founder was relatively unknown at the time, trying to get to the top of frack companies' cancellation lists, so he could provided an opportunity to hire them and get his oil flowing.
Those days are back, he said.
After the last boom that assured oilfield truck drivers commanding more than $200,000 a year in the Bakken of North Dakota, companies are again hunting for more truckers — this time in the Permian Basin of Texas and New Mexico for hauling water, sand and petroleum. Fracking equipment costs began rising late last year, Sheffield said.
” This is exactly what we find in 2011 and 2012 ,” Sheffield said.” The bottleneck moves down the chain .”
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