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Amid demands for budget rigor, Permian operators drop frac crews but maintain output

Special Report: Rising US M&A Poised to Reset Tight Oil Pecking Order

Amid demands for budget rigor, Permian operators drop frac crews but maintain output

Frac crews in the Permian, the most prolific tight oil basin in the US, plunged by 19% in Q2 2019 year-on-year and 8% from Q1 2019 levels, Kayrros proprietary measurements reveal. In a world of uncertainty about the present and future of tight oil (commonly known as shale), these numbers speak volumes. While figures about the rig count in shale basins have been available for years, hydraulic fracturing, which is much more closely linked with production volumes, had until recently remained a black box. However steep recent rig count declines may have been, the drop in the number of active horizontal fracturing crews, or ‘frac’ count, measured by Kayrros for the first time, is even more staggering.

The drop in the Permian frac count tells a lot about the headwinds facing the industry — but also about its achievements

The drop in the Permian frac count tells a lot about the headwinds facing the industry — but also about its achievements. Investor demands that Permian and other shale producers rein in spending and shift their focus from production growth to free cash flow and profits have been in the news for some time. Recently there has been a flurry of reports about shale companies sharply reducing their headcount, from Pioneer in the Permian to Whiting Petroleum in the Bakken, and poor earnings and cost-cutting at pressure pumping companies and equipment providers catering to the shale sector, like Halliburton and Caterpillar. But such high-level disclosures from publicly listed companies are few and far between. Kayrros tracks the effects of job cuts as they occur, in weekly and monthly reports. Disclosures from public companies also say nothing about private firms, which loom so large in the shale patch. Kayrros measurements show private players in 2018 accounted for one third of well completions in the Permian, DJ and Anadarko basins, 20% in the Eagle Ford and Williston. The Kayrros frac crew count provides a full, near realtime view of the industry, thus putting headlines in perspective. Our data are as granular as they are comprehensive, enabling us to capture frac trends industrywide but also to pinpoint their distribution across basins, states, counties, individual operators, and OFS companies, whether private or public.

While the frac count plunge shows operators taking investor demands for cost-cutting to heart, that doesn’t mean producers are giving up on volume growth just yet. Well completions and frac counts are diverging, as operators learn to do more with less. Time series and data points should not be seen in isolation. Kayrros provides a full view of the industry through near realtime measurements on rigs, frac crews, lateral lengths, drill and frac times, and well completions. As revealing as the frac count may be, so is a growing wedge between that indicator and well completions. Thanks to ever shorter frac times, well completions are holding steady. Completions, our data show, have consistently been the most reliable indicator of production trends. Frac count drops may be putting pressure on pressure pumpers, but it is too early for oil bulls to rejoice.

The backlog of drilled and uncompleted (DUC) wells remains much smaller than generally believed

Additionally, accurate completions monitoring reveals that the backlog of drilled and uncompleted (DUC) wells remains much smaller than generally believed. The notion that shale companies sit on a fat DUC mattress ready to go into production even if drilling comes to a halt is mostly fiction born out of bad data. As Kayrros has revealed, many more wells are completed by Permian operators than show up in publicly available data based on reports to FracFocus or state commissions. With the Permian frac count falling even faster than the rig count, the rolling DUC inventory has started to creep up. But Kayrros measurements show it to be still a fraction of common estimates. That means that in the event of a supply disruption elsewhere, the US can rely on a smaller safety cushion of DUCs than commonly thought.

Ten years ago, the shale revolution took the oil market by storm and turned the industry on its head. Today, as the shale sector keeps changing, we finally have the tools to track and understand it and separate fact from fiction. US shale oil has been the world’s fastest growing source of oil supply for more than a decade and the Permian is the most prolific of the US shale basins, but for all the scrutiny they have attracted both remain poorly understood. Kayrros measurements, leveraging cutting-edge technologies and algorithms, are changing that. Rarely has more uncertainty clouded the outlook for energy markets, whether on the supply or demand fronts, from the perspective of prices, technology, policy, or geopolitics. In this rising risk environment, getting the facts of the market straight is more important than ever.

Luckily, the very forces of technological innovation that enabled the shale revolution are now lifting the veil of opacity that has long shrouded the energy markets, giving players the measurements they need to make informed decisions. The Permian, one of the world’s most prolific oilfields, is now in many ways an open book as far as operations are concerned. A case in point.