IHS Markit

Frac Market Prepares for the Downturn


Source: IHS Markit

HOUSTON, Tex. -- PacWest Consulting Partners, now part of IHS Inc. (NYSE: IHS), today announced it will host a conference call on Thursday, December 11, 2014 at 9:30 am CST to discuss its market outlook from its latest WellIQ and PumpingIQ reports.

In addition to the forecasts contained in these latest, leading reports on drilling and completion activity and hydraulic fracturing -- published October 24 and November 14 of this year, respectively -- PacWest will present a revised set of downside forecasts that reflect changes in the market since Thanksgiving.

The North American market for hydraulic fracturing services is preparing for a downturn in 2015 due to rapidly falling oil prices. Service providers and equipment manufacturers report that the market and their customers have not yet changed, but all expect changes in the immediate future and are developing plans to deal with the downturn.

In its revised downside scenario, PacWest expects a 12 percent decrease in the number of horizontal wells frac’ed in the US Land market in 2015 and an 8 percent decrease in frac demand for 2015. These figures represent a significant downgrade from the base case scenario forecasts published in the recent WellIQ and PumpingIQ reports – a 6 percent increase in the number of horizontal wells frac’ed and an 8 percent increase in frac demand for 2015.

Despite the imminent downturn, equipment delivery books still appear strong for 2015, particularly for the first half of the year. In its base case scenario, PacWest expects 1.4MM horsepower (net capacity additions) to be delivered into the US Land market in 2015, representing an 8 percent increase in hydraulic fracturing capacity from the previous year. However, in its revised downside scenario, PacWest expects only a moderate reduction in net capacity additions, from 1.4MM to 1.1MM horsepower. In this scenario, PacWest expects some H1 2015 orders to be delayed to H2 2015 and 2016 and some orders to be cancelled.

Falling frac demand and increasing frac capacity will quickly lead to falling capacity utilization in 2015. This will create challenging market conditions for many service providers and equipment manufacturers.

“The frac industry is preparing for a tough 2015,” said Christopher Robart, partner at PacWest. “Many service providers have just begun to see improvements in pricing and margins. This downturn will drive a focus on improving efficiencies and cost containment. Additional industry consolidation is also expected.”

PacWest will hold a conference call on Thursday December 11, 2014 at 9:30am CST to discuss its outlook for the market. Call details are provided below. The call is open to the public.

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About PacWest (www.pacwestcp.com)

PacWest Consulting Partners, now part of IHS, is a strategy consultancy and market intelligence firm that specializes in the energy, industrial, and resources sectors. Much of its work is focused around the oilfield and the many industries that supply critical products and services to it. With the explosion of unconventional resources in North America and increasingly internationally, the energy landscape is changing quickly. PacWest is at the forefront of the changes in the US and in global energy markets resulting from the development of unconventional oil/gas resources.

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