First, a little math refresher about ratios or fractions:

To figure out how fast you’ve been driving in your Chevy Volt, measure how many miles you’ve driven and divide those miles by the number of hours you’ve been driving. For example, if you drove 70 miles in 2 hours, that’s 70 miles divided by 2 hours, or 35 miles per hour. That is the average, of course, because at any point you could have been going 120 mph or 5 mph.

We bring you this math lesson because today’s essay quantifies dollars generated from the sale of frac services in 2017 for the hydraulic horsepower each frac company owned. Think of it as dollars per horsepower (for 2017).

Some companies are fairly straightforward because they are public, which means they might report both their total frac revenues and the frac horsepower (HHP) in their fleet at year’s end. Keane, for example, is expected to report \$1.6B in total revenues for 2017, and they had about 1.2M HHP at year’s end for \$1370/HHP.

ProPetro is also straightforward: \$0.9B frac revenues and 0.7M frac HHP, or \$1230/HHP.

Some of the big companies, however, are frustratingly opaque. Halliburton, for example. We think they might have \$5.5B US frac revenues in 2017 and 3.3M HHP in the fleet, or \$1650/HHP, but we really don’t know. This is an estimate based on research and research and research.

Small companies can be opaque as well. What is the incentive of a privately held frac company to tell a market research firm what their sales are and what their fleet looks like?

Dealing with both transparent and opaque, we’ve created a chart plotting several of the frac service companies’ estimated dollars per HHP for 2017:

2017 Annual Revenues Per Available HHP

Not all frac companies were created equal.  Some of the companies at the upper end of the \$/HHP chart are probably providing the sand (proppant) required for the frac job, which represents a lot of dollars. In the olden days of 5 years ago, most frac service companies provided the proppant on a frac job and this was hugely material to their top and bottom lines. Proppant is always used on a US frac job, but if the E&P company is buying it directly from the mine, then the frac service company doesn’t get to claim it in their sales, which means the frac service company generates fewer dollars per HHP on those wells. From this chart we believe that Liberty is probably always selling sand along with its pumping services and QES and Superior are probably rarely selling sand along with pumping services.

BJ Services also has a low ratio, but this is because BJ had almost no pump trucks working at the start of the year, but was up to approximately 30 frac fleets active at the end of 2017.  BJ is the fastest growing company in hydraulic fracturing at the moment.  The math, however, shoves the company down to near the bottom of the \$/HHP list. This will change in 2018 – the company will move toward the upper quartile.

As investors evaluate which companies to bet on in 2018 and beyond, they should pressure frac service companies for \$/HHP ratios because it will reveal a lot about a company’s operational efficiency and, ultimately, return on capital.