Should we burn a few calories worrying about the North American frac fleet in the path of Hurricane Harvey? Maybe. Consider this: In 2010, the North American frac fleet hit 10 million hydraulic horsepower (HHP). In the summer of 2013, the fleet hit 20 million HHP… doubling in just over 3 years. 18 months later – in 2015 – oil prices dropped, frac spreads idled, and work dried up. However, trucks that had been ordered in the boom days of 2014 kept arriving, and the fleet ballooned to 23 million HHP in 2015. The industry finally flushed some of the oldest trucks out of the fleet in 2016, reducing the overall fleet to about 20 million at the end of last year. This year the fleet will again grow by 1.8 million HHP, yet we are drilling a fraction of the number of wells drilled in 2014. So first, is the frac fleet too big right now? Here’s a ratio to think about: Take the total feet of hole drilled in all the laterals of the US and Canada, and divide that into the total available frac fleet. For example, in 2010 we had 10 million HHP, and we drilled 75 million feet of laterals. 10 million HHP ÷ 75 million feet of hole = 0.13 HHP/Foot, which is an odd looking ratio, but stay with me.   If we calculate that ratio throughout the period 2010 through 2017, we get this chart: Frac HHP per Lateral Foot Drilled (North America)

Should we burn a few calories worrying about the North American frac fleet in the path of Hurricane Harvey? Maybe.

Consider this:

In 2010, the North American frac fleet hit 10 million hydraulic horsepower (HHP). In the summer of 2013, the fleet hit 20 million HHP… doubling in just over 3 years. 18 months later – in 2015 – oil prices dropped, frac spreads idled, and work dried up. However, trucks that had been ordered in the boom days of 2014 kept arriving, and the fleet ballooned to 23 million HHP in 2015. The industry finally flushed some of the oldest trucks out of the fleet in 2016, reducing the overall fleet to about 20 million at the end of last year.

This year the fleet will again grow by 1.8 million HHP, yet we are drilling a fraction of the number of wells drilled in 2014.

So first, is the frac fleet too big right now?

Here’s a ratio to think about: Take the total feet of hole drilled in all the laterals of the US and Canada, and divide that into the total available frac fleet. For example, in 2010 we had 10 million HHP, and we drilled 75 million feet of laterals. 10 million HHP ÷ 75 million feet of hole = 0.13 HHP/Foot, which is an odd looking ratio, but stay with me.
 
If we calculate that ratio throughout the period 2010 through 2017, we get this chart:


Frac HHP per Lateral Foot Drilled (North America)

In 2017 we have 22 million HHP and just about 200 million feet of laterals, for a ratio of 0.11 HHP/FT. Here’s what we find in this chart: When the industry is healthiest, which means that the fleet is about the right size (not too big, not too small, with customers served well), the ratio is about 0.10-0.12 HHP per lateral foot of hole drilled. This was the period 2011 through 2013. In 2014, the industry had too little HHP (0.09 HHP/FT) and in 2015 and 2016 too much (0.20 HHP/FT).   In 2017, 0.11 HHP/FT is right in the fairway. Frac prices are rising, so the fleet is expanding and customers are being served, albeit somewhat more expensively. If drilling in 2018 rises a bit more (with oil prices at $47 it won’t rise much), the industry can absorb another 1 million HHP, but not 2 million more -- that would swamp the fleet and collapse pricing.   Finally, something to consider about Hurricane Harvey: If 10% of the frac fleet was hit by the hurricane and its flooding, and if 25% of that 10% hit was underwater, that’s 500,000 HHP eliminated from the frac fleet overnight. That dent may be enough to throw the frac industry out of balance, sending prices higher overnight, assuming drilling stays steady. We don’t think it was that bad, but nobody drove their frac trucks to higher ground last week.

In 2017 we have 22 million HHP and just about 200 million feet of laterals, for a ratio of 0.11 HHP/FT.

Here’s what we find in this chart: When the industry is healthiest, which means that the fleet is about the right size (not too big, not too small, with customers served well), the ratio is about 0.10-0.12 HHP per lateral foot of hole drilled. This was the period 2011 through 2013. In 2014, the industry had too little HHP (0.09 HHP/FT) and in 2015 and 2016 too much (0.20 HHP/FT).  

In 2017, 0.11 HHP/FT is right in the fairway. Frac prices are rising, so the fleet is expanding and customers are being served, albeit somewhat more expensively.
If drilling in 2018 rises a bit more (with oil prices at $47 it won’t rise much), the industry can absorb another 1 million HHP, but not 2 million more -- that would swamp the fleet and collapse pricing.  

Finally, something to consider about Hurricane Harvey: If 10% of the frac fleet was hit by the hurricane and its flooding, and if 25% of that 10% hit was underwater, that’s 500,000 HHP eliminated from the frac fleet overnight. That dent may be enough to throw the frac industry out of balance, sending prices higher overnight, assuming drilling stays steady.

We don’t think it was that bad, but nobody drove their frac trucks to higher ground last week.