As investors flee for the exits, here’s a simple graph to consider if you are a student of the Permian’s frac market:
Permian Quarterly Frac Market
With oil shipments out of the Permian capped for the next 10-12 months, oil companies have reduced the number of wells they frac each month in that region. Why frac if you can’t get the oil to a market? So while drilling continues steadily onward, completions are falling about 20%, which is just enough frac activity to keep existing pipelines full. When the new pipelines are ready late next year, the Permian will have 6000-7000 new wells drilled, but not yet hydraulically fractured, which is why we’re calling for a HUGE frac ramp up in Q2 or Q3 of 2019.
This pause in the Permian’s frac market is a virus that has rapidly mutated to become the oilfield investor’s Ebola scare. Since word got out about Permian pipeline limits, oilfield service company shares have fallen 30-40%.
Lost in all of this is the following consideration: If demand for oil around the world continues to rise, but oil out of the Permian is capped for a year, where’s the oil going to come from? And what happens to price?