I don’t like electric frac.

Here’s why I don’t like electric frac:  All the benefits accrue to the oil company; all the costs accrue to the service company.

Perhaps the devil (as always) is in the details, but here’s my simple math:

  1. The oil company saves up to $10 million per year by NOT buying diesel fuel and instead burns their own “free” natural gas; meanwhile, the oil company pays exactly the same as before per frac stage.

  2. The service company – to get the job – must invest up to $60 million to build an electric frac spread, but earns exactly the same per frac stage as he did with his fully depreciated CAT-powered frac spread.

In an environment where the oil company’s shareholders are ruthless in their pursuit of positive cash flow via disciplined investment activities, shouldn’t the shareholders of frac service companies be equally ruthless pursuing positive cash flow and disciplined investment?

Under what conditions can e-frac make economic sense to frac service company investors?

  1. A significant portion of that savings in fuel cost must be shared with the frac service company via higher frac stage pricing, PLUS

  2. Long term take-or-pay contracts with the service company who is building the frac spread, OR

  3. The oil company provides the electric power (not just the gas).

Number 3 is what makes e-frac economically attractive to the frac service company:  The customer provides the electricity, not just the natural gas. And that will require a lot of CapEx paid for by the oil company.

PS:  Here’s one more thing to worry about.  When it needs maintenance or repair, who works on medium voltage field power generation coming from turbine engines? 

While there are thousands of highly qualified diesel mechanics in place throughout the 24 hour a day, snow/sleet/hail oilfield, qualified electric power generation technicians are a rare animal, especially when combined with the need to work around mobile turbine power generation.  Hat tip to one of our Insiders, Adam B, for this last point.