As a former blender tender, it pains me to say this:  Schlumberger should sell its frac business. In this race to the bottom, no one in the frac service sector wins.  Consider the following chart:


This is the chart you get if you add up all revenues of all the frac service companies in North America each year and divide that number by all the frac horsepower in North America that year.  In 2012 each frac horsepower generated $1,800, and in 2020 each horsepower will generate $800. Given the trend line, I guess we’ll keep building frac horsepower until each HHP generates $0 in the year 2028.

You’ll see I skipped the years 2015-2017.  During these awful years the ratio hit $550 as horsepower sat idle and spending collapsed.  But during the 6 years I’ve plotted on this chart, drilling activity is pretty strong, frac stages per year are stable, and the world wants bigger and bigger frac jobs.

Why is the trend so negative?  Several factors:

  1. New frac service companies spring up each year

  2. Most existing frac service companies expand their fleets each year

  3. Service pricing per stage is decreasing

  4. Sand is being purchased by the oil company… it does not flow through the service company P&L

Prior to 2012, a frac service company could count on each hydraulic horsepower to generate $1,600 to $2,000 per year in revenues… all the way back to the start of the ‘Nineties.  Frac was a cash generating machine for many service companies and the biggest were HAL, SLB/Dowell and BJS. Competition was limited, companies were disciplined, and proppants were ALWAYS provided by the service company.  That genie is no longer in the bottle.  

Perhaps is makes sense for frac companies to be privately owned, but a company like Schlumberger needs to avoid businesses that are capital intensive, people intensive, and indistinguishable from the competition.  

Do your own math.  I got this from our recently revised Hydraulic Fracturing report