Ever wonder what the impact of Permian Basin pipeline constraints might be?

If you look at drilling rig activity, you see only a slight drop off since Christmas 2018. But relatively-steady activity masks the frac story.  

Consider the chart below, which measures and forecasts the reservoir rock footage that is hydraulically fractured each quarter in the Permian Basin (these are Spears’ estimates, by the way):

Starting in the 3rd quarter of 2018, reservoir rock being frac’d dipped, then fell hard through Q1 2019 — 3 quarters of decline.  Right now, in Q2 of 2019, we believe we are seeing a return to frac work, and we expect it to rise to a record level by this fall or winter.

In this new world of financial discipline by E&P companies and oilfield service companies (as discussed here last week), this rapid ramp-up in frac work is going to test the mettle of company management teams.

Will frac service companies have the guts to insist on a price that will actually return capital to the frac company’s investors?  And, will oil companies have the wisdom to realize that their service companies also need to provide a positive rate of return to their shareholders?