A year ago we wrote an essay titled, “Why SLB Sells Dowell”, Dowell being the name the old-timers still use to refer to the frac and cementing division of Schlumberger. In the essay we plotted a chart over the last decade showing how each frac horsepower’s earning capacity degraded over time. In 2012 the typical frac horsepower generated about $1,900 in company revenues per year, but by 2019 that dollars-per-year number had fallen to $1,000. This degradation was due to two things: E&P companies buying sand and chemicals directly from the source rather than via the frac service provider and due to increasing regional competition.
With Schlumberger/OneStim teaming up with Liberty before year’s end, we thought we should update the dollars-per-horsepower-per year chart from a year ago:
Last year we joked that each frac horsepower would earn $0 per year in 2028. Ha. Make that 2024, if the trend line remains predictive.
Here is what this means:
More combinations of competitors to seek to weather the market hurricane;
Rapid elimination of aging frac equipment, continuing a trend launched at the end of 2019;
Creative attempts to claw back profitable add-ons to frac service contracts.
Frac is not alone in this, they are simply the most visible. The same trend is afoot in cement, directional drilling, coiled tubing, well servicing, lift, rental, water…