Basic Energy Services sold their trucks when they closed their frac business at the end of 2019. I see these trucks on frac jobs throughout the MidContinent today… I think at least one, perhaps two, new frac service companies were launched with the closure of BAS frac. And why not get in business if the cost of launching is almost zero?
David Wethe at Bloomberg asked us if we knew the number of frac service companies active in North America each year. We’ve kept a pretty good census going since 2003, so here’s the chart we sent him for his story:
Schlumberger, for example, used to be two companies: Schlumberger and Weatherford. Today’s Nextier used to be two companies (Keane and C&J), and each of those companies made acquisitions before that.
Here’s what you are seeing:
Private equity surged in to start new companies when gas shale was discovered (2003-2008) and when oil shale was discovered (2011-2014);
Private equity flowed in when the market ticked up in 2017/2018;
Every year frac service companies have been consolidating… some companies active today used to be 5 separate service companies;
With pretty much EVERY acquired frac service company, the lieutenants quit and form their own new company;
In good times and bad, North America has 40 frac service companies looking for work.
When an industry collapses, conventional wisdom says that some competitors merge and others go out of business. Not so in the oilfield! The North American frac market was $34B in 2014 and will be $8B in 2020, but we still have about 40 service companies chasing work.
Does this have a precedent? Back in the late ‘Eighties Baker Industries (predecessor to today’s Baker Hughes) hired us to measure the consolidation in the US cased hole wireline sector. Rig count had collapsed from almost 5000 rigs to about 1000 rigs, and Baker wanted a census of who was left standing in the wireline business. To our amazement, despite the industry collapsing 80%, the number of cased hole companies in 1988 was the same as the number at the end of 1981. A handful from 1981 were still in business, but the vast majority were new companies that had emerged by buying the idle wireline trucks created by closures, bankruptcies, consolidations… And these new guys were ALL the low cost providers because they bought their trucks cheaply.
Do we believe the oilfield will consolidate in 2020? Yes.
Do we believe there will be fewer service companies at the end of 2020? No.
Moral: Don’t expect oilfield pricing to rise because vendors are consolidating. Prices will rise only when demand rises.