In the olden days, I used to like Uber and was a fan of the independent business that a driver could create replacing the creaking taxi industry.  Good money driving a nice car for people who happily paid you to provide a responsive and reasonably priced limousine service.

Also in the olden days, I used to like frac service companies who earned good money creating highly productive wells for people who willingly paid for turnkey stimulation services.

Both industries have collapsed under the weight of competition.

These days an Uber driver is simply converting the dollars she has in her car into income – the value of the car falls at approximately the same pace as the income after direct costs earned by providing Uber services.  The Uber driver might be better off to simply sell the car and reclaim the money!

I was thinking about this today as an old frac hand wrote me a note on LinkedIn:  

“My 1st district manager, SERFCO, Pampa TX, 1981…told me: ‘Son, we don't make money selling horsepower, we make money selling chemicals. Go get 'em.’ Somebody these days missed the memo.”

Years ago another old friend, Sandy, a veteran of the cased hole wireline business, looked at the burgeoning Barnett Shale plug & perf market and refused to move his operation down there, saying, ‘All you’re gonna do is just blow up your inventory.’

Oil company supply chain specialists are geniuses – they identified early where the profits are in a frac job (proppants and chemicals) and they found the frac service companies who were willing to provide just the pump trucks, service companies who were willing to give up the materials and the related mark-up that allowed the frac service company to grow in the past.  The frac industry devolved into an industry where money invested in pump trucks was rarely returned to shareholders because the trucks were “consumed” at the wellsite.  This was GREAT for the oil companies and TERRIBLE for the investors in the service companies.

Today, the smart frac service companies are the ones who have fought to retain the right to include the proppant and the chemicals in their job tickets.  By doing so they provide a return on invested capital to their shareholders and have an incentive to re-invest and re-deploy.  But that type of company is a rare beast.

Just selling HHP is a fool’s errand – just like driving an Uber car today.