If you monitor LinkedIn like I do, you’ve seen a flurry of “I got laid off” and then “I got rehired” announcements since March 2020 from folks in the frac world.  And if, in parallel, you watch Primary Vision’s weekly frac spread count you’ve seen a dizzying race to the bottom followed immediately by a doubling of active crew counts March through July.  In this topsy turvy world we now work in, US land-based completion activity takes the gold medal for erratic behavior.  Frac is the wacky younger brother to drilling’s stable older sister.

But before you think frac is out of the woods, consider the following analysis.

Here’s some approximate first-of-the-month frac crew counts for the first 9 months in 2020:

The 3rd quarter of each year tends to be the most active – weather is good, budgets are still intact.  This year is Austin-like in its weirdness, but we still expect months during Q3 when activity is somewhat higher than the May/June bottom.  That is why you see frac crew counts drifting up to about 80 after a low of about 50.

Now let’s look at this exact same dataset but grouped by quarter.  

In the chart below we see average QUARTERLY crew count drop from 350 to 100 to 80…still falling in Q3 2020 even though MONTHLY numbers are well off the bottom:

Here’s why we bring this to your attention:  Q2 2020 earnings have been released for several frac service companies and Q1 to Q2 revenues were down 70-80%.  Using the chart immediately above we see that the decline in average quarterly crews was about 70% in Q2.  Add to that 5-10% additional discounting and the US FRAC MARKET fell 75% in Q2.  In Q3 2020 we expect frac company revenues TO FALL AN ADDITIONAL 20-25% despite monthly crew counts rising during the quarter…this is because we replace an April month that had 225 crews running with a July month that has 75.

Lenders and investors look at companies based on quarters.  Management runs those same companies based on months, if not weeks during times like this.  Q3 2020 will be one of those quirky quarters where management is simultaneously trying to hire hands for growth while delivering sequentially bad news to shareholders.  Good luck with that!