Halliburton and Schlumberger both reported Q4 2020 earnings this week and the numbers came in about where we had projected… except in one category:  US land hydraulic fracturing.  Both companies did far better than we had estimated – and our estimates were for strong growth.

If all frac companies turn out to have behaved similar to HAL/SLB (and by SLB frac we mean the OneStim organization SLB just merged into Liberty on 12/31/20), then here’s North American frac revenues for all companies each quarter from early 2019 through the end of 2021:

Most of us tend to focus on the negative impact of COVID – which was indeed dramatic – but the industry was already on a glidepath to zero for more than a year.  Quarterly frac spending fell from $7B to $6B to $5B and was heading to $4B well in advance of COVID because US oil & gas producers quit overspending on drilling new wells.  In fact, if frac spending grows just a bit faster this year than we’ve imagined, Q4 2021 will be close to the $4B frac spend level the industry was heading toward BEFORE COVID.  

Here’s your take-away:  US oil production falls.  You can’t produce oil from a well you didn’t drill.

By the way, to determine TOTAL frac cost to the E&P company you’ve got to add the following:

• Proppant

• Last Mile Logistics

• Water

• Chemicals

• Frac Fluid Delivery Systems

Those items add about $1B per quarter to the cost of frac jobs in 2021.  In the olden days of 10 years ago the frac service company always brought all this out to the wellsite (except for the water), but now these are more and more purchased from companies other than the frac service company.