Low-cost fracking offers boon to oil producers, headaches for suppliers
16 September, 2019, 10:35 am
SMILEY, Texas (Reuters) – At a dusty drilling site east of San Antonio, shale producer EOG Resources Inc recently completed its latest well using a new technology developed by a small services firm that promises to slash the cost of each by $200,000.
The technology, called electric fracking and powered by natural gas from EOG’s own wells instead of costly diesel fuel, shows how shale producers keep finding new ways to cut costs in the face of pressures to improve their returns.
E-frac, as the new technology is called, is being adopted by EOG, Royal Dutch Shell Plc, Exxon Mobil Corp and others because of its potential to lower costs, reduce air pollution and operate much quieter than conventional diesel-powered frac fleets.
Investment bank Tudor, Pickering Holt & Co analyst George O’Leary estimates e-fracs could lop off up to $350,000 from the cost of shale wells that run $6 million to $8 million apiece.
While a handful of oil producers are capturing savings from lower well costs, the picture is less rosy for oilfield service providers.
These systems can cost them up to twice that of conventional fleets to build.
A rapid uptake could worsen the economics for a sector cutting staff and idling equipment as oil producers pare spending.
That leaves this potential breakthrough technology in the hands of small service providers without the means to fully exploit it.
ONE-SIDED SAVINGS Jeff Miller, chief executive of Halliburton Co, the top U.S. provider of fracking services, said his firm has tested the technology but has no desire to promote it.
“Halliburton will be really slow around frac,” Miller said, referring to the costs of updating diesel systems to electric. Converting the industry’s 500 frac fleets would cost $30 billion, he estimated, too steep a price for oilfield firms, he said.
He recently advised an oil producer interested in the technology that the benefits of deploying e-fracs “work for you, they don’t work for us,” he said at Barclays energy conference this month.
Halliburton, Schlumberger NV and others have idled scores of diesel-powered fleets this year as producers cut spending due to flat to lower oil and gas prices.
Consultancy Primary Vision estimates the number of active fleets in the U.S. fell 19% since April to around 390.
Halliburton cut 8% of its North American workforce and reported second-quarter profit fell 85% over the year-ago period in part because of equipment writedowns and severance costs due to weak demand for its frac service.
“Every week that goes by I get more and more negative about e-frac due to the harsh imbalance between the benefits achieved by the oil company and the costs incurred by the service company,” said Richard Spears, a consultant to top oilfield services suppliers.
Schlumberger paid $430 million in late 2017 to acquire a diesel-powered frac fleet from rival Weatherford International, hoping to expand shale services.
A spokesperson declined to comment on e-frac.
This month newly-named CEO Olivier Le Peuch disclosed plans to write down investments that were “based on a much higher activity outlook with the ambition of achieving economies of scale.”