“Halliburton’s hydraulic fracturing fleet remains sold out and the overall market appears all, but sold out for the second half of the year.” -Jeff Miller, CEO of Haliburton, during their Q1’22 earnings call.
CEOs are known for their elegant doublespeak, and Jeff calling Halliburton’s frac crews ‘sold out’ is the investor-friendly way of saying they are unable to grow. The cause is some combination of items in this list: supply chain disruptions, labor constraints, unfriendly equity markets and inflation. So what does a frac crew ceiling look like? Can production still grow under these circumstances? And how will we know when the frac crew ceiling is lifted?
What the Data Shows
Hyperion frac crew activity data corroborates the view of a frac crew ceiling. Across all regions frac activity has failed to push beyond ~260 crews after first reaching this level in March. Why isn’t frac activity holding steady at 260? It has to do with how Hyperion tracks frac crews. A frac crew is not a singular unit but rather a collection of dozens of smaller units, the frac trucks themselves being only a part of that total. These crews coalesce on well pads when a frac job is underway but between jobs they disaggregate and mix with other crews before reorganizing into a crew once more for the next completion. ‘Tracking’ a frac crew then becomes an almost philosophical question. Since SynMax does not employ any philosophers, we instead recognize a frac crew only when it is performing a frac job.
Daily active frac crew volatility is not an artifact. The volatility comes from the transition time between frac jobs. When traveling a short distance this is immaterial, but when moving between regions it becomes significant. Apparent declines in frac activity are often just reallocations of frac crews across regions.
A Zero-Sum Game
It’s tempting to argue that frac crew placement in higher ip regions could make each crew more productive. This is theoretically possible. For example, an average completed well in Natchitoches LA will produce as much gas in its initial production month as 13 wells in nearby Vernon LA. In practice though things don’t move that quickly because they are not that simple. Mineral development decisions are made far in advance, individual operators have their own land development strategies and operators are not always willing to finance additional growth if it means taking on debt. Fracking also requires ancillary services including water, sand and wastewater treatment not to mention gathering constraints. All of these factors slow down any industry wide attempt at optimizing frac crew placement for maximum production growth. Such a move would be gradual and as of right now no such move appears to be underway.
Frac crews appear to gradually move between regions, in this chart the total number of crews is constant at ~140 but their distribution changes over several months.
Look out above
For now, a ceiling on frac crews more or less means a ceiling on production growth. As discussed already, frac crew allocation could generate positive gas production growth but this is far from a quick and easy fix and is unlikely to have a near term impact. We are closely watching for active crews to grow past 260 as a sign that a paradigm change for production is underway.
