Liberty Oilfield Services - How Frac Crew Efficiency May Impact Future Frac Fleet Demand

OPEC recently revised downward its outlook for global oil demand to an average of 90.2 MMBOPD (million barrels of oil per day) in 2020. That reflects an average 2020 demand contraction of 9.5 MMBOPD year-on-year, or close to a 10% reduction.

For 2021, it expects global oil demand to grow by 6.6 million bpd to an average of 96.9 MMBOPD next year. For the United States, EIA expects U.S. crude oil production to fall from an average of 12.2 MMBOPD in 2019 to 11.4 MMBOPD in 2020 and 11.1 MMBOPD in 2021.

US Shale represents a growing share of all US (crude and condensate) production. As we infer from the graph below for March 2019, 54% of all US production came from shale; 14% from deep water; and, 32% from conventional.

https://www.linkedin.com/pulse/how-frac-crew-efficiency-may-impact-future-fleet-demand-leen-weijers/?trackingId=PcMvzSEX12sXijK3JLarsg%3D%3D

World Oil - As U.S. drilling plummets to 122-year low, losses may intensify in second half

The spread of Covid-19 caused widespread disruption to financial and commodity markets during the first half of 2020. Extended government-sponsored lockdowns resulted in economic hardship and a dramatic decline in demand for jet fuel, gasoline and diesel. When the virus-induced disruption was at its peak in March/April, demand for gasoline fell 45%, with only partial recovery in May/June. Jet fuel also took a major hit, with commercial flights down 80% in April, compared to January levels. The combination of oversupply and loss of demand led to a rapid and intense bust scenario, which was one of the most detrimental in the industry’s history.

To revitalize crude markets, OPEC+ reduced oil production in June to its lowest level since the Gulf War in 1991. The reductions came after record cuts in May by Saudi Arabia and Russia, which slashed output by 29% and 17%, respectively. Production in the U.S., during the same timeframe, fell just 8%. The masterfully coordinated OPEC+ reduction strategy pushed WTI and Brent prices up 50% in just two months, to average $38/bbl and $41/bbl in June.

https://www.worldoil.com//magazine/2020/september-2020/global-mid-year-forecast/as-us-drilling-plummets-to-122-year-low-losses-may-intensify-in-second-half?id=31307113

Weekly Baker Hughes US Land Rig Count - Sept 25 2020

This week, the Baker Hughes US Land Weekly Rigs Report showed that US Land rigs increased by 6 to 246 active rigs. The Eagle Ford added 4 rigs, the Permian added 2 rigs and the ArkLaTex and Northeast each added 1 rig.

Looking back over the last 12 weeks, it appears that we hit a low of 230 active rigs and rig count has rebounded by 7% since August 14. Permit count can serve as an indicator in future activity and several reports show that permit count remains depressed over the last few months. I expect that rigs may rebound for a few more weeks until we reach Thanksgiving. At that point, operators may decided to lay down rigs and frac fleets until the end of the year. We should hear more as Q3 results start to come out at the beginning of November.

Figure 1: Baker Hughes US Land Weekly Rig Count - Sept 25 2020
(Source: Baker Hughes)

Table 1: Baker Hughes US Land Weekly Rig Count - Sept 25 2020
(Source: Baker Hughes)

Baker Hughes US Land Weekly Rig Report - Sept 18 2020

This week, the Baker Hughes US Land Weekly Rig Report showed that there were 240 active rigs in US Land, up 2 rigs from last week. The ArkLaTex, Northeast and Bakken each added 1 rig while the Permian lost 1 rig.

Rig Count continues to slide in the Permian as the larger operators continue to release rigs. I think that we are getting very close to a bottom in Permian activity. As oil prices dip below $40 dollars again, that will continue to add more uncertainty for the end of this year and 2021. 

Figure 1: Baker Hughes US Land Weekly Rig Report - Sept 18 2020
(Source: Baker Hughes)

Table 1: Baker Hughes US Land Weekly Rig Report - Sept 18 2020
(Source: Baker Hughes)

EIA: Short-term energy outlook remains subject to high uncertainty

The US Energy Information Administration’s September Short-Term Energy Outlook (STEO) remains subject to heightened levels of uncertainty because mitigation and reopening efforts related to the 2019 novel coronavirus disease (COVID-19) continue to evolve.

Brent crude oil spot prices averaged $45/bbl in August, up $2/bbl from the average in July and up $26/bbl from the multiyear low monthly average price in April. The increase in oil prices has occurred as EIA estimates global oil markets have shifted from global liquid fuels inventories building at a rate of 7.2 million b/d in the second quarter to drawing at a rate of 3.7 million b/d in the third quarter.

https://www.ogj.com/general-interest/economics-markets/article/14183070/eia-shortterm-energy-outlook-remains-subject-to-high-uncertainty

Rystad Energy - DUC well inventory sufficient to support US fracking deep into 2021, 280-300 rigs needed afterwards

The recovery of fracking operations in the US is happening largely thanks to an unusually high inventory of drilled but uncompleted wells (DUCs), which is strong enough to sustain the current level of fracking without the industry adding more rigs to expand drilling deep into 2021, a Rystad Energy analysis shows. After DUCs run out, however, rig activity in the five key oil regions needs to be in the 280-300 range to maintain flat oil output.

Actual rig activity today is almost 50% lower than that requirement, but the industry still has about two to three quarters of leverage, based on the current DUC count, to achieve a smooth transition from a DUC-driven activity phase to a regular operations mode.

https://www.rystadenergy.com/newsevents/news/press-releases/duc-well-inventory-sufficient-to-support-us-fracking-deep-into-2021-280-300-rigs-needed-afterwards/

Baker Hughes US Land Weekly Rig Report - Sept 11 2020

 The Baker Hughes US Land Weekly Rig Count was down 2 rigs this week to 238 active rigs. The ArkLaTex, Northeast and Permian each dropped one rig. The MidCon added 1 rig this week.

The ratio between oil rigs and gas rigs has stabilized over the last few weeks. As the oil rig count dropped dramatically at the start of the downturn and  slight increase in the gas rig count, the ratio between oil rigs and gas rigs is now 71% oil rigs and 29% gas rigs. Before the downturn, the ratio was 86% oil rigs and 14% gas rigs. If gas prices can hold on to current price increases, this ratio may continue to swing upward for gas rigs

Figure 1: Baker Hughes US Land Weekly Rig Count - Sept 11 2020
(Source: Baker Hughes)

Table 1: Baker Hughes US Land Weekly Rig Count - Sept 11 2020
(Source: Baker Hughes)

JPT - The End Is Near for the Oil-Demand Surge

Oil consumption has recovered at a record pace but a report from IHS Markit said it is nearly at its limit. And don’t expect it to recover to the peak seen in February anytime soon.

The energy information and consulting firm said the rally, which pushed up demand by13 million B/D to 89 million B/D, is likely to continue to around 92–95 million B/D, well short of its 100 million B/D peak early this year.

“For demand to fully return, travel—especially air travel and commuting to work—needs to get back to normal. And that won’t happen until there is containment of the virus and effective vaccines,” said Jim Burkhard, vice president and head of oil markets for IHS Markit.

https://pubs.spe.org/en/jpt/jpt-article-detail/?art=7548

OilPrice.com - Global Oil Demand To Return To Pre-Crisis Levels In Three Years

It will take three years for global oil demand to rebound to pre-pandemic levels, as jet fuel consumption continues to trend much lower than last year’s levels, according to Bank of America Securities.

While road fuel demand has recovered to nearly pre-COVID-19 levels, aviation fuel demand is struggling to take off materially as air travel is still significantly down compared to ‘normal’ levels from before the pandemic, BofAS said in a weekly energy reported carried by TradeArabia.

Air travel will not rebound until an effective vaccine or cure for COVID-19 is rolled out, the BofAS analysts said. An effective vaccine, however, is still 12 to 18 months down the line, according to the bank.

https://oilprice.com/Energy/Crude-Oil/Global-Oil-Demand-To-Return-To-Pre-Crisis-Levels-In-Three-Years.html

Baker Hughes Weekly Rig Count - Sept 4 2020

For the 3rd week in a row, the Baker Hughes US Land Rig Count has held steady atr 240 rigs. The Bakken dropped one rig while the ArkLaTex added one rig. The Permian Basin was flat for the second week in a row with 125 active rigs.

There has been a lot of discussion around DUCs and the current inventory available for fracing. I have seen some data that shows DUC count is slowly decreasing as operators frac DUCs and do not drill new wells. This has resulted in an up tick in frac activity while there hasn't been an increase in new wells drilled. At some point, the DUC count will drop to the point where frac activity will decline again. Since there is usually a 4 to 6 month lag from the time a well is drilled until it is fraced, we could see another signficant slow down in frac activity in the first part of next year.

Figure 1: Baker Hughes US Land Rig Count - Sept 4 2020
(Source: Baker Hughes)

Table 1: Baker Hughes US Land Rig Count - Sept 4 2020
(Source: Baker Hughes)

Table 2: Baker Hughes US Land Rig Count - Sept 4 2020
(Source: Baker Hughes)