Frac fleet shortage slows US shale growth

Shortfalls in hydraulic fracturing capacity, needed to bring new wells on stream, will hamper efforts to raise US shale oil output this year.

Rising costs, supply chain bottlenecks and a lack of investor capital are impeding a faster recovery in US tight oil production despite very high oil prices and government pleas for firms to boost supply. "I understand the desire to find a quick fix for the recent spike in gasoline prices," Pioneer Natural Resources chief executive Scott Sheffield told the House of Representatives Energy and Commerce Committee on 6 April. "But neither Pioneer nor any other US producer can increase production overnight by turning on a tap."

"The process of planning, permitting, drilling and safely completing new wells, with the associated construction of facilities and connection to third-party infrastructure, takes 18-24 months for our company," Sheffield says. "It used to take less time in the past — in some instances, only 6-12 months — but this timing is especially negatively impacted today, in the midst of increasing cost inflation, the loss of thousands of experienced oil field workers over the past several years, the decommissioning of rigs and frac fleets when oil prices were low in 2020 and significant shortages across our supply chain."

Frac fleets — or spreads — are becoming a major bottleneck that is limiting production growth this year. "Halliburton's hydraulic fracturing fleet remains sold out and the overall market appears all but sold out for the second half of this year," Halliburton chief executive Jeff Miller says. "In prior cycles, fleets were relatively the same. Today, all equipment is not created equal. Significant operational, environmental and pricing differences exist."

About 270 frac spreads are deployed in the shale sector, industry monitor Primary Vision says, down from 290 in late February (see graph). But there is little extra capacity to draw on. Nearly 360 spreads were active in early 2020 but the oil service industry has since consolidated, cutting capacity. "Two years of supply attrition and cannibalisation, plus limitations from labour shortages and a secular shift toward next-generation frac fleet technologies, have led to tightening in the frac space," Liberty Oilfield Services chief executive Chris Wright says.

No country for old stuff

The pace of well completions has slowed this year as drilling has picked up (see graph). Firms drew down their backlog of drilled-but-uncompleted (DUC) wells in 2021 to recover sunk drilling costs and bring new supply on line more cheaply. Completions ran ahead of drilling as a result, boosting demand for frac spreads relative to oil rigs. But most suitable DUC wells are now on line, and firms need to drill more new wells to offset legacy declines and increase output. Firms completed 45pc more wells than they drilled in 2021, but this ratio dropped to 19pc in the first quarter of this year.

Oil output from new wells in the seven shale formations covered by the EIA's Drilling Productivity Report (DPR) continues to exceed legacy declines by a large margin (see graph). Oil production will rise by 133,000 b/d, or 2pc, in the DPR-7 regions next month, the EIA projects. Legacy declines from existing wells were 475,000 b/d last month, meaning the sector needs to complete 687 new wells to keep output constant, compared with 937 actual completions.

But keeping up momentum will become harder as legacy declines rise. More new wells must be completed each month to stand still, boosting demand for frac fleets that the industry will struggle to supply. "There is just not that much spare capacity left," Wright says. "Not everyone who wants an extra fleet today, frankly, is going to get one." What is sitting around is "very old stuff", he says.

Oil rigs and frac spreads

Shale oil production drivers

DPR-7 well completions