The inflection point for pressure pumping is in sight.
Well stimulation providers are reporting isolated pricing increases and pointing to rising demand for pressure pumping services as geopolitical and speculative activity boosts commodity prices, underwriting an expansion in operator spending programs.
Rising demand for pressure pumping services is coming despite an unconventional rig count that largely has been unchanged over the last 90 days, signifying structural changes at work in oilfield services.
Price increases are difficult to determine in pressure pumping since invoicing represents a black box amalgam of bulk commodities, services and equipment. But pressure pumping service providers are speaking in terms of 5% increases on base pricing over the last 90 days, as well as pass-through increases in the form of higher costs for greater use of bulk commodities such as sand or other proppants.
The well stimulation sector began the year with contrarian arguments from a handful of sell-side analysts predicting price increases and a tightening market in 2014 for the well stimulation sector. Those predictions stood in contrast to the consensus perception of the industry as oversupplied by up to 2 million hydraulic horsepower (hhp), as evidenced by utilization rates below 80%. Meanwhile, price per stage declined in the first quarter of 2014.
Initially, the argument for a positive change in pressure pumping pricing centered on the possible return of demand in dry gas markets as the industry scrambled to refill natural gas storage from a long, tough winter. However, demand increases for well stimulation services in dry gas markets have been modest at best. So when pressure pumping companies began announcing capacity additions in the second quarter of 2014, it further encouraged the notion that the well stimulation sector would wallow in an oversupplied market well into 2015.
However, subtle changes in the market undermine the current oversupply consensus. Results from the last two regional surveys of pressure pumping vendors and their customers, conducted by Hart Energy over the last 30 days in the Permian Basin and the Eagle Ford Shale, have found anecdotes that pricing per stage has reversed a three-year decline and is now rising, and some discussion that vendors are able to push individual pricing modestly higher.
Furthermore, survey responses suggest the change is structural in nature and stems from the transition in 2013 to pad drilling and batch completions. Pad drilling has created more wells per rig, a notion now well