By Swetha Gopinath
(Reuters) – Halliburton Co indicated that demand for its fracking equipment was returning, despite the fewer number of rigs at work, as high-intensity shale drilling soaked up all the available capacity in the market.
Halliburton is the world’s largest provider of equipment used in hydraulic fracturing or fracking – the process of pumping water and chemicals, known as proppants, into shale rocks to extract oil and gas.
U.S. shale oil producers – Halliburton’s customers – are now drilling longer horizontal wells with multiple fracking stages, and deploying more horsepower and proppants to cover larger areas. This high-intensity drilling is boosting demand for fracking equipment.
“Let me start today with a headline: 900 is the new 2,000 for U.S. rig activity,” the company’s president, Jeff Miller, said on a post-earnings call on Wednesday.
“I believe it will only take 900 rigs to consume all of the horsepower available in the market.”
The company reported a smaller-than-expected quarterly loss and said it expected a “modest uptick” in rig count in the second half of the year.
The U.S. rig count climbed by 7 to 447 in the week ended July 15, but is far short of the 1,931 at work in September 2014.
Demand for Halliburton and rival Schlumberger NV’s fracking equipment has also received a boost because a number of smaller services firms have mothballed equipment in response to a two-year rout in oil prices.
Even Baker Hughes Inc, the world’s third-largest oilfield service firm, said in April it was limiting its exposure to the pressure pumping business in North America to two basins.
Many firms have also stripped idle fracking gear for parts to repair the ones in use.
Up to 4 million of horsepower, representing about a fifth of peak capacity has been permanently removed from the market, Halliburton’s Miller said on the call.
Halliburton, however, preserved idle equipment, positioning the company to quickly get back to work.
A near 70 percent jump in U.S. benchmark oil prices since February has brought oil producers back to the shale patch. Many shale producers are now completing previously-drilled-but-uncompleted wells, and some even drilling new wells.
If a service firm were to re-activate cold-stacked equipment today, it would cost about $300,000, while replacing parts on cannibalized equipment may run into millions, said Evercore ISI analyst James West.
The high costs are likely to keep cannibalized equipment off the market, giving Halliburton an advantage, West said.
Schlumberger is scheduled to report quarterly results on Thursday.
(Reporting by Swetha Gopinath in Bengaluru; Additional reporting by Arathy S. Nair and Amrutha Gayathri; Editing by Sayantani Ghosh)