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Flat production growth to cool demand pull on oilfield services

The recent surge in mergers and acquisitions (M&A) in the US Lower 48 shale demonstrates the importance of scale and quality inventory for operators. The rationalization of operations and the maintenance of production from consolidated land positions have put the prospect of growth in oilfield services (OFS) on ice.

Read our special insight from Mark Quesada, Vice President Supply Chain Research at Rystad Energy.

Operator consolidation, activity rationalization and efficiency gains will likely keep activity flat even with modest production growth.

Mark Quesada, Vice President Supply Chain Research at Rystad Energy

The recent surge in mergers and acquisitions (M&A) in the US Lower 48 shale demonstrates the importance of scale and quality inventory for operators. The rationalization of operations and the maintenance of production from consolidated land positions have put the prospect of growth in oil field services (OFS) on ice.

Drilling

In the drilling sector, the top five contractors control about 75% of the market share and nearly all the US super spec drilling rig stock, allowing them to act as a ‘mini-OPEC’ for the best drilling equipment. Maintaining the supply and demand balance has allowed these contractors to maintain pricing despite a falling rig count.

The horizontal rig count is expected to move from an average of 541 rigs in 2Q24 to 534 in 4Q24 and be rangebound between 531 and 536 rigs in 2025. Meanwhile, gas-related drilling is expected to grow moderately but not enough to offset rig declines in other areas.

Efficiency gains have continued to climb, with the total monthly footage drilled per rig likely exceeding previous highs and continuing to climb as rigs are dropped and crews and equipment are high-graded. As operators grow in size and scale, they will align themselves with contractors that offer performance and reliability, which will continue to bode well for the largest drilling contractors.

Pressure pumping

The same low growth and activity rationalization impacting the drilling market similarly affects the frac market. Pricing has eroded by 5-7% year-on-year in oil basins and 10-12% in gas basins. With no sign of a material climb in rig demand, it is difficult to see total frac crews exceeding 220 in the US Lower 48.

Pressure pumpers also continue to upgrade equipment to next-generation technology that can substitute diesel with natural gas. E-fleets are being touted for having superior margins due to lower operation costs and favorable maintenance schedules.

With a lower concentration of next-generation equipment among companies, aggressive pricing to win market share is becoming more common. While softening demand has had little impact on the pricing of e-fleets, diesel pricing has been decimated, with average pumping pricing around $8,000 to $8,500 per hour and below $6,000 per hour in some instances. With diesel fuel prices down to $2.50 per gallon, Tier 4 Dynamic Gas Blending pricing has come down as the fuel-saving arbitrage between compressed natural gas prices and diesel has collapsed. As fleets upgrade to the next generation, increasing pricing pressure is expected to drive more M&A activity in the pressure-pumping space.

Decreased frac demand also stems from efficiency gains. Frac efficiency across the US Lower 48 has continued to climb as the least efficient crews and work are dropped, and simultaneous operations become more widespread.

Overall, the outlook for oilfield service activity remains subdued through 2025. Operator consolidation, activity rationalization, and efficiency gains will likely keep activity flat even with modest production growth.

Pressure pumpers will see more harm, especially for the lowest tier of equipment, until the market rids itself of an oversupply from equipment retirement, bankruptcies, or M&A. 

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