Headwaters MB has released its latest Oilfield Services Report. The report states that, “After two years of low or declining commodity prices and low rig counts, signs have begun to emerge that oil and gas markets may finally be on the path to recovery. With some stability in commodity prices, the question now is whether the oil market's optimism will hold while drillers enter budget-planning season over the next few months.”
The report concludes:
• Capital markets are open for business. After being effectively shutout of public equity markets for more than two years, deal counts and deal values have improved and the capital markets have reopened their doors to companies in the energy space.
• Distressed asset demand is beginning to outstrip supply. With a decrease in the number of bankruptcies, the market has seen a record high level of dry powder for investment.
• Hydraulic fracturing makes a comeback. 2015 saw a tipping point in the use of hydraulic fracturing; today, more than 51 percent of new oil production results from wells that are fracked.
• The appetite for cost savings in recent years has influenced operators' taste in frac sand. The affordability of regional sand outweighs the concurrent efficiency losses of the inferior product.
• Regional sourcing of proppants has risen. The continued depression in energy prices have significantly limited the profit margins of oilfield service operators demanding frac sand – squeezing margins at every stage in sand transport.
According to report author Joel Schneyer, “Not only are the number of horizontal wells and thus horizontal rigs increasing, but operators are increasing both the number of stages per lateral and the frac sizes per stage. Given these additional trends, demand in proppant no longer tracks with the number of rigs. Compounding this trend is the increase in completion density – more sand used per foot means more sand per well. In all, the rebound of the proppant market for sand is poised to bounce back sooner and faster than other oilfield services when oil prices recover.”
You can view the entire report here.