Westwood Insight: Is OneStim too little too late for the US pressure pumping market?
Schlumberger's decision to acquire Weatherford's North American pressure pumping assets and fold them into the OneStim joint venture with Liberty Oilfield Services was, on paper, a straightforward bet on the US completions market. The logic was simple: if lateral lengths keep growing and stage counts keep climbing, the demand for pumping horsepower isn't going anywhere.
The question is whether Schlumberger arrived at the party just as the music was about to change.
A market in flux
US pressure pumping has been one of the tightest segments in the oilfield services sector through most of 2017. Active horsepower utilisation exceeded 90% by mid-year, driving pricing improvements of 15-25% depending on basin and fleet configuration. For service companies that survived the downturn, margins were finally recovering.
But several forces are now converging that could complicate the outlook. First, the sheer volume of new-build and reactivated capacity entering the market. DW estimates that approximately 3.5 million horsepower of additional pumping capacity will be available by mid-2018, a roughly 25% increase over current active supply.
Second, and perhaps more significant, is the trend toward operator self-sourcing. Pioneer Natural Resources, Devon Energy, and several large Permian operators have either purchased their own fleets or signed exclusive long-term contracts that effectively take capacity off the open market. When your biggest customers start backward-integrating, the addressable market shrinks regardless of headline demand growth.
The technology angle
Schlumberger's pitch for OneStim rests partly on technology differentiation — the idea that its reservoir modelling and completion design capabilities, combined with Liberty's operational efficiency, can deliver better well economics than a standalone pumper. There is some evidence for this. In the Eagle Ford, OneStim operations have shown 10-15% production uplift on offset wells where the integrated approach was applied.
The trouble is that technology advantages in pressure pumping tend to be short-lived. What Schlumberger can do with fibre-optic diagnostics today, Halliburton and ProPetro will replicate within 12-18 months. The barriers to imitation are low.
Where this leaves the market
US pressure pumping demand will remain strong through 2018 and into 2019, driven by completion of the massive DUC (drilled but uncompleted) well inventory, particularly in the Permian and Appalachian basins. DW forecasts US completions expenditure to grow 12-15% year-on-year through 2019.
The returns available to service providers in that market, though, are likely to be squeezed. More capacity, more self-sourcing, and operators who learned during the downturn that they don't have to accept whatever price the pumpers quote. Schlumberger's OneStim will compete, but the golden window of pricing power may have already closed.
Thom Payne, Oilfield Services Analyst, Douglas-Westwood