The U.S. shale boom is turning into a bust for companies that provide drilling services as the number of rigs seeking natural gas has fallen faster than any time in the last 24 years.
The overall U.S. onshore rig count has dropped 9 percent this year, seeing the most sustained declines since the recession-led plunge in 2009. Those declines, caused in part by the gas industry’s shift to oil production, are eating away demand for drilling services and worsening a shale-equipment glut that’s pushing down prices.
Four of the biggest service companies, including Halliburton Co. and Schlumberger Ltd., will see their collective third-quarter operating profit drop by more than $1 billion in North America compared to a year earlier, according to estimates from Houston-based Tudor Pickering Holt & Co. Prices charged for fracking services are expected to drop 14 percent this year and another 8 percent next year, according to PacWest Consulting Partners LLC, a Houston-based industry adviser.
“It’s a battle ground out there,” Joe Hill, an analyst at Tudor Pickering, said in an interview. “With activity contracting, it’s a fairly toxic mix. The real question is how bad this actually gets.”
Once-surging profits from hydraulic fracturing, or fracking, are fading as oil and gas producers become more cautious about spending amid lower energy prices and global economic troubles that are damping demand.
The number of working gas rigs has fallen 48 percent this year to 422, the fastest decline rate since Baker Hughes Inc. began tracking the count in 1988. Even in oil drilling, where gains have helped counter losses in gas, the rig count has flattened, falling below 1400 this month for the first time since June.
At the same time, rising competition and oversupplies of gear have swamped the market. Halliburton and its peers ordered more than $10 billion in new fracking equipment to meet demand as drilling accelerated in U.S. shale fields over the last five years, according to PacWest estimates. Equipment now exceeds demand by 30 percent, measured by the amount of horsepower available to drive the fracturing process, with about 15.6 million horsepower competing to meet demand for 12 million, PacWest says.
The earnings declines for servicers in the U.S. may deepen through the end of the year, said John Keller, an analyst at Stephens Inc. in Houston. As the companies added more equipment and competition heated up, customers began demanding price concessions.