A few quick observations from the first two days on the road:
- To state the obvious, it’s really, really bad out there.
- We believe there are now 19-20 frac crews working in the Permian.
- There is some chatter that E&P’s are seeking to renegotiate leases with land owners to allow them flexibility to defer completions, yet still hold acreage.
- We don’t know how widespread this is, but it would seem such actions could lead to a further decline in frac activity.
- That said, we have multiple indications of companies potentially looking to add crews in July/August. Not big numbers by any means, but a glimmer of hope.
- In the near-term, we believe we are approaching ~50 fleets in the U.S.
- Hotels are empty – go figure, but the combination of COVID and low oil prices clearly having an impact on hotel utilization rates.
- As we noted in our LinkedIn post, our rate is a blended $92/night.
- If you don’t follow Daniel Energy Partners on LinkedIn, please do – it builds my self-esteem.
- We drove by the airport just to check things out and were shocked to see how many cars were still parked out in the grass.
- Makes us wonder if people simply walked away from their vehicles.
- We doubt they are simply away on vacation.
- Plenty of rental cars and one really nice private jet.
- We learned from one contact whose neighbor left his home after losing their job in order to return to Alabama.
- They left everything in the house.
- Probably not good for the credit rating.
- Bigger takeaway – if this downturn lasts quarters and not months, what will it take to bring those folks from outside TX back to the oilfield? A lot.
- Actions have consequences…a theme we expressed on Saturday.
- In keeping with that theme, we also highlighted in our note the various yard closures.
- The following comment is not meant to pick on anyone, but a good example is HAL’s closure of its Kilgore, TX facility.
- Based on news media, HAL has been in Kilgore for over 80 years. The closure is a sign of the times.
- Today, we heard of two OFS firms electing to shut down their Hobbs, NM operations.
- More of this will happen and ultimately it’s the E&P’s who will suffer.
- Well service utilization remains soft with one well service vendor reporting utilization in the 25% range based on its internal study.
- We’ve now heard from two sources of one well service company offering a rig for $100/hour. Stupid, if true.
- While well servicing in recent years has been about as exciting as a Cincinnati Bengals game, there is reason to look at this business.
- Industry consolidation coupled with the likely wellbore/tubing repair needs which will develop as a consequence of shut-in’s gives reason for hope.
- We intend to dig into this topic in detail soon.
- Yesterday, we drove here from Houston and passed through Voca/Brady.
- Depressing.
- Back in the day, this was a hot spot for sand mines. Not so much today.
- True, most of these mines began idling before the current downturn, but seeing all of the mines inoperable is really telling.
- We didn’t see one pneumatic transporting sand from Voca to Midland or returning from Midland to Voca.
- Perhaps driving by on Sunday explains the situation, but we doubt it.
- Not sure how one remediates these types of mines, but sand plants are not small operations and at some point, someone will need to tear these things down.
- Here’s one which hits closer to home – an acute effort by the industry to slash G&A.
- As a subscription-based business, we really appreciate open check books and frothy spending.
- Our contacts are key decision makers and when we hear about line-by-line reviews of expenses, this is telling as to how bad the market really is.
- Best-in-class companies (both E&P and OFS) are in shut-down mode where even the smallest of expenditures are questioned.
- While we personally wish this wasn’t the case, it is reflective of the fear in the business.
- People are prepping for an extended downturn.
- Cash is king and no one seems willing to part with it because of the uncertainty over the duration of the current market weakness.
- We’ll be in Midland tomorrow and then heading up to Canadian, TX.
- Stay tuned for more observations.
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