8.4.20 DEP Industry Observations: E&P Earnings Takeaways; Frac Crew Count Approaching 100?

A few quick thoughts.  First, our working U.S. frac crew count now stands at roughly 100 fleets, but as always, this is a point in time data collection process which includes a few estimates along the way.  Second, a few earnings out today, including FANG, CDEV, CLR and NEX.  Encouraging news as CDEV and FANG have both picked up completion crews while CDEV is anticipated to add a rig in Q4.

Frac Crew Count:  We made a number of calls today to gather active frac crew counts.  Admittedly, we haven’t had the chance to visit with every company, but our calls, along with channel checks with various industry contacts, lead us to believe the active frac crew count is in the 100 vicinity.  Our exact tally is 101, but as most astute readers know, the count fluctuates daily and sometimes companies may report active vs. working.  Therefore, we’ll use a range of 95-100 to give us wiggle room.  Also, some companies sadly do not disclose their fleet data, thus we rely on industry contacts, educated guesses and our Magic 8-Ball.

On its Q2 call, LBRT opined on exit rate frac crew counts, forecasting ~125-130 fleets by year-end.  Recall, on May 10^th we expressed a view the U.S. frac crew count would be in the 100-125 vicinity at YE’20.  Our forecast was derived from field tours and channel checks.  Today, we maintain this view.  In the short-term, we will see crew counts rise, but as several frac companies have expressed, there is a potential seasonal drop-off.  Remember, some crew additions are for short-term projects.  Looking into Q1, we believe the crew count will rise even further.  Our average working U.S. fleet forecast is as follows:  Q3 = 102; Q4 = 119; Q1’21 = 136 and Q2’21 = 170.   Our forecast assumes low-to-mid $40’s oil.

Earnings Release Summaries:

Diamondback Energy

• Ramping back up after a Q2 frac holiday.
• FANG is running three fleets with expectations of running 3-4 fleets in 2H’20.
• The company did not complete any wells in June.
• FANG will run 5-6 drilling rigs in 2H’20.
• Company is running 6 rigs today, but was at 20 rigs at the end of Q1’20.
• 2020 capex budget is now $1.8B to $1.9B.
• The D&C budget is $1.565B to $1.630B.
• FANG spent D&C capex of $1.128B in 1H’20.
• In 1H’20, FANG drilled 151 wells and will drill 59 wells in 2H’20.
• In 1H’20, FANG completed 95 wells and will complete 90 wells in 2H’20.
• Steady improvement in well costs.
• Midland Basin D&C costs guided to $635/lateral foot in 2020 vs. original guidance of $735/ft.
• Delaware Basin D&C costs guided to $980/lateral foot in 2020 vs. original guidance of $1,100/ft.

Centennial Resource Development

• 2020 Capex Budget now ~$255M, was about $265M previously.
• Q2 capex down 84% q/q to $28M.
• 1H’20 capex was $203M, thus 2H’20 is implied to be ~$52M.
• Company notes it is presently stimulating 5 DUCs.
• It will also pick up a drilling rig in Q4, resuming activity.
• Recall, CDEV dropped from 5 rigs to zero in April and suspended completion activity.
• Company walked-the-walk as it not only slashed field activity, but it also internally reduced headcount and salaries
• CDEV calls out reduced In-Field Generator Usage as well as reduced trucked water.
• Continuing the transition from ESPs to gas lift.  This is yielding lower failure rates, thus reduced workover expense.
• Drilling efficiencies:  Spud to Rig release declined from 24.5 days in 2019 to 18.3 days in 2020.
• Completion stages/day rising.  Will average 8.2/day in 2020 vs. 6.1/day in 2019 and 4.8/day in 2018.

Continental Resources

• No change to capex as CLR reaffirms $1.2B of capex (and possibly lower).
• 1H’20 capex = $842M or 70% of 2020 budget.
• Q2 capex totaled $191M.
• Implies ~$360M in 2H’20 or ~$180M per quarter, thus likely trending lower.
• Not clear what the relative Q3 vs. Q4 spend will be.
• Expects to average 3.4 drilling rigs in the Bakken in 2020 – not clear where they are today.
• Expects to average 4.3 drilling rigs in the South in 2020 – not clear where they are today.
• Debt reduction will be a near-term focus as CLR wants total debt at $5.4B to $5.5B vs. $5.7B today.

NexTier Oilfield Solutions

• Q2 revenue = $196M vs. $628M in Q1, -69% q/q.
• Adjusted EBITDA of $2M in Q2 vs. $72M in Q1.
• Unadjusted EBITDA was closer to negative $31M.
• NEX reports an average of 11 fully-utilized fleets in Q2 vs. 27 in Q1.
• No indication how many fleets NEX is running today.
• Cash = $337M
• Total Debt = $337M, so no net debt.
• No debt maturities until 2025 so NEX is in good shape.
• NEX notes it deployed a second international fleet.