Fracking bottlenecks threaten US output growth

The US government continues to press domestic oil producers to boost output to help address surging energy prices, but the reality on the ground, according to one of the country's leading oil field services companies, is that a lack of available staff and equipment for hydraulic fracturing present a huge obstacle to raising production.

There is very little spare equipment to go around and, even if producers wanted to step up drilling, they would find it difficult to obtain a frac fleet, Chris Wright, chief executive of Liberty Energy, the second-largest provider of fracking services to US onshore producers, tells Argus. "There are a lot of barriers to growing, but if I had to point to one, tightness in the frac market might be the biggest issue of all," Wright says.

Shale producers have faced significant obstacles in ramping up activity this year, ranging from surging inflation to supply-chain bottlenecks. Investor demands for capital discipline and improved returns have also capped any growth ambitions public operators might harbour during a year of high oil prices.

But labour shortages, which have plagued the industry over the past year or so, are finally starting to ease. "They're still quite challenging today but, fortunately, they're less challenging than they were six months or 12 months ago," Wright says. Liberty, which moved up the ranks of US service providers with its 2020 purchase of Schlumberger's North American fracking business, is now hiring skilled workers from outside the oil and gas industry and training them up.

Meanwhile, delivery times for everything from engines to electronic components have grown longer, while costs for parts and labour-intensive services have increased. "All of these things are still real," Wright says. "They are making it a little harder to run frac operations for us and certainly for the whole industry."

The most recent conversations with customers have focused on security of supply and timeliness. The normal seasonal slowdown going into the year-end may be less marked this year if producers are reluctant to risk losing existing frac crews. "You don't want to drill a bunch of wells and have them ready to frac at the end of January and then not have them fracked until July," Wright notes.

Liberty reactivated six fleets acquired through the Schlumberger deal during the third quarter, but may add just two fleets next year if the company decides it is "too challenging to hire and staff further", Wright says.

Frac in business

The Permian has dominated shale activity as the industry has emerged from the Covid-19 pandemic, but other basins such as Eagle Ford in South Texas and North Dakota's Bakken are holding their own — although the Bakken is still facing significant labour challenges. "There's pretty robust activity across the basins," Wright says, even though some have slowed from the rapid growth rates seen in the previous decade.

Faced with the prospect of a global recession, the industry may cope better than others given the tight market. "If it's modest, which I think is most people's default assumption, then commodity prices sort of already reflect that," Wright says.

Liberty started the year predicting that US crude output would grow by 600,000-800,000 b/d. Although production may end up at the lower end of that range, Wright says a similar rate of growth could be expected for 2023, but noted the delays in permitting and getting pipelines built among other increased regulatory hurdles: "The growing burdens from the government, both at the state and federal level, are definitely an incremental headwind to growing US production."

By Stephen Cunningham