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Recent earnings reports in January from the drilling and fracking companies have indicated that the much lower natural gas market has so far not negatively affected their business. Liberty Energy and Halliburton have both indicated that the fracking market remains tight and fully subscribed for 2023.
Drilling & Fracking Company Reports
Halliburton still expects activity levels to remain strong in 2023 for North America and that there will be a significant increase in international offshore activity. Halliburton’s fracking service business remains fully subscribed for 2023 and they even expect North American activity to surprise to the upside. Halliburton expects global demand for oil and natural gas to remain strong. They also expect oil demand from China to expand significantly due to the reduction in Covid travel restrictions. Halliburton does expect a small slowdown in drilling and completion activity in the 1st quarter 2023, but that is mainly due to some operational issues from producers.
Liberty Energy also said that the fracking market is still tight in all of the shale basins. Even with the large drop in natural gas prices, there has been no significant reduction in activity. Liberty Energy maintains that in order to expand production in North America, the fracking fleet still has to be fully utilized. They also said that if natural gas fracking activity were to slow down dramatically, they would very likely see their producer customers transfer those displaced fracking crews over to more oil activity in the oil basins.
Schlumberger also expects drilling activity to remain strong in North America despite the recent huge drop in natural gas prices. International offshore activity will also continue to increase. Schlumberger does see a buildup in DUC inventories in the first half of 2023 in North America. Schlumberger expects producer capital spending to increase year-on-year in the high teens for 2023.
The reason why overall Lower 48 drilling and fracking activity has not dropped significantly yet is because it is mostly about oil. Liberty Energy did say in their analyst conference call that there would be a very large drop-off in drilling and fracking activity if oil prices were to drop into the $40s. Liberty Energy said that the oil market is more important to drilling and fracking activity than the natural gas market. Although in certain basins, there has been a drop-off in fracking activity. The Northeast, which is predominately natural gas with some natural gas liquids, has seen a decrease in fracking activity since September 2022. The data is real-time fracking crew data from Hyperion.
On the other hand, the Haynesville, another natural gas basin, has seen sideways fracking activity since September 2022. The data is real-time fracking crew data from Hyperion.
West Texas fracking crews in the Permian, a predominately oil basin, have also been sideways since September 2022. The data is real-time fracking crew data from Hyperion.
Overall Lower 48 fracking crews are down about 9% since September 2022 while Lower 48 rigs are up about 3% since September 2022. The data is real-time fracking crew and rig data from Hyperion.
Summary
The oil market is much more important to fracking and drilling activity than the natural gas market. Natural gas prices at the Henry Hub could be under $2.00/MMBtu and overall fracking and drilling activity in the Lower 48 won’t fall very much as long as oil prices remain relatively high at current prices around $80/Bbl. However, if oil prices do fall significantly along with natural gas prices near the $2.00/MMBtu mark, then we will see a large drop in overall fracking and drilling activity.
