Why Are US Oilfields Scrapping Fracking Equipment?

Amid a significant downturn in shale drilling, oil companies are scrapping idle equipment and, in some cases, retiring entire fracking fleets. The decline has been steep, with almost 50% of US fracking machinery expected to be grounded within a matter of weeks thanks to sluggish oil prices and lack of investment.

"Too much of everything", warn industry experts

In the past, recessions have seen oil companies ground unused equipment until operations pick up again. This time is different, with many drillers cutting their losses and stripping down equipment to be sold for scrap or parts. Major shale drillers such as Patterson-UTI Energy Inc. and RPC Inc. are currently in the process of decommissioning heavy-duty pumping units and other equipment used to fragment oil-rich shale rock. The industrywide trend is also spreading beyond site drillers to service providers such as sand miners and trucking companies, who are also buried under a surplus of unused equipment.

"There’s too much of everything, from horsepower to sand,” warns Joseph Triepke, founder of oil and gas news resource Infill Thinking and a former analyst at Citadel LLC’s Surveyor Capital. "The U.S. oilfield-service sector has overshot the growth cycle again resulting in a capacity glut."

US fracking industry to decommission 10% of equipment capacity

Fracking oil calls for extreme power, with trucks and other equipment used to fire high-pressure jets of water, sand and chemicals into the bedrock. To date, around 10% of US equipment is destined for the scrapyard, with experts warning an additional 1% could be following the same path.

While the approach from land-based companies is drastic, it marks a significant change from the reactions of offshore counterparts such as Transocean Ltd. The Swiss-based operator continued to maintain idle deepwater drilling vessels in the Caribbean for years, at a cost of around US$15,000 per day. When the offshore revival failed to materialise, Transocean Ltd was forced to scrap its multibillion-dollar rig.

Producers plagued by slump in investor spending

The outlook isn't bright for Stateside fracking companies, with analysts warning that explorer spending in North America could continue to fall in 2020. To get the market back on its feet there needs to be a notable increase in demand and a significant drop in production from other pumpers.

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