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Frac Services: How to Improve Capacity Utilization?

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Frac Services: How to Improve Capacity Utilization?

Posted on 11 September 2012 by BBeitler

— In recent news the “US Hydraulic Fracturing Market [will be] Oversupplied by 3.6 Million Horsepower by Year-End 2012 While Global Capacity Reaches 20.1 Million“.

According to Pac-West Consulting in their Pumping IQ report, a bottoms-up view of the US pressure pumping / hydraulic fracturing market with granular fleet counts, a dropping rig count domestically has reduced the hydraulic fracturing capacity utilization  from 95% in Q1 of this year, to 85%. The report forecasts that this utilization will further drop to 75% by end of 2012.  As this  ‘rig count drop‘ does reduce opportunity it is not the only factor in this capacity oversupply.  The committed  delivery of pumps on order by multiple Frac Service Companies is also an important factor  of  this ‘capacity to opportunity’ variance .

Whether it be pipes or pumps, the roller coaster fluctuations of the drilling industry always seem to be a surprise, no matter how many times they happen. This past June, I published a short article on RFID for pump Maintenance. The article touched upon how technology can enhance a  Frac service provider’s capacity by improving the visibility of each and every pump and thereby reducing downtime and decreasing opportunity lose.  More generally speaking, a lean and effective pump management system enables a company to service more with less. Effectively increasing an organization’s capacity utilization without the absolute need to buy more horsepower.

Now the reality check:  95% capacity utilization can mean something different from provider to provider, even if both companies have the same horsepower capacity.  Just because ‘COMPANY X’ has 95%  of its pumps tied up in jobs does not mean it is doing these jobs as effectively as ‘COMPANY Y’. With an optimized pump management system COMPANY Y can relocate pumps to other job sites faster, it can reduce the possibility of pumps failing , and it can service more locations with the same horsepower. Again more generally speaking, committing resources to a job via the term ‘capacity utilization’ does not mean that the job will be done with the same efficiency, it does not mean that the next job will be available faster, and it does not mean that the bottom-line or the top-line for COMPANY X and COMPANY Y will be the same, irrespective of their equivalent horsepower and capacity utilization.

In attempt to meet growing demand the  purchasing of multi-million dollar equipment should always be weighed against the cost of optimizing your service supply-chain. Inevitably horsepower may be the only option but it should never be the first option.

 

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