Fracking St ocks: The T op Growt h Sector forInvestors in 2011 by: Keith Schaefer December 20, 2010 | about: PDS / TOLWF.PK Hydraulic frac turing, or “fr ac k ing”, c ompa nies are overtak ing drill ing co mpa nies as the l arges t s ubset of the energy services sector – and research from two Canadian brokerage firms suggests that investors can expect fracking companies to continue growing strong into 2011 and beyond. All the data p oints t o frack ing s tocks bei ng the # 1 pla c e for inves tors to be, in the energy patc h, in 2 011. I think it’s the easiest (safest) money in the oilpatch for the next 12 months at least. (Fracking is when you send water and sand down a well at ultra-high pressure, and it blows out into the s urr ounding rock formati on, fracturing th e rock into many small pi ec es and c reating path ways for the oil and ga s in the rock to get to the well .) Tric an Well Services (TOLWF.PK) is the l arges t fr ac k ing co mpa ny in Canad a, and i t had revenues f or the firs t nine m onths greater t han $1 bi llion – up fr om $541 million in 2009.* Precision Drilling (PDS) is Canada’s largest drilling company, and it had nine month revenue of $994 million, but squeaked past Trican for highest Q3 profits – $61.8 million vs. $53.74 million*. Drilli ng c omp ani es have been the bigges t s ingle subset of the energy s ervices sec tor FOREVER. But the onset of horizontal drilling and multi-stage fracking has changed that. And even though the “new” fracking industry is now 5-6 years old (from the time when the size of frac jobs went sky high – from a few tonnes per well to more than a couple hun dred tonnes) it is s till s trugglin g to keep u p with soaring indu s tr y dem and. This is good news for investors in fracking stocks. The industry is being p-u-l-l-e-d into the limelight. The re are some obvious reasons for this trend, suc h as the huge inc rease in the number of horizontal wells over the last five years as the Gl obal Shal e Revolution intensifies – an i ncreasing number of horizontal wells is us ing an i ncreas ing num ber of fracs per w ell . See this chart from sec urities fir m Raymond Jam es Week ly Energy Bull etin (cli ck to enl arge) : Fra c king Stoc ks: The Top G ro wth Se ct or f or In vestors in 2011 ... http://se ek ingal pha .co m/a rt ic le /242682- f ra c king -s toc ks- the -t op- ... 1 of 5 29/01/11 13:10
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Hydraulic frac turing, or “fracking”, c ompa nies are overtaking drill ing companies as the l argest subset of
the energy services sector – and research from two Canadian brokerage firms suggests that investors canexpect fracking companies to continue growing strong into 2011 and beyond.
All the data points to fracking stocks being the #1 place for investors to be, in the energy patch, in 2011.I think it’s the easiest (safest) money in the oilpatch for the next 12 months at least.
(Fracking is when you send water and sand down a well at ultra-high pressure, and it blows out into the
surroundi ng rock formati on, fracturing the rock into many smal l pi eces and c reating pathways for the oiland gas in the rock to get to the well .)
Tric an Well Servic es (TOLWF.PK) is the largest fracking co mpany in Canad a, and i t had revenues for
the first nine m onths greater than $1 bi lli on – up from $541 mil lion in 2009.*
Precision Drilling (PDS) is Canada’s largest drilling company, and it had nine month revenue of $994million, but squeaked past Trican for highest Q3 profits – $61.8 million vs. $53.74 million*.
Dril li ng c ompanies have be en the biggest singl e subset of the energy servic es sec tor FOREVER. But theonset of horizontal drilling and multi-stage fracking has changed that. And even though the “new”fracking industry is now 5-6 years old (from the time when the size of frac jobs went sky high – from a fewtonnes per well to more than a c oupl e hun dred tonnes) it is still struggling to keep up with soaring
industry demand.
This is good news for investors in fracking stocks. The industry is being p-u-l-l-e-d into the limelight.
The re are some obvious reasons for this trend, suc h as the huge inc rease i n the num ber of horizontalwells over the last five years as the Global Shale Revolution intensifies – an i nc reasing number of
horizontal wells is using an i nc reasing number of fracs per well . See this chart from securities firmRaymond James Weekly Energy Bull etin (cli ck to enl arge):
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Thi s chart shows that al most ALL the g rowth in dril li ng over the last year has been for horizontal well s, asthe Global Shale Revolution intensifies. I expect the Global Shale Revolution to last 20 years – which
bakes succe ss into the c ake right now for a lot of fracking companies.
But i t gets better. Frac king is taking up m ore and m ore of the b udget for these well s. First Energy, an oi land gas boutique brokerage firm out of Calgary, wrote in a Decem ber 13 report on energy servic es that“fracturing costs have come up the most among all services”, and that cost inflation in the oilpatch will
benefit the fracking companies the most:
“Like in 2010, we believe the majority of economic rent will go toward the completions business. As aresult, we see fracturing compani es grabbing a high er percentage of the pie.” (Italics mine-KS)
Canada’s #2 brokerage firm, BMO Nesbitt Burns, outlined six reasons in a recent report why the fracking
sector will remain strong for investors:
1. Current Shortages: …a backlog of roughly 3,000 wells in the U.S. alone that havebeen drilled but not completed… more horsepower is required simply to meet current
demand.2. Continued Increases in Frac Intensity : …horizontal laterals getting longer and thenumber of frac stages in m any plays continu ing to inc rease
3. Longer Lead Times:…new equipment ordered over the next couple of months aspart of 2011 p rograms wil l l ikely no t be de li vered as quic kly as most peopl e think…lead
time is nine months to a year for new frac crews… most of the 2011 equi pmen tcapac ity will not be deployed until around Q4/11
4. Higher Attritio n Rates: With the proliferation of unconventional resource plays, fracshave inc reased not on ly in size but i n pum ping rates as well…some regions have goneto 24-hour operations…. that useful li ves of many key components of a frac spread
have been reduced by as much as 50%.5. More redundancies: In an effort to combat the higher repairs and maintenance
costs many pumpers have added more horsepower on loc ation than i s ac tuall y neededto c omp lete the j ob. Essential ly, thi s all ows the wear-and-tear to be spread over more
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equipment…it requires more equipment to be deployed, thereby helping to absorbmore capacity.6. 6) Equipment Aging : a larger than normal chunk of the equipm ent in the pumpi ng
industry will be ready for replacement over the 2011–2013 time period, which shouldhelp delay the effec ts of the la rge amoun t of horsepower currently und er construc tion.
BMO Nesbitt Bu rns added that there was conc ern amongst thei r buy-side cl ien ts (the m utual /pension
funds) that there would be too much capacity built in 2011, too much new horsepower (fracking
companies are often ranked in size by thei r horsepower), but they di d not c onside r that a conc ern in2011.
Another fina l note for investors to understand i s that the tech nology in this sec tor is still evolving , and it’snot just more/better technology. Some of it is out of the box innovative technology that is leapfroggingindustry expectati ons in terms of producti on and cash flow fracking c an produc e.
Disclosure: I have no positions in a ny stocks menti oned, and no pl ans to ini tiate an y positi ons within the
next 72 hours.
Comments on this articleAdd a comment
User 174433
What about the environmental concerns over fracking? NY's moritorium is all about the potentialenvironmental li abil iti es of fracking. Don't you see thi s as a potential downside for this indu stry?
Stone Fox Capital
its a major downside potential, but it stil l doesn't make sense when c onside ring the option is using
coal. Now thats a better option. l ol
CdnTrader
When an individual drills a water well on thei r land it would be maybe 200 ft deep, at the m ost.Most horinzontal fracs are 5,000 to 8,000 feet. It is difficul t to i magine contami nation through ami le of rock. When you see people li ghting thei r well water on fire they have most li kely hi t shall ow
gas. It is not unc omm on when you conside r the water drille rs are a bunc h of farmers running aroundwith an auger on the back of their truck. The real contamination risk from drilling comes from a poor
cement job. How bad can a cem ent job be? Macondo bad.
Robert Kientz
I have done research on fracking, water table, and the chemicals used. There are some concerns
(Sublette, Wyoming ). However the environmenta l c onc erns are less, im o, for gas fracking than i n
other types of mi ning .
I do strongly advocate for transparency of chemica ls used and oversigh t of drilli ng well integ rity to
prevent water table contam ination.
nishtu
New York is crazy with this fracking. Its so called environmentalists, RiverKeeper etc that are stirring
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up fear for no reason. Pa got i t right, but NY seems to be stuck in the ol d school despite the fac t thatfracking has been goi ng on in the state for 75 years. Albeit l ower pressures. The bad part about NYis incoming Gov. Cuomo , who li ke hi s Dad has this irrational fear about Nuc lea r and frakking . Th is
may bypass NY, but the rest of the World is on board and rightly so.
prairiedog555
Are there any US com pani es that are good c hoic es in thi s industry?
john s. gordon
top growth.well, maybe.people still have objections to secret formulations of toxic (?) chemicals in their well water.
remember - you must tread with cauti on if you do deep-well injec tion of anything inearthqu ake-prone a reas.
have all the known & potential geol ogic faults been ma pped?> jack
utilitus
Just so, Jack G. But there is some evidence that new techniques are being developed involvingextracting the propane component from the gas and using it as a fracking medium that can then be
mostly recovered. Don't know about any ecological impact, which is key, along with the economics.
Bill Costello
The US has many very good plays though some big frac companies are pieces of much larger entities (HAL, BHI, & SLB). But RES is a pretty pure play and CPX is a well run larger pressure
pumper.
cyclingscholar
No mention of Carbo Cerami cs, whic h makes the c eramic proppants espec ial ly suited for shale s
with dense hydrocarbons as well as the gases? Its not on the bargain counter perhaps!
User 490703
Hydro facing is old technology, Petro fracing is the new technology.And only 1 company holds the patents.Water is a hot topic these days, you don't need i t when using li quid gas to frac.
steeny
I didn't see the need for Cdn T rader to denig rate farmers and water well drill ers to make hi s point.
These vocations are honourable and involve significant amounts of capital. As for fracing I thinkinvestors need to understand the technology in light of the alternatives in each particular geology
of the gl obe. As a farmer who has met the stringent c riteria to have two 490 feet 2.5 Kw turbineserected on my property, recent local political pressures has spurred a coalition of municipalities to
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