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Low-cost fracking offers boon to oil producers, headaches for suppliers

Reuters, Smiley, Texas
At a dusty drilling site east of San Antonio, shale producer EOG Resources Inc recently completed its latest well using a new technology developed by a small services firm that promises to slash the cost of each by $200,000.
The technology, called electric fracking and powered by natural gas from EOG's own wells instead of costly diesel fuel, shows how shale producers keep finding new ways to cut costs in the face of pressures to improve their returns.
E-frac, as the new technology is called, is being adopted by EOG, Royal Dutch Shell Plc, Exxon Mobil Corp and others because of its potential to lower costs, reduce air pollution and operate much quieter than conventional diesel-powered frac fleets. Investment bank Tudor, Pickering Holt & Co analyst George O'Leary estimates e-fracs could lop off up to $350,000 from the cost of shale wells that run $6 million to $8 million apiece.
But these systems can cost oilfield service companies up to twice as much to build compared to conventional frac fleets. A rapid uptake could worsen the economics for a sector already cutting staff and idling equipment as oil producers pare their spending. That leaves this potentially breakthrough technology to small providers without the means to fully exploit it.
ONE-SIDED SAVINGS Jeff Miller, chief executive of Halliburton Co, the top US provider of fracking services, said his firm has tested the technology but has no desire
to promote it.
"Halliburton will be really slow around frac," Miller said, referring to the costs of updating diesel systems to electric. Converting the industry's 500 frac fleets would cost $30 billion, he estimated, too steep a price for oilfield firms, he said.
He recently advised an oil producer interested in the technology that the benefits of deploying e-fracs "work for you, they don't work for us," he said at Barclays energy conference this month.
Halliburton, Schlumberger NV and others have idled scores of diesel-powered fleets this year as producers cut spending due to flat to lower oil and gas prices. Consultancy Primary Vision estimates the number of active fleets in the US fell 19 percent since April to around 390.
Halliburton cut 8 percent of its North American workforce and reported second-quarter profit fell 85 percent over the year-ago period in part because of equipment writedowns and severance costs due to
weak demand for its frac service.
"Every week that goes by I get more and more negative about e-frac due to the harsh imbalance between the benefits achieved by the oil company and the costs incurred by the service company," said Richard Spears, a consultant to top oilfield services suppliers.
Schlumberger paid $430 million in late 2017 to acquire a diesel-powered frac fleet from rival Weatherford International, hoping to expand shale services. A spokesperson declined to comment on e-ffac.
This month newly-named CEO Olivier Le Peuch disclosed plans to write down investments that were "based on a much higher activity outlook with the ambition of achieving economies of scale."
E-frac supplier Evolution Well Services, which supplied the equipment and crew for EOG's Eagle Ford shale operation, is one of a handful of smaller oilfield firms pioneering the systems.
Evolution operates six e-frac fleets -mobile collections of high-pressure pumps powered by gas turbine generators - and plans to roll out a seventh next year. US Well Services, another e-ffac provider, has agreements with Apache Corp and Shell. Conventional pressure pumper ProPetro Holding Corp also announced plans to bring a handful of e-frac fleets to the market.
"We'd kind of would like to” build more systems without firm customer contracts, said Ben Bodishbaugh, CEO of Evolution, the only purely e-frac provider in North America. "But in this market it's hard to justify," he said.