Early Termination Switcheroo, Frac Hits, and Capex Clues… Here’s 10 Rubberneck-Worthy Developments From This Busy Week

With 27 oilfield earnings reports this week, including a dozen conference calls on Thursday alone, C-suites across the patch opened the information flood gates. We continue to pore over transcripts and 10-Qs.

For this update, we are driving right on past the usual suspects. Laterals are getting longer, sand’s expensive and more of it is being pumped, fleets are being reactivated and service utilization is tightening. These themes were hammered over the past few days. But you know all this already.

So instead, we are going to try something a bit different, highlighting the more nuanced threads that pricked up our ears on conference calls this week. We’ll have plenty more analysis stemming from what was said this week, but we’ve gotta start somewhere. Why not start with the juicy stuff first?

10 Rubberneck-Worthy Observations From This Busy Week

1) Frac Crews Release Operators Early As Termination Clauses Work The Other Way. During the depths of the downturn, there were weeks when operators handed contractors dozens of early-termination notices, electing to pay contractual penalties to walk away from contracted rig time priced above market rates. My how far the pendulum has swung. EQT Corp. spoke Thursday about how frac crews from several contractors exercised early termination clauses of their own during 1Q17, paying the operator a penalty fee to walk away from jobs contracted below market price. This shows just how tight the frac market is – the payments are essentially the arbitrage cost of frac crews trading in lower margin contracts for higher margin jobs in the spot market. For EQT, this disruptive development resulted in fewer completions than they expected during 1Q17, it will cause them to scramble for crews (ramping from two to three during 1Q up to six by mid-year), and it puts their full-year guidance at risk. The penalty payments are only a small consolation. Management said on the call:  “we will get some penalty fees, but that obviously is far less than the value of having the wells frac’ed on the schedule that we would have liked.” Oilfield contract sanctity took a beating during the downturn… looks like the upcycle is going to finish it off.

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