The executive team for completions expert ProPetro Holding Corp., whose business is centered in the Permian Basin, remains bullish on natural gas and oil activity rising over the next several years on improved commodity prices and the continued “industrialization” of the energy sector.
The Midland, TX-based oilfield services (OFS) firm provides hydraulic fracturing (fracking) services, mostly for Permian exploration and production (E&P) customers. Business has been slow, but when E&Ps need equipment, they are more likely to contract for premium technology, including electric fleets, or e-fleets, and the dual-fuel systems that use natural gas.
“Despite the recent market slowdown, demand for our next generation offerings has not waned,” CEO Sam Sledge said during the third quarter conference call.
The company sidelined one frack fleet during the third quarter “to avoid running it at sub-economic levels.” However, it still achieved an “effective utilization of 15.5 fleets” in 3Q2023, versus 15.9 in 2Q2023.
Insulated By Permian
The state-of-the-art technology, combined with “operational density” in the Permian, has insulated the company “from some of the market inconsistency seen in other basins and in the spot market,” Sledge said.
The key is giving the customer what it wants, he explained during the call.
Over the past two years, ProPetro has spent nearly $1 billion to transition toward more e-fleet services. A second e-fleet is set to be deployed by year’s end, with two more scheduled to begin operations by the end of June. The electric and dual-fuel equipment “will play a significant role in the future of ProPetro,” as they offer a “more desirable” option for E&P customers that want to reduce emissions, Sledge said.
The company chief said his optimism is fueled by “direct conversations” with E&P customers. “That, to us, is always the most powerful variable in the activity equation” in “what our customers are planning and how they’re involving us in their plans moving forward…ProPetro’s customers also “are viewing the commodity outlook fairly positively.”
NGI’s Forward Look shows gas prices at the Permian’s Waha hub averaging around $2.97/MMBtu in 2024, $3.50 in 2025 and $3.60 in 2026. This compares with a year-to-date average of about $1.70.
‘Challenged’ Fourth Quarter
Don’t expect onshore activity to ramp up quickly, though.
The fourth quarter, as is usual across the energy industry, is likely “to be challenged by normal seasonality, holidays and budget exhaustion,” Sledge said. “We believe budget exhaustion this year is more correlated to the increased efficiencies that service providers such as ourselves provide to our customers. We are proactively working with our customers to mitigate the impact but anticipate a modest decline.”
Through the first half of 2024, “we should see activity improve…as a result of the normalization of oil prices and more rigs coming back online,” the CEO said. “On a broader note, we believe the upstream E&P industry is in a slow-to-no-growth environment, where the appetite for capacity expansion throughout the hydrocarbon value chain is low.
“However, we think this benefits sophisticated service providers like ProPetro, and we are confident we have the right strategy in place to continue creating value for our customers and our shareholders.”
The recent E&P dealmaking among U.S. companies will make technology-driven companies like ProPetro more attractive, Sledge said.
“There’s been quite a bit of consolidation in the E&P space this year, and we wouldn’t be surprised if it continues in the next year at almost a similar pace.” In previous cycles, the “big consolidation…might have been scary and created some uncertainty” for OFS providers, he said.
“But if you look at it through the industrialization that we keep talking about and how ProPetro is positioned within that, I can confidently say, I think we welcome it…Overall, I think we feel really well about how we’re positioned within kind of that changing world.”
ProPetro also would be on the lookout for bolt-on opportunities, Sledge told investors. Last year, the company acquired Silvertip, giving it entry into wireline services. Because of its positive benefits to the bottom line, “we’ll continue to evaluate and pursue strategic transactions to accelerate value creation as a part of our balanced approach to capital allocation.”
To that end, ProPetro recently executed a letter of intent for a “small bolt-on acquisition that helps us expand our cementing business,” he said. That deal is set to be completed by year’s end.
Net income improved to $35 million (31 cents/share) from year-ago profits of $10 million (10 cents). Total revenue increased to $424 million from $333 million.
