Fracking Firms Face New Crop of Competitors; Schlumberger, Halliburton, Baker Hughes Struggle to Distinguish Themselves as Smaller Rivals Crowd the Marketplace

July 8, 2013, 7:31 p.m. ET

Fracking Firms Face New Crop of Competitors

Schlumberger, Halliburton, Baker Hughes Struggle to Distinguish Themselves as Smaller Rivals Crowd the Marketplace



So many companies have jumped into the hydraulic-fracturing business that the price of performing the key part of the oil- and gas-drilling technique has plunged in recent years, forcing fracking’s pioneers to play up new technologies to stand out. Schlumberger Ltd., SLB +0.94% Halliburton Co. HAL +0.48% and BJ Services, a company that is now a subsidiary of Baker Hughes Inc., BHI +1.25% once did nearly all the hydraulic-fracturing work in the U.S., helping energy companies unlock previously unreachable oil and natural gas in shale formations and ushering in a boom in domestic energy production.

But their profits attracted competition and spurred the construction of new fracking fleets by independent companies. Now their share of the market for pressure pumping—the main step in the fracking process, in which water and other materials are injected into a well to break apart rock formations and unleash oil or gas—has dropped off as smaller, cheaper competitors have proved they could do similar work.


Halliburton, which does the most pressure pumping of any oil-services company, saw its North American profit margins fall to 18.4% in 2012 from 27.5% in 2011. During the first quarter, the Houston-based company’s North American margins were 16.3%.

The three companies’ share of the North American pressure-pumping market fell to 63% in 2012 from 85% a decade ago, according to Barclays BARC.LN +2.44%.

“The one thing we hate as a company is if you go for a bid and you have 20 people bidding against you,” said Baker Hughes Chief Technology Officer Mario Ruscev. “It’s not a good business model.”

Services companies sounded notes of cautious optimism at the end of the first quarter that pressure-pumping prices have reached their bottom and will begin recovering at some point this year, as more oil production means work for fleets of fracking equipment that had gone unused. If natural-gas prices rise, it could mean energy companies that slammed the brakes on drilling for gas during the glut resume operations, in theory boosting oil-field service companies’ margins along with them. But few expect a return to the early days of the shale boom, when demand for fracking services outstripped the supply of equipment available to do the work.

Smaller oil-field services companies such as Nabors Industries Inc. NBR -0.68%Basic Energy Services Inc. BAS +1.92% and Patterson-UTI Energy Inc.PTEN -1.79% have snapped up pressure-pumping outfits to expand their footprint. And new startups have proved that the barriers to the shale-gas industry, such as the cost of equipment and technical expertise, aren’t insurmountable.

The large, publicly traded oil-field-services companies are trying to counter the competition by using their larger budgets to build more powerful and efficient equipment. They also hope efforts to provide clients with more in-depth information about what is going on underground will set them apart.

In the early days of the drilling boom, energy companies focused on snapping up acreage and rushing to drill, but Mr. Ruscev said they are now more receptive to technical assistance that involves “more intelligence.”

“It’s all about risk. If we can come to them and prove that we can lower risk in a significant way, obviously they’ll pay for it,” he said.

Exploration-and-production companies’ shift toward shale reservoirs rich in oil rather than natural gas favors the larger services companies—those areas require more specialized chemicals and other technologies, as opposed to natural-gas shale that can be developed with “brute force” by smaller competitors, Barclays analyst James West said.

But the high-tech approach isn’t always rewarded. Schlumberger Chief Executive Paal Kibsgaard told analysts in April that U.S. customers haven’t been too enthusiastic about the company’s efforts to make shale-drilling operations go more smoothly or its investments in shale technology. Houston-based Schlumberger spends more on research and development than Halliburton and Baker Hughes combined.

In hopes of showing potential customers what it is capable of doing to improve an oil-and-gas company’s production, Schlumberger is entering a partnership with Forest Oil Corp. FST +1.65% to jointly develop some of the company’s land in the Eagle Ford shale in south Texas.

Halliburton is rolling out initiatives aimed at using less equipment and cutting back downtime in order to keep fracking costs under control.

Its “Frac of the Future” initiative includes a powerful pump—used to inject rock-breaking fluid into shale at high pressure—that is expected to last longer and use less fuel than existing pumps. It also touts a solar-powered storage silo that takes up less space than the tanks that are typically used to store and mix the hundreds of thousands of pounds of sand and other materials that will be injected into a well as part of the fracking process.

Nick Gardiner, Halliburton’s strategic business manager for production enhancement, said the new equipment helps Halliburton do more work with less downtime, aiding fracking customers by getting jobs done more quickly. He said the equipment is catching on: 90% of the Frac of the Future equipment Halliburton has available is in use. “It helps us keep a technical advantage over competitors in customers’ eyes,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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