Technically this is the 34th installment of the Invest with James West Podcast Series, but this will be Part 1 of three episodes focusing on hydraulic fracturing. We teamed up with the fine folks at MGB Oilfield Solutions, a privately held, Houston-based engineering and manufacturing company that is servicing the pressure pumping industry. The products made by MGB generate significant cost savings and efficiencies for the company’s roster of Oilfield Service and E&P customers. The company is backed by CSL Capital Management and is headed by a former Schlumberger and Weatherford alumnus whom is intent on bringing considerable change to the Oil Patch. MGB’s PowerCell product has generated savings of $600,000 per month for one E&P customer, and emissions were reduced by 60%. Now I know what you must be thinking: Why on Earth would we want to do a mini deep-dive on hydraulic fracturing right now? Here’s why:

1. Change is Accelerating. The pressure pumping supply chain is undergoing drastic change as E&Ps and OFS companies cut capex and curtail oil and gas production. Equipment and service companies that can figure out ways to take advantage of this paradigm shift have the potential to survive and thrive through this horrid downturn. Regardless of the trend, we want you to understand what’s going on and the unit economics of the business. What are the cost structures? What are the key expenses, and how much room is there to improve? What to make of the maintenance and repair cycle? Those kinds of questions will become increasingly important.

2. The Pie is Shrinking. Recall our recent note where we looked at a potential $40B market for upstream U.S. shale based on Steve Richardson’s call for 10MMbpd in crude production. In our view, that’s a somewhat plausible figure and a far cry from the nearly $100B in U.S. E&P capital expenditures that occurred in 2019. Of course, lower production will be a key driver of that, but we also expect for efficiencies to meaningfully contribute. If pressure pumping is going to be one of the key areas of E&P spending, then it’s good to get an updated refresher course on the economics of the business.

3. Your Time is Valuable. A couple years ago a competitor of mine (and former associate) prepared an intense, week-long deep-dive on the U.S. frac market that was a volume of information (+250 pages) which few had the time to consume. We provide a more user-friendly format containing our critical insights on this particular market and will also follow-up with additional 30-45 minute audio segments covering various facets of this topic. It’s a much better use of your time and is not one that is making a call on the U.S. hydraulic fracturing market – we are instead more concerned with how this sector looks once we come through to the other side of this downturn.

A big thank you to today’s guests Mark Bishop (CEO of MGB) and Barry Ekstrand (VP – Head of Strategy) for helping us put this together. Part 2 will look at the maintenance component of a typical U.S. pressure pumping operation and Part 3 will hone in on the high-pressure iron used throughout the process and other components of the supply chain. We hope you enjoy and we’ll be back soon with our next installment.

– James