In one of the largest deals in recent months, Baker Hughes announced its plans to buy BJ Services earlier this week. Pundits agree that Baker needed to fill the pumping services hole in its portfolio to continue to compete with Schlumberger and Halliburton.
A year and a half ago this would have made perfect sense. The North American shale plays, which require huge frac jobs to produce the gas, were going gangbusters, and natural gas prices were justifying the continued frenzy. Today natural gas is selling at less than US $3/Mcf.
Even more troubling, perhaps, is a general trend to question the way these wells are hydraulically fractured. Not only is there a bill pending in Congress that would severely limit fracturing due to concerns over water contamination, but even those within the industry question whether bigger is better when it comes to these gargantuan undertakings.
Last week I wrote about a talk that Bill Coates, president, Schlumberger Oilfield Services North America, gave at the IHS forum prior to Summer NAPE. Coates maintained that more up-front measurement could result in smaller, more targeted frac jobs. The following day I was talking to a gentleman at our booth regarding the cover of the August 2009 issue of Oil and Gas Investor, which shows an aerial view of a massive frac job in the Marcellus Shale. “This is the kind of thing we don’t want people in Washington to see,” he commented.
So is Baker moving into the frac arena just as demand for those services diminishes? Loren Steffy of the Houston Chronicle interviewed Ted Harper with Frost Investment Advisers, who said that the acquisition will add to earnings by 2011, but only if gas prices reach at least $6.50/Mcf. “This is definitely a call that they think we are at or near the bottom,” Harper said.
Still, the shale plays continue to generate excitement, even with gas prices down. The Pittsburgh Tribune-Preview reported that the number of natural gas wells that have been permitted and drilled in the Marcellus Shale continues to climb. This is attributed to lower drilling costs and the play’s proximity to the large East Coast market.
State Department of Environmental Protection spokesman Tom Rathbun was quoted as saying that his department expected to issue 700 Marcellus Shale drilling permits in 2009 but had surpassed that mark by June.
Time will tell whether Baker jumped at the right moment or will end up trailing the pack. But I think all companies that drill shale wells, and the companies that provide frac services for them, are going to need to consider the size of these operations going forward, particularly in terms of water usage and the overall footprint. Scads of frac trucks pumping untold amounts of water downhole is probably something we don’t want anyone to see.
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