$40/bbl

That’s where the price of a barrel of WTI should be if US E&P companies get to the same revenue level changes pressure pumpers have experienced on the metric of revenue per lateral foot over the last decade.

That unusual metric allows a touch-point comparison between E&P companies and their service providers. This was part of my service pricing reference point at Enverus’ EVOLVE conference. It was great to spend time with Mark Chapman, Nathan Franka, P.E., Brett Schellenberg and Birlie Bourgeois.

Oil Field Service (OFS) service cost is down on a per foot basis from about $280 to less than $160/ft over the last decade, about a 40% reduction. At the same time, frac’rs put 5x more work in that lateral foot in terms of HHP-hrs.

This is not a complaint. This is innovation, and I am proud to be part of a company and industry that has achieved these savings. The fact that we have been able to do so, mostly profitably, is a mark of innovation and implementation of technology. The hydraulic fracturing service industry has fostered innovations toward and across frac location, to name a few: high-pressure hoses instead of stick pipe; white sand in boxes to local sand mined locally and slurried in suspension to location; power change from diesel to cheaper gas while increasing HHP/ft2; single well ops to simulfrac/trimulfrac; automation and optimization to longer-lasting components.

On the E&P side, production per foot increased more than 50% over the last decade from ~12 to ~16 bo/ft in year 1, mostly due to the extra work put in. And over the last 5 years oil prices per barrel were 50% higher than from 2014-2019. Combined, that’s a ~2x increase in revenue per foot before the oil price changes that started this year.

The Pressure-Pumper-to-E&P-Company-Revenue-per-Foot Ratio peaked at about 32% in 2017 and bottomed right after Covid in 2021-2022 at about 10%. That is where it still lurks.

E&P Companies are taking on risk with commodity price swings, and they got their reward when Russia wagged its nasty tail and many western governments implemented a Just Stop Oil policy. Maybe the pendulum of the oil commodity cycle is swinging the other way, but there won’t be parity with service company pricing until oil sits on $40/bbl.