One of the readers of this blog, Don Giles, left an important comment that merits repeating as a full post. Mr. Giles mentions an estimate done by the Oklahoma Independent Petroleum Association that says that there will be a total of about 12 million horsepower of equipment in use in the field of fracking by the end of 2011. You can see that estimate in detail by clicking on the title to this post. Mr. Giles makes the valid point that GasFrac is only going to have about 150,000 horsepower by the end of this year or about 1.25% of the total. As a result, GasFrac does not have to take the field by storm and dominate fracking in order to become extremely profitable.
There is no question that the fracking industry is large and quickly growing larger. Even with all of the current hysteria being aimed at hydrofracking, it is not going to disappear. There is simply too much at stake for the USA. The allure of GasFrac, however, is that use of its LPG process does away with essentially every major complaint that the environmentalists raise about hydrofracking. There is no excessive water use. There is no need to get rid of supposedly contaminated waste water after the process is complete. Underground radioactive minerals are not dissolved in the facking media and brought to the surface. The somewhat silly notion that water injected many thousands of feet below the surface will contaminate aquifers located thirty to fifty feet below the surface is also eliminated with the use of LPG. So, for all these reasons, Gasfrac has a major push forward from the environmentalists.
In truth, I think that the GasFrac process is actually a better, more efficient one than hydrofracking. There are certain costs avoided and production is better. The problem faced by the company has been to get more E&P companies to try the LPG method. That is where the environmentalists come in. The series of hit pieces that the New York Times did on hydrofracking last month was, to me, like an advertisement for GasFrac.
We should see some great things from GasFrac over the next two years.
UPDATE: I received a few e-mails pointing out my error in the previous post. I said that GasFrac would have about 150,000 horsepower by the end of the year, and that, of course, is too low. The company expects to have over 200,000 horse power if all of its sets come on line by the end of the year. The truth is that I tend to think of this in terms of sets rather than horsepower. Thanks to those who caught my mistake.
Disclosure: I remain long GasFrac with a substantial position in the company.
4 comments:
The problem faced by the company has been to get more E&P companies to try the LPG method.
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Not true.
There is a long waiting list for their services.
If you are talking about a company that grows slowly, then your comment is correct. However, if you are looking for GasFrac to grow rapidly as it has been doing, then there will need to be many more clients for its services. that means there is a need for growth in the ranks of new clients.
How do you know that there are no new clients in the waiting list?
BWL123: Gasfrac does not release the names of their future clients, so only a company insider would be able to tell us if there are new customers there. I assume that there are new names on the list. The point, however, is that keeping a dramatic growth will require an ever increasing client base.
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