Primary Vision Insights – March 16th, 2020

By Mark Rossano

Frac Spreads Set for a Collapse

The reset in oil prices will cause about 10% of completion crews to pause over the next 30 days in order to asses realized prices, preserve cash, and adjust drilling plans. We have been highlighting the problems with demand, and these concerns have now all been pulled to the surface due to COVID-19 and OPEC+. KSA is sending about 5 ships filled with 10M barrels of oil to the U.S. that will take about 40 days to reach our coast based on sailing time. Our focus has been on demand problems in refined products, which has now been exacerbated by COVID-19 and the breakdown of the OPEC+ agreement. Russia can only get back to 11.55M, but the additional volume will have no where to go as COVID-19 impacts Europe and the U.S. The brunt of the completion slowdown will happen in the Permian, Eagle Ford, and Williston. In the near term, the national spread will get back to 300, but as prices worsen (stay sub $35 which is likely) the spread count will get to 285. Diamondback (FANG) is the first to announce the stoppage, but others will follow so total Permian work will get down to about 120 spreads, Western Gulf down to 40, Williston down to 30, and Anadarko 25.