By Greg Avery Senior Reporter, Denver Business Journal. Fracking company Liberty Energy doesn’t expect a possible recession this year to derail demand for the oil drilling that pushed the Denver-based business to record revenue and more than doubled its profits last year.
The company, which oil and natural gas companies hire to hydraulically fracture and complete newly drilled wells, sees fossil fuel demand sustaining domestic fracking activity for the foreseeable future.
“The fundamental outlook for North American hydrocarbons is the healthiest Liberty has seen in our 12-year history,” said CEO Chris Wright after the company’s earnings release.
Liberty Energy (NYSE: LBRT) revenue rose 68% for the full year of 2022, the company reported, and the demand by oil companies for fracking and well completions look likely to keep activity high at current prices, he said.
“Against this strong backdrop, we expect many possible bumps in the road, like softening in natural gas activity and elevated recession risk,” Wright told industry analysts on a conference call. “However, the multiyear outlook for North American activity is robust.”
Global demand for oil is unlikely to decline, and Russian oil production could begin to wane due to a new embargo kicking in over that nation’s invasion of Ukraine, Wright said.
Both those factors, coupled with disciplined production by oil and gas companies, are expected to keep crude oil prices high enough to maintain the current amount of fracking activity in North America as the pace of new drilling offsets the natural decline of well production and leads to only modest production growth, he said.
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Those market conditions have been good to Liberty Energy.
The 5,000-employee company reported earning $400 million in full-year profits on a record $4.1 billion in revenue in 2022. That compares to the $178 million in profits on $2.5 billion in 2021 revenue Liberty Energy reported the year earlier.
Liberty Energy in 2021 acquired the OneStim well-completion business from oilfield services giant Schlumberger, expanding Liberty Energy to have just over 40 fracking crews operating in oil and natural gas basins across the U.S. and Canada.
The large scale has allowed Liberty Energy to negotiate good contracts with oil producers and thrive despite tight labor conditions and supply chain challenges that make it harder for smaller fracking companies to stay in business.
Wright sees little worry of oil production growth crashing crude prices below what’s profitable for oil companies.
The business model of U.S. oil and gas producers has changed since the last uptick in production five years ago. Companies today are aiming to drill enough wells to maintain their current levels of production, not grow wildly.
In 2018 and 2019, oversupply from U.S. oil producers helped push crude prices down and started making the domestic industry vulnerable prior to the price crash early in the Covid-19 pandemic.
The sudden evaporation of global demand for fuel during the pandemic triggered a wave of oil company bankruptcies and prompted the surviving businesses in the industry to focus on generating free cash flow, returning profits to shareholders and planning for modest growth.
The last five years have also seen the retirement of large numbers of fracking engines and pumps that had been operating in the U.S. For the first time, the number of physical fracking fleets in North America roughly matches the volume of fracking jobs in the industry, Wright said.
Industrywide, there may be 10 to 20 fracking crews short of what domestic oil and gas producers would like to hire, but given the size of the industry that’s a small difference and one that could disappear if there’s a slight softening on demand from a recession, he said.
Pricing in the fracking market looks solid for the foreseeable future, barring a very large economic downturn pm the scale of the pandemic, Wright said
That creates more opportunity for innovation in fracking technology, Liberty Energy says.
The company has successfully been using the first of the electricity-powered fracking fleets it designed and plans to have another fully commissioned and operating by spring.
Liberty Energy plans to have three of its “digifrac” electric fleets operating by year’s end, replacing aging fracking engines powered by diesel fuel or natural gas with electric versions that eliminate a large amount of the air pollution and greenhouse gas emissions generated at a fracking site.
Liberty Energy says the “digifrac” fleets are quieter and cost less to operate and maintain. The company expects the electric fracking equipment to phase out the dirtier fracking technologies over time, Wright said.
“Our fleet probably slowly migrates to being all of what’s cheaper and best,” he said.
This week the company is unveiling at a trade show new natural gas-powered electricity generators it has designed using Rolls Royce technology that would, when paired with the electric fracking gear and Liberty Energy’s fracking management software, allow crews to cycle between electric and gas fracking work even in areas where there is no access to the electricity grid, the company says.