Mammoth Reports Growth in Pressure Pumping, Frac Sand Production, Directional Drilling
On May 3, 2017, Mammoth Energy Service, Inc. (NASDAQ: TUSK) hosted its quarterly earnings call to report results from Q1’17. Highlights included a dramatic increase in YOY pressure pumping activity, progress on two key frac sand production facility acquisitions, and growth in the company’s directional drilling fleets.
Mammoth reported Q1 spending of about $31 million, most of which is tied to delivery of 75,000 HHP and associated equipment ordered in November 2016. Other factors include
- Acquisition of three high-pressure fleets totaling 132,500 HHP, including all associated equipment, bringing Mammoth’s total HHP to nearly 300,000
- Acquisition of transloads and last-mile solutions to support expansion into the SCOOP/STACK
- Expansion of the Taylor Frac sand processing capacity from 0.7 to 1.75 Mtpa
- Upgrade of two horizontal rigs
Stage Count Increases 322% Over Q1’16
For the three months ended March 31, 2017, Mammoth pumped a total of 860 stages, a 322% increase over the 204 stages reported in Q1’16. Part of the increase is credited to re-activation of the company’s third frac spread in the Utica, which yielded a 13% increase in stage count sequentially. On June 1, the company expects to begin its first major operation in the SCOOP, for which Mammoth also plans to acquire transloads and last-mile solutions to meet sand demand for operations.
Q1’17 utilization of Mammoth’s pressure pumping equipment was 63%, representing three active spreads, up from 21% on two active spreads in the first three months of 2016. The company ordered an additional 57,500 HHP in Q1, which is expected to be delivered in Q3 and to come online in Q4. CEO Arty Straehla noted on the call that frac pricing is currently 25–30% above the lows experienced in Q3 of 2016. OneStim and other pressure pumpers expect pricing increases, too.
The company’s frac calendar is currently booked through Q4’17, and preliminary discussions for 2018 have already begun.
Frac Sand Deliveries Increased by 243% YOY
In Q1’17 the company sold 227,840 tons of frac sand, an increase of 243% over Q1’16 (66,500 tons).
Mammoth’s Muskie frac sand processing facility is ramping up to its full capacity of 700,000 tons per year, and the company is reporting progress on the acquisitions of Taylor Frac and Chieftain Sand and Proppant, LLC, both of which are expected to be completed in late Q2.
The addition of Taylor and Chieftain will more than double Mammoth’s frac sand production capacity, which the company anticipates will reach 988 tons by Q4’18. Straehla noted to investors that the Chieftain facility, which Mammoth plans to rename “Piranha,” will give the company access to the Union Pacific Railway and provide a low-cost solution for transporting sand to support pressure pumping in the Mid-Continent and in Texas.
Source: Mammoth Energy 1Q 2017 Earnings Presentation
Footnote 1: “The Muskie plant was restarted in late February and processed minimal volumes in 1Q 2017. The closing of the announced Taylor Frac and Chieftain acquisitions is anticipated in late 2Q. The ramp up of production from the Chieftain plant is expected during 2018 to the full capacity of 1.5 Mtpa.”
Upgraded, Expanded Directional Drilling Fleet
Mammoth operated an average of four horizontal rigs in Q1’17 at an average day rate of $14,400, up 18% from the the low of $12,200 set in Q3’16. Five rigs are operating currently, with one or two more expected to come online in the near future.
In the first three months of 2017, Mammoth upgraded two of its horizontal rigs to include walking systems and 7,500 psi mud systems. As a result of the upgrade, the two rigs are expected to demand higher day rates than previously.
Growing Rig Count Predicted to Drive Demand
Mammoth estimates that the growth in U.S. land rig count — which has increased by 217 so far this year — has created demand for an additional 3.5 MHHP. The company stands to benefit from this trend, anticipating further organic expansion of its pressure pumping capacity to more than 400,000 HHP by YE 2019.
On the proppant side, the company reports that demand for high-quality frac sand remains strong despite recent growth in supply. With the acquisitions of Taylor Frac and Chieftain expected to be completed in Q2, Mammoth will be in a position to profit from this trend as well.
As Straehla pointed out to investors, pumping requirements are shifting due to a combination of higher sand concentrations per well and the longer pump times required to place the sand in the wellbore, resulting in additional demand among existing operating fleets. This development, combined with the growth in rig count, is expected to put upward pressure on pricing into 2018.
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