These are interesting times for the fracking business as the industry is working at full capacity despite the low natural gas prices and input cost pressures.  Schlumberger Limited (NYSE:SLB), one of the industry’s largest players, is counting on an innovative fracking technology to help reduce costs and garner a larger slice of the market. Hydraulic fracturing, or fracking as it is commonly know, is used in the production of natural gas and shale gas to improve the yield of a well.
Growing Fracking Capacity Despite Low Gas Prices
Fracking capacity in North America has been increasing rapidly. Capacity grew by about 42% last year and is expected rise by about 28% this year to around 18 Million horsepower. 
The exploration and production for shale gas had been increasing over the last few years; however, demand has been soft leading to a sharp decline in prices. Despite the lower natural gas prices, the gas industry engages in about 83% of fracking capacity, largely to earn their leases. The number of horizontal wells that use fracking has also been growing, and there has also been an increase in the length of these wells, which is increasing the requirement for fracking capacity. 
Schlumberger’s Solution Cuts Costs
The process of fracking involves pumping a mixture of water, sand and other additives into the well at a high pressure to stimulate the flow of gas.
Schlumberger’s technology, known as HiWay, improves the productivity of the fracking process by reducing the quantity of water and proppant required by up to 60% and 40% respectively, besides reducing the horsepower required for pressure-pumping. A proppant is a mixture of sand and other binders like guar gum. Propants account for a significant part of fracking costs. Earlier this year, a severe shortage in supply of guar gum, a legume based binder produced in India, impacted the profitability of many major fracking players.
The reduced consumption of proppant and water should bring down operating expenses considerably. Additionally, the smaller operational footprint and the reduction in the number of fracking trucks and trailers used for transporting raw material will bring down the logistics costs. Over the long term, we expect the benefits of the new technology to have a positive impact on Schlumberger’s EBITDA margins. Schlumberger already uses this technology in about a third of all its current fracking jobs and expects it to be deployed in 50 to 70 percent of all fracking jobs in the near future. 
We have a price estimate of $87.08 for Schlumberger, which is about 16% ahead of the current market price.
- Investing In Fracking Stock,Self Directed Investor [↩] [↩]
- Halliburton First Profit Rises As Fracking Demand Grows, Bloomberg Businessweek [↩]
- Schlumberger’s clever frack takes aim at gas costs, Reuters [↩]