The Permian M&A Effect: Basic Energy Services Adds 74,000 Hydraulic Horsepower

All of Basic’s stacked fleet will be active by the end of March

Basic Energy Services (ticker: BAS) announced today the purchase of 74,000 hydraulic horsepower for $28.5 million, or $400 per hhp. This purchase will bring Basic’s total frac hhp to 431,650 and total hhp to 517,445. The acquisition will be paid for by using a combination of cash and capital leases. Basic anticipates all purchased equipment will be ready for deployment in May.

This purchase is a response to the significant increase in activity in the Permian and other basins, the company said.

Roe Patterson, Basic’s President and CEO, stated in the release, “We have seen an increase in frac activity in our Permian Basin and Mid-Continent operating areas and expect to have all of our remaining stacked fleet activated by the end of March.” Patterson also spoke on increasing service costs, reporting that frac prices have increased by 5% to 15% since the beginning of the year.

Source: Basic Energy Services, Google

Permian M&A: a barometer of what’s to come

The Permian basin is Basic’s main region of activity. Basic reported that the Permian provided 46% of the company’s revenue in Q3 2016.

The Permian basin has been ultra-hot in recent months, as many companies have bought in to the area. ExxonMobil (ticker: XOM) made a massive $6.6 billion purchase last month, buying 275,000 acres from the Bass family. Noble Energy (ticker: NBL) purchased Clayton Williams Energy for $3.2 billion in January, and WPX (ticker: WPX) acquired Panther Energy and Carrier Energy for $775 million. Parsley Energy (ticker: PE) has made several acquisitions in the Permian, totaling $3.4 billion for 94,000 net acres.

Many other E&P companies are planning on focusing on developing Permian assets, like Diamondback (ticker: FANG), Cimarex (ticker: XEC), Oxy (ticker: OXY), and Encana (ticker: ECA) With 306 rigs currently active in the Permian, Basic’s newly acquired frac equipment should see good use.

CapEx heading to the Permian

The announced Permian work from operators and the CapEx that is targeting the Permian is driving demand for oilfield services and horsepower there. The action is fueled in part by:

Several important Permian players, Pioneer Natural Resources (ticker: PXD), WPX Energy (ticker: WPX), Earthstone Energy (ticker: ESTE) and Mid-Con Energy Partners (ticker: MCEP) will be presenting at EnerCom Dallas this Wednesday and Thursday.