These 2 new Gasfrac moves will definitely speed up the Gasfrac movement.
These people have run large and small service companies. They will get the Gasfrac technology spread around the USA. New York is already considering Gasfrac as a hydrofracting alternative. My guess is Gasfrac will move to $20+ by early next year with at least one long term USA contract with a large company (poss. Chevron). When Gasfrac can't handle all the contracts, Halliburton will step in. By that time they may pay $50 or more a share.
I don't think Halliburton or Chevron WANT to take over GasFrac. They would be more likely to license the process under a reciprocal agreement for GasFrac to use their patents for variations of LPG fracking.
Converting existing Halliburton rigs to LPG can be done fairly easily and they could show up first in the Marcellus shale region while GasFrac concentrates in Texas, Oklahome, North Dakota, and Wyoming.
Don't worry GasFrac won't lose any money on this deal. GasFrac was Halliburton and Chevron's baby IMO.
The LPG (propane) technology which Gasfrac licenses from Chevron has been around for a while. Gasfrac's "moat" is their proprietary process technology which has taken then several years to develop and perfect and for which they have obtained patents world-wide and have more pending.
It's possible that over time a company could design their way around the patents, but even then the company would need experience and proof of safety before well owners would let them near their wells.
Anyone with a design can order equipment but the wanna-be propane fraccer needs trained crews and experience. They also need frac engineers with propane experience to design each frac. An established fleet with experienced crews and a track record would be extremely challenging to create quickly.
Gasfrac seems to be growing their market and fleet at around the same rate; however the market will likely reach a critical mass where it outgrows the rate of fleet growth. That is the point where I believe one of the majors will acquire Gasfrac ... the point where financials resources are a bigger constraint to growth than developing equipment and processes and training crews.
This is where Gasfrac's current growth rate becomes critical. Starting with 2 units (end-2010), adding 4 is 200% growth. Starting with 6 units (mid-2011), adding 4 is 67%. Starting with 10 units (2Q-2012), adding 4 is 40%. Starting with 14 units (4Q-2012?), adding 4 is 28%. Starting with 18 units (2Q-2013?), adding 4 is 22%.
I suggest that a major will be interested when they can meet the market with a 20-30% growth rate in fleet size and obtain a significant add to the major's revenue stream. I think that is when Gasfrac's fleet is 15-20 sets or roughly $1+ billion in revenue.
The only reason for a major to move sooner would be to lock a competitor out of the market and that would be a valid tactical reason. I hope that does not happen because the real value creation with Gasfrac is going to be the next two years.
As someone who has been following GASFRAC since being introduced to it in March, I appreciate your insight, and contributions to this board.
If converting existing Halliburton rigs to LPG can be done fairly easily as you mentioned in your earlier post, why would GASFRAC build all of their equipment sets from scratch? It appears that lack of sets and trained crews are the 2 biggest limitations to their immediate prospects for growing revenues. Would it be feasible for them to purchase additional hydrofracking sets and convert them to work with LPG as a means of ramping up their capabilities in a more expeditious manner? I am wondering if this could be accomplished more quickly, or in a more cost effective manner than building all new sets. I was under the impression that their equipment was so specialized that you could not convert hydrofracking equipment to work with LPG.
If this is feasible then it would appear that this not only opens the possibility of GASFRAC partnering with existing hydrofracking competitors, but might also provide them with a solution for ramping up their own capabilities more quickly than waiting on the delivery schedule for all new equipment. What are your thoughts?
Thanks in advance for any feedback you or anyone else can provide.
Interesting theory, but I suspect you would see GasFrac enter the Marcellus and allow third-party licensees to handle some portion of the other space.
GasFrac has put some work into building community/landowner relations in NY state. Given the political sensitivities there, persuading the public that you have a green alternative fracking method is tough if you are Halliburton. Many of the people you want to convince simply love to hate you. But being a small Canadian startup fits better with these peoples' mindset. Sure, they don't like the tar sands, but they are willing to believe that Canadians are more progressive and maybe more innovative. In any event, less prone to smother innovation because of entrenched interests. HAL and other large service companies have a record in the Marcellus of doing the fracs to which they object. GasFrac does not.
If you are GasFrac, take advantage of the opening you may get in NY, and with PA next door, expand there. Don't forget, there is also northeastern Canada, so the company could create a nice geographic hub in the whole region.