STAGES Ratio: A Look Forward

In 2011, I started as a product manager at Weatherford focused on sellable and mechanical packers used with multi-stage sleeve systems. My goal was to fully understand the market to develop and deliver the right product, at the right price, and lead time. Part of reaching this goal was tracking the market and trying to predict where the market is moving. A better understanding of the market size and trends helps to make decisions about manufacturing capacity, pricing, and product features. After managing the packers I led the composite frac plug teams at Weatherford and Rubicon. Each of these products is tied to the number of stages pumped in the US and Canada.

Rig Count

Until 2019, I used the rig count to calculate the total available market for composite plugs. I used the Baker Hughes rig count as well as the RigData rig report. The BHI rig count provides the rig count by trajectory, oil/gas, and basin. RigData takes it a few steps further by adding in what companies are operating each of the rigs. Paired with how long it takes to drill a well and the average stages per well in each basin, you can calculate how many stages are created each time period. Adding in the Company data from RigData was a big help in managing a sales team, you could apply the same calculation for each account to understand the size of each potential client.

Frac Crew Count

In 2019 I became aware of the Primary Vision frac spread count. This report provides the number of active frac crews pumping each week. Paired with the average stages pumped per day, we can estimate how many stages are pumped in a time period. This count is actually more representative of the market that frac plug, wireline, coiled tubing, and frac companies are working to grab. Using the rig count is a little deceiving since some of those wells will not be frac’d for months.

Two Market Measures: A look Backward

Two approaches for measuring the market provide the ability to sanity check each estimate to get the clearest picture possible. Studying these measures over time will paint a picture of trends however, the counts themselves only provide a backward view of the market size.

STAGES Ratio: A look forward

This month I introduced the STAGES Ratio that provides a single ratio to indicate the balance between drilling and frac activity. The balance of rigs to crews changes over time as technology and efficiencies increase, 2016-2019 the STAGES Ratio bounced between 47% & 49%. Assuming this is a good balance of stages created and pumped when the STAGES Ratio differs from the balance point it can provide some guidance on what to expect. Similar to stock analysis, comparing the ratio to its moving average appears to provide a good barometer of what the future will hold.

Historical Trends

The graph below presents the average rig count, frac crew count, and STAGES ratio per quarter, back to 2015. Each time the STAGES Ratio crosses its 2 qtr moving average, there is an inflection point on the rig and crew graphs.

Analysis

In Q2, 2018 the STAGES ratio fell below the 6 mo. moving average and stayed below for three quarters, at this point the rig count started to level off. In Q1 2019, the ratio moved above the graph and the rig count started to fall until Q1 2020 when the pandemic hit and it fell off a cliff along with the rigs and crews. In Mid Q2 2020 the Ratio again spiked above the moving average which was shortly followed by a recovery in the rigs and crews.

At the end of April, the ratio has now fallen to 53%. Monitoring how it changes from here could provide some insights into what will happen in the rest of the second quarter.

Continued Reporting

Each week the STAGES report will report and analyze the STAGES Ratio for an additional data point in where the market is moving. If you’d like to have this report delivered monthly to your inbox, please subscribe below.