4Q Down (But Not Out)
We have digested the last 4-weeks of reported data (unusually large amount of data during earnings season), with special attention to how 4Q18 is shaping up and where 3Q18 landed. Generally speaking, 4Q18 has potential to surprise to the upside with industry spending declining by less than 10% (vs con-sensus DOWN 10-15%). However, if completion efficiency continues its trajectory from the 3Q exit rate (September up 15% y/y), lower fleet demand could still push frac utilization below 70% — suggesting another quarter of mixedresults for OFS. Companies that can outperform will need leverage to customers (E&Ps) without budget shortfalls and big holiday shut-downs (PUMP, FTSI, RES, FRAC screen relatively well on this metric). For 2018 in review, in-dustry spending / activity was very robust (stage counts up 35%), only to be offset by the aforementioned efficiencygains in frac and massive oversupply in sand.
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