Barely a decade ago, two brothers in Cisco who had been running a family construction business decided to get into oil and gas. But they had a problem.
Dan and Ferris Wilks couldn't find an oil field service company to perform a hydraulic fracturing job for their small operation. So they decided to start their own fracturing company, Dan Wilks said in an interview last year with Ernst & Young, which gave the brothers an award.That was in 2000. By 2002, their company, Frac Tech Services, was providing fracturing services to other producers, just as the shale gas boom was beginning. Fracturing involves pumping water, sand and chemicals into formations deep underground at high pressure, breaking up the rock and releasing trapped oil and gas."It was timing -- right place, right time," said Chris Robart, principal at Houston-based PacWest Consulting Partners, which follows the fracturing industry.Today, the company, now named FTS International, has more than $2 billion in annual revenue and has executive offices in Fort Worth, where it moved last year.Among its 3,700 employees are about 1,200 in Tarrant and Parker counties. That includes nearly 300 people at its corporate headquarters in downtown Fort Worth at 777 Main St., 105 at a machine shop in southeast Fort Worth, and about 800 at a manufacturing and maintenance facility in Aledo.From literally nothing, FTS has become one of the largest hydraulic fracturing companies in the country, with plans to grow internationally.PacWest estimates that fracking, as it's commonly called, is a $30 billion industry in the United States.The Wilks brothers are no longer involved with the company. On May 6, 2011, they sold their 68 percent stake to a group of investors led by Temasek Holdings, Singapore's sovereign wealth fund, in a deal reportedly worth $3.5 billion.According to Forbes, the deal gave each brother a net worth of $1.4 billionHeavy metalFracking is often described as an industrial process, and the equipment certainly looks it.At two buildings near U.S. 287 and Southeast Loop 820, FTS churns out the big pumps that make up the business end of a frack job.On the floor of a machine shop, operators of a bank of computer-controlled milling machines carve on a 10,500-pound block of steel. When the process ends some 53 hours later, the company is left with a gleaming, 5,000-pound component that will be bolted onto an even larger pump body. By the time a five-cylinder pump is finished, it weighs about 20,000 pounds and can produce up to 15,000 pounds of pressure per square inch.The rest of the components in what the industry calls a "fleet" -- a diesel engine and a transmission to link it to the pump, a muffler, a cooling system, and the pipes and fittings to connect it all, as well as the tractor to pull it -- are bought from suppliers. But the pump, given its critical role, is something FTS wants to build itself."Our downtime for pumps is almost nothing," said David Capps, operations manager for FTS.Speed up, slow downFor years, the fracturing industry grew exponentially with the national shale gas boom. By 2006, FTS' revenue had already grown to $214 million and its net profit to $82.5 million, according to disclosures filed with the Securities and Exchange Commission last year, when FTS was considering a public stock offering.Ray Walker, chief operating office at Fort Worth-based Range Resources, said FTS did more than just ride the shale gas wave.In early 2007, Range was one of the first producers in the Marcellus Shale in Pennsylvania and West Virginia, which has become a major field. But as the Wilks brothers had found a few years earlier in Texas, fracturing service companies were scarce in the new play."When I went to Pennsylvania and was trying to recruit service companies to come up there, Frac Tech was one of the first companies I called, and they came running. It was that entrepreneurial spirit," Walker said. Range today is one of FTS' largest customers.Revenue more than doubled from 2006 to 2008 before hitting a wall in 2009, when the industry slowed after a sharp decline in natural gas prices that began in mid-2008. That year, FTS lost $40 million on revenue of $389 million.But with producers' move to crude oil, which was still commanding a strong price, FTS resumed its growth, since the same fracturing equipment is used for both oil and gas wells. Revenue tripled in 2010 to nearly $1.3 billion and jumped 80 percent more in 2011, to $2.3 billion. Profits likewise returned, climbing to $644 million last year.Now FTS faces another slowdown, this one driven largely by mounting competition but also by a slower pace of drilling. In the first three months of the year, revenue was up 10.7 percent while profit fell by more than half.The company is staying busy. But fracturing companies are paid for each stage they complete, and they just can't command the same prices as before, CEO Marc Rowland said."Revenue in the Haynesville and Eagle Ford has been down as much as 30 to 35 percent per stage. That's just competition -- more equipment and less demand," Rowland said. The Haynesville is a shale gas field mostly in Louisiana, and the Eagle Ford is a shale oil play in South Texas.Rising costsAnd moving into new markets means new expenses."There are significant costs associated with moving that much equipment and people," PacWest's Robart said."There's no shortage of logistics challenges" with moving tons of equipment and hundreds of workers to a new area, Rowland said. "If you go to Midland-Odessa, you can't get a hotel. You can't get a rental car. You'll see a sign: 'Truck drivers wanted, $2,500 if you come today.'"And that assumes there are potential workers in an area, something that's not necessarily true for some newer plays, such as the Bakken oil shale in North Dakota and Montana."We fly two or three charter planes out of Fort Worth to Minot, N.D.," Rowland said. "They're on two weeks and off for one. It's much like an offshore operation," he said.Running that shuttle also lets FTS recruit workers, who know they won't be cooling their heels in an airport and making connections on a commercial flight.Fracturing companies also have faced cost pressures from an unexpected factor -- what they pay for guar gum, a thickening agent also used in foods and cosmetics. Robart said the price of guar gum, derived from a bean grown mostly in India, roughly tripled this year."The volumes required by the oil field stressed the supply chain," Robart said. Fearful of running short, he said, "all the companies went out to get as much as they could," producing the spike in prices that proved to be temporary.It represented such an expense that Halliburton, the biggest fracturing company, said last week that its spending on the humble bean accounted for a good chunk of its 19 percent decline in operating income in North America in the second quarter.The wild cardsLooming over the industry is the uncertainty of future regulatory actions amid fears that fracturing can contaminate drinking water.Rowland said FTS' best course is to "participate with operators" in pursuing favorable legislation and disclosing just how the industry does business.Rowland has been associated with FTS and Frac Tech since 2006, when he was the chief financial officer of Chesapeake Energy.Chesapeake acquired a 20 percent stake in the company that year, and Rowland joined its board of directors. He became FTS' CEO in late 2010, when the Wilks brothers first considered going public before selling to the investment group."We supported the fracturing-disclosures bill in the Texas Legislature," which required that producers post the volumes of water, sand and chemicals used in each well on line, he said. The online disclosure site, FracFocus.org, is run by an organization of state regulatory boards.He said FTS is also using labs in Houston and Denver to research more environmentally friendly substitutes for some fracking chemicals.Another wild card for FTS is its recent move into international markets. It has struck deals to provide fracturing services in the Middle East and Brazil and is working on China. Efforts to enter Argentina ended when the government nationalized FTS' would-be partner, Rowland said."My expectation is it will take years to develop," he said. "I can see two or three fleets deployed internationally, but we have 35 domestically, so it won't be a big part of our business anytime soon."Jim Fuquay, 817-390-7552Twitter: @jimfuquayHave more to add? News tip? Tell us
