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 Founded in November 2011 with a loan of around $35 million, the Fort
Worth, Texas-based company was by 2014 making nearly that much in
monthly revenues, providing the crews and machinery needed by
companies including ExxonMobil to frack oil and gas wells from North
Dakota to Texas.
Executives flew to meetings across the country in a Falcon 50
private jet, and entertained customers at their suite at the Texas
Rangers baseball stadium in Arlington. The firm would soon move into
a 22,000-square-foot office on the 12th floor of Burnett Plaza, one
of Fort Worth's most prestigious office buildings.
Eighteen months on, however, without work and unable to meet monthly
loan payments, GoFrac has closed its doors, its ambitions gutted by
a steep dive in oil prices. Of the 550-odd employees on the payroll
at the beginning of this year, only six remain.
At GoFrac's only remaining outpost, a small warehouse and 40-acre
gravel yard in Weatherford, 30 miles west of Fort Worth, its huge
fleet of sand haulers, chemical blenders and pressure pumps that
months before were being used to frack U.S. oil and gas wells, sit
idle in long rows, waiting to be sold.
"We knew it was going to be rough, but nobody foresaw what was
coming," said GoFrac chief financial officer Kevin McGlinch, who was
hired in November 2014 to see GoFrac through the slowdown.
GoFrac's end mirrored its beginning: steeper and faster than
expected and driven by the unpredictable forces of international oil
markets. U.S. oil prices dropped 60 percent from June to January due
to oversupply from U.S. shale deposits, putting an end to the oil
drilling boom and precipitating the sharpest industry downturn in a
generation.
The company's story, recounted to Reuters by six current and former
executives and employees, is not an isolated one.
The small- and medium-sized firms that make up at least half of the
nearly $100 billion a year U.S. oil services industry that provides
fracking sand and specialized chemicals for fracking have been hit
far harder than their large, cash-rich rivals by the downturn,
experts say.
While giants like Halliburton <HAL.N>, Baker Hughes <BHI.N> and
Schlumberger <SLB.N> are weathering the slump by cutting tens of
thousands of jobs, firms like GoFrac are going under or heading that
way, starved of cash and unable to raise emergency investment.
Halliburton and Baker Hughes, the second and third largest oil
service companies globally after Schlumberger, announced in November
that they were in talks to merge, creating a $67 billion company.
The joined entity would still be smaller than Schlumberger, whose
market capitalization is $125 billion.
Even as oil prices rebound, and analysts expect production to grow
again in 2016, the demise of the service sector raises questions
about the U.S. oil industry's ability to speed up again if prices
rise further.
"It could slow down the ramp up," said James West, who researches
the oil service sector for Evercore ISI in New York and said there
could be dozens of bankruptcies in the U.S. oil service sector.
"You may start to run into equipment and labor issues."
NO RUNWAY
Founded by private equity groups The Crawford Group and Soave
Enterprises, and oil veteran Frank Autry, GoFrac started work in
November 2011. Richard Crawford, founder of The Crawford Group, is
GoFrac's chief executive officer. He declined to comment for this
article.
Oil was $98 a barrel that day, high enough to fuel a drilling frenzy
in Texas and beyond that would last for three more years.
"We were very successful when we started," said Autry, an oil
industry veteran who stepped down as chief operating officer in
September last year but who keeps a copy of the company's first
invoice, a frack job for Oxxon Mobil's XTO Energy on November 17
2011.
The first sign of trouble came around early summer of 2014 with a
rare monthly loss, according to two former employees who saw company
statements. At almost the same time, in June, oil prices hit a peak
of $107 before falling for seven straight months.
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By Thanksgiving Day, as Saudi Arabia and its OPEC allies shocked the
oil market by announcing that they would maintain production despite
a growing glut, GoFrac was sending crews across the country to carry
out what work it could. Time in the field increased as workers went
further afield for jobs.
As prices nosedived, GoFrac found itself undercut by larger
companies offering up to 20 percent lower costs for their services.
"Some of the larger players were awarded the work for a price that
we couldn't even cover the cost of the sand alone," said GoFrac CFO
McGlinch.
By the beginning of February, with its workforce eroded by two
rounds of layoffs, GoFrac brought its equipment in from the field
and halted operations.
It owes debts across the board, from $3 million to New York-based
Icon Investments for leased equipment, to $60,000 to Great White
Washing, a local outfit that pressure cleaned GoFrac's equipment.
"With a little more airspeed and a little more runway we would have
got there, but we didn't and we shut down," McGlinch said.
NOT ALONE
While most large public energy companies have been kept afloat with
loans this year, lower-profile private companies are struggling to
survive.
Frac Specialists, a Midland, Texas-based company with 280 employees,
filed for bankruptcy on May 17. Like GoFrac, Frac Specialists' rise
was meteoric. Revenues, $17.1 million in 2011, jumped to $204.1
million in 2014. Then the work dried up; the number of rigs drilling
for oil in the United States has fallen for the last 27 weeks, down
to a five-year low of 635 last week from an all time peak of 1,609
in October 2014, according to a weekly survey from Baker Hughes.
Frac Specialists declined to comment for this article.
Other companies are struggling to meet loan payments and are fast
approaching bankruptcy, lenders said.
"There has been an amazing fallout," said Eric Freeman, vice
president at Summit Funding Group, which arranged a $43-million loan
for GoFrac but which plans no more investment in energy firms.
"I have never seen anything like it," he said.
Meanwhile, for GoFrac's remaining employees, the job is to find a
buyer for its hundreds of pieces of equipment.
In an auction in nearby Odessa on May 13, about a dozen pieces of
GoFrac machinery were put up for sale. Bought 18 months ago for
about $12.5 million, they were valued that day at $10 million.
Bids at the auction were slow, however, despite attempts by the
auctioneer to coax the price higher.
"This is the opportunity of a lifetime," he told participants.
"Think about what you are saving, not what you are spending."
Bidding stalled and then stopped. The eventual sale price: $5.4
million.
(Reporting By Edward McAllister. Editing by Jonathan Leff and John
Pickering)
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