It’s always chancy to predict the future, especially in the volatile natural gas market. But while recently reporting his company’s record third-quarter financial results, the head of one of the market’s largest contract compression suppliers was anything but timid.
“This is a tremendous market for compression and we see no slowdown in compression activity in the near future,” said Brad Childers, president, CEO and director of Houston, Texas-headquartered Archrock, Inc. “The key drivers of our business are U.S. oil and natural gas production, each of which the EIA is forecasting will have double-digit percentage increases in 2018 and strong increases in 2019.
“As an energy infrastructure company dedicated to facilitating natural gas and oil production, we’ve never been busier. Compression, like a pipeline, is a critical piece of infrastructure needed to gather and move gas to market. And about 75% of our operating fleet is deployed on midstream gathering applications to do just that. And critically, since our activity level is most closely aligned with production which is growing, we’re not exposed to the shorter cycle volatility facing drilling, pressure pumping, and completions focused businesses.”
Childers said oil and liquids focused plays such as the Permian, Eagle Ford, Niobrara and the SCOOP/STACK, growth was being driven by associated gas – natural gas that’s produced in association with crude oil. According to Childers, gas associated with oil is expected to account for over 50% of the growth in natural gas produced over the next five years.
“With this incredibly strong market for compression to support the transportation of natural gas and the production of oil, customer bookings and commitments for contract compression horsepower to be placed into service in 2019 and even into 2020 are at record levels. Our firm customer commitments for contract compression are up 25% as compared to the same period last year.”
For the third quarter, Childers said Archrock saw “multi-year highs in our bookings, horsepower started and fleet utilization, all supported by strong market fundamentals and execution by our team. Simply said, demand for our services is as good as we’ve ever seen and we’re positioned to further benefit from these dynamics for the remainder of this year and well into 2019.”
In the period, Archrock recorded adjusted EBITDA of $89.5 million, “nearly 40% higher than for the same period a year ago, Childers said, adding that “contract operations revenue was higher by 10% compared to the year-ago period, and revenue in our aftermarket services business was 42% higher than the same period last year.”
“We increased operating horsepower by 110,000 marking our strongest quarterly growth in nearly four years and bringing our net growth over the last 12 months to about 260,000 hp,” Childers added. “And our utilization was up to 88%.”
For the contract compression segment, Childers said that “firm customer commitments for horsepower to be placed into service remain at levels that are higher and out further than we’ve ever seen providing strong visibility for 2019 and building a base of commitments even beyond 2019.”
While he wouldn’t provide specific guidance concerning 2019, Childers said “we don’t see a change in the market or a let-up. And what we said in the call today is that as we look into 2019, our commitments are 20% higher at this time this year compared to this time last year, meaning that 2019 is going to look like 2018 plus.”