The lower for longer oil-price environment continues to wreak havoc in North American shale plays where hydraulic fracturing demand has plummeted by 47% in the U.S. compared to a year ago, according to an energy consultancy.

Reversing a previous prediction for the drilling and completions (D&C) market to start recovering in fourth-quarter 2015, the latest outlook by IHS Inc. (NYSE: IHS) shows both activity and the total number of wells fracked falling 15% by year-end in North America.

Frack service companies face a harsh 2016 with more equipment expected to be mothballed, more companies folding and a continuing fall in pay. By the end of 2016, the sector may start to see utilization rates revive slightly.

Even with a sudden recovery, companies may not be able to dust off their idled equipment quickly.

“This year we see every major play and basin being down except for the Scoop in Oklahoma with smaller decreases in the Permian expected,” Ryan Carbrey, director, IHS Energy, said during a conference call Dec. 17. He noted that the Scoop is a smaller basin with fewer active players.

However “we are expecting the second half of 2016 to start showing the first signs of strength in the market and increase in activity,” he said.

A global supply-demand imbalance has forced operators to slow down production, with many U.S. E&Ps choosing to leave wells drilled but uncompleted (DUC) in plays that previously pushed production to record highs. OPEC’s decision in December to keep pumping at current levels did not help and analysts have said lifting the crude oil export ban Dec. 18 will not resolve producers’ woes in the short term.

“Total U.S. land frack capacity saw a net decrease of 209k hhp [hydraulic horsepower], as newbuild equipment deliveries in the first half of 2015 were outpaced by retirements and fleet attrition,” IHS said. “Equipment manufacturers report empty order books for new frack equipment and significantly lower prices for consumables. Due to decreased D&C activity, an increasing percentage of frack capacity has been stacked, reaching a total of 9.1 million hhp in the fourth quarter of 2015.”

More than 50% of stacked capacity, representing more than a third of existing frack capacity, is considered “cold-stacked,” IHS added.

In 2016, North America could continue to cold stack equipment, draining more hydraulic horsepower from the market amid falling frack services pricing, said Caldwell Bailey, senior consultant for IHS Energy.

The outlook also forecasts a 10% decline in horizontal wells spud and an 8% decline in horizontal wells fracked.

A minor rebound could arrive as late as fourth-quarter 2016.

“We see a low level of [U.S. capacity] utilization currently standing at 46% of the fleet,” Bailey said, noting the average is expected to inch up to 49% for the U.S. and 60% in Canada in 2016.

IHS forecasts that more than 4 MMhhp, about 25% of the overall frack supply, will be cold-stacked in the U.S. alone next year.

Nevertheless, a much larger amount of power is expected come off the market in 2016 and beyond, Bailey said, pointing to the anticipated close of the Baker Hughes Inc. (NYSE: BHI) and Halliburton Co. (NYSE: HAL) merger as part of the reason. A completed deal could see a portion of Baker Hughes’ frack horsepower leaving the market.

But the fate of the equipment is uncertain. It could be removed from service or sold at auction to other companies.

“Should the current low oil price environment persist, an increasing percentage of cold-stacked equipment will likely transition to ‘effectively retire’ status as cannibalization,” IHS said. “The elements and the impacts of not running equipment for extended periods take their toll.”

Warming Up Cold Stacks

Currently, stacked equipment accounts for 52% of all frack capacity in the U.S., according to IHS.

And restarting cold-stacked equipment is unlikely to happen quickly when market conditions improve.

For starters, equipment must be inspected, repaired and tested before returning to service, IHS said.

“It could take up to two months in our estimation for cold-stacked equipment to be ready for deployed, depending on what repairs or part replacements need to be made,” Bailey said. Moreover, rounding up personnel and training new workers could take further delay restarts, given widespread layoffs.

Cold-stacked fleets could also need replacement equipment, creating a scarcity of replacement parts.

The situation is similar in Canada, where IHS reported frack demand, pricing and utilization have reached all-time lows. IHS estimates that utilization in Canada will average 54% in 2015, down from 89% in 2014. However, the outlook appears positive for the country, with IHS estimating utilization will increase annually starting in 2016 and reach 84% by 2018.

In 2015, hydraulic fracturing services fees have fallen nearly 38% compared to 2014 in North America. IHS expects pricing will drop again in 2016.

“We expect this lower level of pricing will lead to greater frack service company closures as the E&Ps experience difficulties as well,” Bailey said. “Despite this low pricing we still expect a 2% fall in frack pricing in 2016.”

In Canada, IHS said it expects pricing to start recovering slowly in 2016.

“In some respect Canadian pumpers have less ability or need than their American counterparts to reduce pricing,” Bailey said, adding that’s partly because the Canadian frack service market is more concentrated with fewer companies fighting for business.

Velda Addison can be reached at vaddison@hartenergy.com.