NEW YORK ( TheStreet) - Now that oil prices have plunged to $60 a barrel, fracking is facing a major shakeup.
Fracking, which extracts oil and gas from deep in the earth using chemicals and huge amounts of water, is an expensive process. So fracking companies will have to adjust to the sharp drop in prices in order to survive.
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"The drop in oil prices really means that fracking providers are going to have to cut costs to stay in business," Tom Rooney, CEO of Energy Recovery (ERII) told TheStreet in an interview. "There's no question that more fracking will get done and more oil and gas will be pulled out of the ground, but it's all going to be about a profitability play for the industry."
Crude prices have remained below $100 per barrel for weeks, with few signs of a rally on the horizon.
"I'd say oil stays in the $60 to $70 range for quite some time," said commodities analyst Mike Seery of Seery Futures. "For the first time in the history of this market, we don't have the price spike ups on Mid-East tensions anymore."
Even if the slump in oil prices becomes chronic, Rooney says not all of the fracking business will be affected.
"While fracking is expensive, it depends on what basin you're in," said Rooney. "Some produce crude, while others produce gas, so every basin and price point is different. Some will be hurt more or shut down, but others will do well in the $60 to $70 range."
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Fracking giants such as Anadarko Petroleum (APC) and Halliburton (HAL) have clearly felt the pinch from lower oil prices, with shares of both stocks trading lower recently.
Rooney says low oil prices will compress margins, as the business looks for ways to save money. Energy Recovery unveiled its VorTeq pumping system on Monday, which aims to expedite the fracking process by re-routing fluid that could otherwise deteriorate the high-pressure pumps used during fracking.
"One of the largest expenses in fracking is pumping fluid under huge pressures," Rooney said. "Our device enables these expensive pumps, worth $20 billion collectively, not to be damaged the way they are now."
The company says the new device will also extend the life span of the high-pressure pumps.