Rushing to Meet AI's Energy Needs: Oil-Field Servicers -- Heard on the Street -- WSJ

Dow Jones
Sep 11

By Jinjoo Lee

Despite the White House's "drill, baby, drill" mantra, the business of providing equipment and services for the oil field is hardly booming these days. Now, oil-field service companies are going after a more promising target: tech companies that need power quickly to fuel their artificial-intelligence ambitions.

Oil-field service companies including Solaris Energy Infrastructure, Liberty Energy, Atlas Energy Solutions, ProPetro and ProFrac have all said that they are getting into the power business. After all, these companies already install and operate generation units -- often fueled by on-site natural gas -- for energy-intensive fracking operations.

Solaris, for example, has an agreement to co-own and operate 900 megawatts of gas turbines for xAI, according to Memphis, Tenn., city documents. Some of these turbines are destined for delivery at xAI's Colossus 2 supercomputer in Memphis, according to a Securities and Exchange Commission filing. Solaris acquired a mobile power business last year, and that segment now accounts for more than half of its revenue. Its shares plummeted earlier this year after a short-seller report, but the market has since shrugged of those concerns. Its stock has recovered those losses and more, rising about 2% so far this year.

Compared with oil-field servicers' typical customer base, tech companies come with growthier outlooks and splashier budgets. Microsoft alone plans to spend $80 billion on data centers supporting AI this year, 80% more than what major oil companies Exxon and Chevron combined are expected to spend on capital expenditures.

But power isn't a meaningful part of most oil-field service companies' revenue yet, which might explain why their share prices are so battered. Excluding Solaris, shares of a basket of smaller oil-field service companies are down roughly 50%. U.S. land-rig count has been on a declining trend since late 2022, according to data from Enverus.

Oil-field service companies plan to use smaller, modular equipment that is off grid, at least initially. That means they can provide speedier access to electricity. These units would be plugged directly onto data centers and use natural gas -- typically sourced from a pipeline nearby -- as fuel.

This equipment doesn't face the yearslong wait list that some large-scale natural-gas turbines do, such as ones from GE Vernova. Some utility-scale gas turbines have five- to seven-year wait lists, according to Paul Sotkiewicz, president of E-Cubed Policy Associates. Developers of utility-scale natural-gas power plants are also dealing with a construction-crew shortage. Modular equipment by contrast is far less complicated to install and doesn't face the same constraints.

Liberty Energy Chief Executive Ron Gusek said it can take less than 18 months from the time the company orders the equipment to get the power up and running. Solaris said it takes about a year to 2 1/2 years from ordering the equipment to get the power operational, according to CEO Bill Zartler. In a survey by AlphaStruxure, about 44% of data-center-industry respondents said it would take at least four years to get electricity from their local utilities.

Being off-grid means these projects can bypass lengthy interconnection queues and local scrutiny over who pays for the power. Smaller, modular units are also well-suited for providing near-100% uptime, the level of reliability data centers require, without requiring a significant amount of backup capacity.

But there are risks. The main one: Data centers might just use these off-grid units for a few years before ditching them for grid connection or a cleaner source of energy.

"My initial reaction was this is great, but it's a short-term solution," said Stephen Gengaro, a Stifel analyst. Gengaro said his assessment has since changed, noting long startup times for small modular reactors and delays to grid connections.

Solaris and Liberty say data-center customers will want to keep these units running even after connecting to another power source for backup. Texas, for example, passed legislation this year that requires large power-demand customers such as data centers to disclose whether they have any backup power on site before they can connect to the grid.

Liberty's Gusek also notes that its power units can provide certainty around prices compared with the grid. But their modular nature means these systems probably aren't the cheapest option over the long run. They have an upfront cost advantage over, say, utility-scale, combined-cycle gas power plants requiring extensive construction work. But they involve more variable costs: Higher fuel costs, for example, because of lower equipment efficiency. Their equipment also tends to have more frequent replacement schedules, which can come with the risk of escalating costs.

And not all tech companies will have an appetite for fossil-fueled power, especially in the long run if political winds shift. xAI's use of gas turbines in Memphis, for example, has raised concerns about air pollution.

Another risk: If the power equipment that oil-field service companies use is indeed readily available and easier to build, it might be difficult to build a moat and pricing power around the business. Investors should therefore keep an eye out for the fast movers with real contracts.

Compared with the kind of valuation that further-off technology such as nuclear SMR companies command, oil-field service companies are dirt cheap and their equipment is proven. Companies that can show real data-center contracts could end up being an inexpensive AI play for investors bullish on data-center demand but skeptical about the speed at which the grid can accommodate it.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

 

(END) Dow Jones Newswires

September 11, 2025 07:30 ET (11:30 GMT)

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