Go Pound Sand, Please! Proppant Shortage on the Way?
We’ve heard of concerns that there may be a shortage of sand used for fracking in the near future–right here in the Marcellus/Utica. We then spotted a story about an impending sand shortage by the Reuters news agency (below). It takes something like an average of 11 million pounds to frack a well. Chesapeake Energy experimented with pushing the envelope with a well in Louisiana by using 50 million pounds (see Propageddon: Chesapeake “Unleashes Hell” with Sand in LA Gas Well). To get the latest update on sand in northeast, be sure to attend a panel discussion on proppants MDN editor Jim Willis is hosting on March 2 in Pittsburgh, at the Oil & Gas Awards’ 2017 Northeast Industry Summit (register for free here). In the meantime, here’s the latest scuttlebutt about a sand shortage…
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Hi-Crush Partners, headquartered in Houston, TX, is a frac sand company. Even though the company is based in TX and has sand mines in Wisconsin, it owns and operates the largest frac sand distribution network in the Marcellus and Utica Shale region. Last week Hi-Crush announced the first successful test and roll out of something they call PropStream–a new and better way to get sand to the well site and into the well itself. Hi-Crush has also formed (with investors) a new subsidiary company called PropX to manufacture the equipment used by the PropStream system…
Last week Jason Pigott, vice president of operations for Chesapeake Energy, addressed analysts at a conference and disclosed that the company ran an experiment by pumping 25,000 tons (i.e. 50 million pounds) of sand down a single shale well bore. Incredible! And they found by doing so that output from the well was 70% higher than it normally would have been. Sand acts as a proppant to “prop open” cracks and holes in the fractured rock, allowing gas trapped in small pockets to escape. Chessy is calling the experiment “propageddon.” Catchy. At the conference Pigott said, “What we’re doing is unleashing hell on every gas molecule downhole.” Strong words! The well they tried it with is located in Louisiana. We highlight this story because what they learn there will no doubt come to the Marcellus/Utica as well…
The Saudis sure didn’t see this one coming. Back in 2014 Saudi Arabia and their toadies in OPEC declared open war on the American shale industry. The aim was to bankrupt our shale drillers by pumping so much oil for so cheap, that our small potatoes drillers would go out of business. The thinking was that the Kingdom could outlast our private companies–for years if necessary. And sure enough, some of our o&g companies have gone bankrupt–nearly 100 of them since 2015. But here’s what happened along the way–the unintended consequence. Good old American ingenuity kicked in and our companies innovated–figured out how to drill for less money and get even more oil (and gas) out of the ground while doing it. That is, the Saudis’ action in trying to bury us was to make us better and stronger. One of the major ways we became better and stronger was through the lowly grain of silicon–as in sand. Can anyone say, “mega-frack”?…
Last week U.S. Silica, one of the largest frac sand providers in the U.S., issued their second quarter 2016 update last week. Frac sand providers are a good barometer for when/if drilling is coming back. You don’t order sand unless you’re drilling wells. The company lost $12 million in 2Q16 versus losing $10 million in 2Q15. However, $1.1 million of that was due to “restructuring costs.” What about revenue? Revenue was $117 million in 2Q16 versus $147.5 million in 2Q15. So we can sum up 2Q16 as “so-so.” Not terrible, not good. With luck, 3Q16 will look better (with drilling beginning to pick up). However, in a sign that U.S. Silica believes the market will come back, they also announced last week they are buying out Sandbox Enterprises, “a leading provider of innovative logistics solutions and technology for the transportation of proppant used in hydraulic fracturing in the oil and gas industry.” That’s a sure sign they think oil and gas is coming back…
Contrary to the BH view that drilling will remain in the crapper for the rest of 2016 (see Baker Hughes Laid Off 3K in 2Q16, No Drilling Recovery in 2016), CARBO Ceramics, a company that supplies sand and ceramic beads used in fracking, was more upbeat about the rest of the year in their second quarter 2016 update. CARBO’s CEO Gary Kolstad said, “…the second quarter likely marked the bottom for activity levels as both oil and natural gas commodity prices and the North American rig count started to recover,” and “Sales volumes began to improve as the quarter progressed. In addition, with the increasing commodity prices, we have received increasing customer inquiries about procuring ceramic proppant for completions in the second half of 2016.” In other words, things are beginning to look up–at least according to CARBO. Their own numbers don’t seem to reflect that optimism. Total proppant sales (as measured in millions of pounds sold) were down an astonishing 75% year over year: 448 million pounds sold in 2Q15 vs. 112 million pounds sold in 2Q16. Here’s the CARBO upbeat 2Q16 update…
Fairmount Santrol, an Ohio-based sand producer that sells sand as a proppant for use in Utica and Marcellus Shale drilling, released their preliminary second quarter 2016 results last week. Although the company expects to lose between $91-$93 million for the quarter (compared to a profit of $14.1 million a year ago), things are not all bad. Yes, it’s been tough for Fairmount and other companies in the oil and gas industry. Really tough. But Fairmount’s CEO Jenniffer Deckard, said this: “…we are also encouraged by the early signs of improvement we are seeing in the proppant market.” In other words, a crack of light is peeking through the door and we’re beginning to see the great slowdown in drilling come to an end…
Fairmount Santrol is a proppant manufacturer/supplier headquartered in Ohio. Proppants are things like sand and ceramic beads used to “prop open” tiny fractures created in hydraulic fracturing of shale oil and gas wells. In other words, Fairmount Santrol is a regional sand supplier for shale drillers–and a good proxy to understand what’s happening (or not happening) in our neck of the woods when it comes to drilling. If drillers aren’t drilling as much, that will show up first in the balance sheets of companies like Fairmount. And so it does. Fairmount reports in their first quarter 2016 update that revenues in 1Q16 were down 52% from 1Q15. But you can’t automatically assume that means there was half the drilling one year later. Fairmount also reports the volume of sand sold was down just 8% from 1Q15 to 1Q16. Why the discrepancy between revenue and volume? Fairmount doesn’t say, but we think we know: drillers have been putting the squeeze on supply chain companies like Fairmount, forcing them to deeply discount their prices…