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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A slew of planned West Texas frac sand mines and processing facilities could dramatically shift the economics of extracting Oil & Gas in Texas using hydraulic fracturing, according to speakers on September 13 at the 5th Frac Sand Conference in Denver, Colorado. The conference, attended by about 130 people, was organized by Industrial Minerals Events (London, England).
Developers have proposed building 14 frac sand mines in the Permian Basin and two more near San Antonio, in the Eagle Ford Shale. Speakers agreed that not all of these facilities would get built, but if they were, it would increase U.S. frac sand production capacity by about 62 million tons per year, an increase of roughly 100% over current U.S. frac sand production capacity. The broader industrial sand market has estimated production capacity of between 100 million tons and 120 million tons per year.
"A lot of new sand is scheduled to come online soon," Joel Schneyer, managing director of investment bankers Headwaters MB (Denver, Colorado), told the conference. "Operators are drilling longer laterals and using a lot more sand than they used to, driving up demand for frac sand." He was one of several speakers who said he didn't expect all of these projects to be built.
Most of the planned frac sand mines proposed for West Texas have nameplate capacity of about 3 million tons of sand per year. Industrial Info is tracking slightly more than $900 million of planned frac sand projects in Texas.
Currently, most operators in Texas extract oil and gas with hydraulic fracturing that uses frac sand that is mined in the Midwest, typically Wisconsin, Minnesota and Illinois. That sand is called Northern White. The traditional rule of thumb for frac sand has been that the commodity itself accounts for about 33% of the delivered price. Another third comes from rail shipping, and the final 33% comes from so-called "last mile" logistics, typically trucks that move the sand from the rail station or transloading depot to the wellsite.
If Texas producers can source that sand locally, it would eliminate rail shipment costs and lower the overall delivered price of frac sand in the Lone Star State. Some attendees told Industrial Info that sourcing frac sand locally could knock as much as $5 per barrel off production costs, but others said it was more like $2 or $3 per barrel.
While there was no agreement on exactly how much locally sourced frac sand would lower production costs, there was agreement that sourcing that sand locally would enable Texas producers to better compete in a volatile price environment. Cutting out rail-transport expenses should result in lowered delivery costs for frac sand in Texas, but speakers and attendees said they did not expect those delivered costs to fall by 33%.
As the fortunes of the Oil & Gas Industry have shifted in recent years, pricing for frac sand has also changed dramatically. Northern White frac sand sold for as much as $150 per ton in 2013, during the go-go days when crude oil sold for more than $100 per barrel. But the cost of that commodity has since fallen between 40% and 60%, to between $70 and $100 per ton, said an industry analyst at the conference who requested anonymity.
But local or regional frac sand, like the kind that is expected to be produced in Texas, would cost far less, between $35 and $55 per ton, he projected.
Other parts of the country, including Arkansas, are getting into the frac sand mining game, which could further scramble what has been a virtual monopoly exercised by frac sand mining companies in the Midwest.
If those producers lose their Texas customers, some speakers and attendees at the 5th Frac Sand Conference speculated Midwestern sand producers would have to lower their prices, as they could be operating in an over-supplied market.
As the characteristics of various shale formations differ, the last few years have seen a lot of experimentation by operators into different types of well completions, different volumes of sand and different mixtures of water, sand and chemicals. Across the U.S., operators today are using between 10 million and 12 million pounds of sand to hydraulically fracture a well.
Chris Wright, chief executive at Liberty Oilfield Services (Denver, Colorado), told conference attendees, "The world has woken up to the fact that it takes a lot of sand to produce a lot of oil. We've gone from 2,000 pounds (of sand) per lateral foot to 5,000 pounds to 10,000 pounds, and it could go higher still. Someday, you could see 20 million or even 30 million pounds of sand to frac a well, depending on the rocks. There's still a lot of experimentation going on, but at some point, there must be a limit" to how much sand can be used to frac a well.
In contrast to those who predicted the demise of unconventional drilling if crude oil prices fell, as they did in 2014, Wright said, "Thanks to American innovation and American drive, $50 is the new $85. The rig count today is much lower than it was in 2014, but production per well is way up. The demand for frac work today is as high as it was in 2014. Over the next five to 10 years, the outlook is fantastic."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Developers have proposed building 14 frac sand mines in the Permian Basin and two more near San Antonio, in the Eagle Ford Shale. Speakers agreed that not all of these facilities would get built, but if they were, it would increase U.S. frac sand production capacity by about 62 million tons per year, an increase of roughly 100% over current U.S. frac sand production capacity. The broader industrial sand market has estimated production capacity of between 100 million tons and 120 million tons per year.
"A lot of new sand is scheduled to come online soon," Joel Schneyer, managing director of investment bankers Headwaters MB (Denver, Colorado), told the conference. "Operators are drilling longer laterals and using a lot more sand than they used to, driving up demand for frac sand." He was one of several speakers who said he didn't expect all of these projects to be built.
Most of the planned frac sand mines proposed for West Texas have nameplate capacity of about 3 million tons of sand per year. Industrial Info is tracking slightly more than $900 million of planned frac sand projects in Texas.
Currently, most operators in Texas extract oil and gas with hydraulic fracturing that uses frac sand that is mined in the Midwest, typically Wisconsin, Minnesota and Illinois. That sand is called Northern White. The traditional rule of thumb for frac sand has been that the commodity itself accounts for about 33% of the delivered price. Another third comes from rail shipping, and the final 33% comes from so-called "last mile" logistics, typically trucks that move the sand from the rail station or transloading depot to the wellsite.
If Texas producers can source that sand locally, it would eliminate rail shipment costs and lower the overall delivered price of frac sand in the Lone Star State. Some attendees told Industrial Info that sourcing frac sand locally could knock as much as $5 per barrel off production costs, but others said it was more like $2 or $3 per barrel.
While there was no agreement on exactly how much locally sourced frac sand would lower production costs, there was agreement that sourcing that sand locally would enable Texas producers to better compete in a volatile price environment. Cutting out rail-transport expenses should result in lowered delivery costs for frac sand in Texas, but speakers and attendees said they did not expect those delivered costs to fall by 33%.
As the fortunes of the Oil & Gas Industry have shifted in recent years, pricing for frac sand has also changed dramatically. Northern White frac sand sold for as much as $150 per ton in 2013, during the go-go days when crude oil sold for more than $100 per barrel. But the cost of that commodity has since fallen between 40% and 60%, to between $70 and $100 per ton, said an industry analyst at the conference who requested anonymity.
But local or regional frac sand, like the kind that is expected to be produced in Texas, would cost far less, between $35 and $55 per ton, he projected.
Other parts of the country, including Arkansas, are getting into the frac sand mining game, which could further scramble what has been a virtual monopoly exercised by frac sand mining companies in the Midwest.
If those producers lose their Texas customers, some speakers and attendees at the 5th Frac Sand Conference speculated Midwestern sand producers would have to lower their prices, as they could be operating in an over-supplied market.
As the characteristics of various shale formations differ, the last few years have seen a lot of experimentation by operators into different types of well completions, different volumes of sand and different mixtures of water, sand and chemicals. Across the U.S., operators today are using between 10 million and 12 million pounds of sand to hydraulically fracture a well.
Chris Wright, chief executive at Liberty Oilfield Services (Denver, Colorado), told conference attendees, "The world has woken up to the fact that it takes a lot of sand to produce a lot of oil. We've gone from 2,000 pounds (of sand) per lateral foot to 5,000 pounds to 10,000 pounds, and it could go higher still. Someday, you could see 20 million or even 30 million pounds of sand to frac a well, depending on the rocks. There's still a lot of experimentation going on, but at some point, there must be a limit" to how much sand can be used to frac a well.
In contrast to those who predicted the demise of unconventional drilling if crude oil prices fell, as they did in 2014, Wright said, "Thanks to American innovation and American drive, $50 is the new $85. The rig count today is much lower than it was in 2014, but production per well is way up. The demand for frac work today is as high as it was in 2014. Over the next five to 10 years, the outlook is fantastic."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
