All My Frac Sand Comes From Texas - Major Changes Afoot in Sand Use, Supply and Prices

In the past year, there have been major changes in the frac sand sector. Exploration and production companies in the Permian and other growing areas have significantly ramped up the volume of sand they use in well completions, catching high-quality sand suppliers in the Upper Midwest off-guard and spurring sharply higher frac sand prices due to the tight supply. At the same time, development of regional sand resources has taken off in the Permian — with close to 20 mines announced with upwards of 60 million tons/year of nameplate capacity possible — and, to a lesser extent, in the SCOOP/STACK, Haynesville and the Eagle Ford. That new capacity should begin easing sand-supply shortfalls next year, reducing sand delivered costs and potentially threatening the dominance of traditional Northern White sand. And more changes are ahead in 2018. Today, we begin a new blog series on fundamental shifts in the all-important frac sand market.

Frac sand, a primary focus of our recent “Wipe Out!” blog series, is critically important, not only in Shale Era hydrocarbon production, but in production economics. As we said in Part 1 of that series, production in shale plays is founded on a combination of horizontal drilling and the use of proppant (primarily natural sand, but also a bit of ceramics and resin-coated sand) that, when forced out of the horizontal portion of wells at high pressure (using water and other fluids), fractures openings in the surrounding shale. When the pressure is released, the fractures attempt to close but the proppant contained in the fluids keeps them open, making a ready path for oil, gas and NGLs to flow into the well bore.

In the past few years (and especially since crude oil prices started tanking in mid-2014), the abilities and efficiencies of drilling-and-completion (D&C) specialists have advanced considerably, driving up per-well production rates and slashing overall D&C costs when measured on a dollars-per-barrel-of-oil-equivalent (boe) basis. There are many reasons for the improvement: more efficient rigs, faster drilling speeds, increased use of pad drilling, and a focus on production sweet spots among them. Two other D&C factors — longer and longer laterals, and the increased use of high-intensity completions — also are goosing efficiency and profitability, and both are driving increased sand use, squeezing sand availability, pushing sand prices higher and making it more important than ever that E&Ps take a strategic view toward their sand-use planning, acquisition and logistics.

In Part 2, we discussed the evolution of frac sand use, including shifts in the types of sand that are preferred and in the volume of sand being used in each well. Then we considered sand logistics — which, given that the most in-demand frac sand (at least over the past few years) is mined in the Upper Midwest (Wisconsin, Illinois and Minnesota), accounts for a significant share of total sand costs — and laid out the challenges that E&Ps face in securing the sand they need while minimizing costs. In Part 3, we zeroed in on recent trends in frac sand demand and pricing, and on the development of regional (mostly Texas-based) frac sand mines to reduce transportation costs. We also put rising frac sand costs into an economic context, concluding that while those costs are a concern, they are usually outweighed by the oil-and-gas production gains (and resulting higher revenue) that result from using more sand.