Everything Has Changed, Part 3 - The Frac Sand Revolution

A primary focus of E&Ps during the Shale Era has been driving down the cost of drilling and completing wells — doing so lowers producers’ break-even costs and increases their profitability. With the volumes of frac sand being used in the Permian and many other plays having grown dramatically in the past five years, a big push is on not only to minimize the cost of the sand itself, but to maximize the efficiency of sand delivery and sand management at the well site. All this has been spurring E&Ps to assume responsibility from oilfield service companies for the frac sand supply chain — anything from directly sourcing the sand to managing “last-mile” logistics. Today, we continue our series on the rapidly changing frac-sand world, this time concentrating on producers’ growing involvement in sand procurement and management.

This is Part 3 of this series. In Part 1, we proclaimed that the Frac Sand Revolution has arrived. Generally speaking, this new era is characterized by long lateral drilling lengths (7,500 to 10,000 feet, and sometimes thousands of feet longer than that) and an intense use of sand (2,500 pounds per linear foot of lateral is now common in the Permian), which together have resulted in the need for large volumes of frac sand. In fact, demand for the sand used in hydraulic fracturing has more than doubled over the past three years, to more than 100 million tons per annum (MMtpa). To help reduce the delivered cost of sand, dozens of new “local” sand mines have been developed, and frac sand prices have fallen sharply from their 2017 highs. We also zeroed in on the local sand sources in the Permian, which now has about 20 sand mines with a combined nameplate capacity of more than 70 MMtpa — considerably more than the play’s current sand demand of about 50 MMtpa. In Part 2, we continued our look at local sand mines, this time discussing the Eagle Ford, SCOOP/STACK and Haynesville plays, each of which appears to be well on its way toward becoming largely self-sufficient from a sand supply perspective. It’s important to note that while the use of local sand has risen to the fore in these plays, some volumes of Northern White Sand are still being railed in from the Upper Midwest. Also, Northern White remains the dominant frac sand in many other production areas, including the Marcellus/Utica, Bakken, Niobrara’s Denver-Julesburg (D-J), and Powder River basins.

Today, we turn our attention to the E&P sector’s evolving view of how deeply producers should become involved in the frac sand supply chain, which begins at the sand mine and continues through the well site (see Figure 1). Traditionally, responsibility for ensuring that sand is procured, transported to well sites, and stored — ready to use in well completions — has fallen to the integrated oilfield services (OFS) companies or pressure-pumping specialists that E&Ps contract with to do their drilling and pressure pumping. Generally speaking, the pressure pumpers would manage the sand supply chain themselves by buying from frac sand companies, arranging the rail transportation, utilizing their own or independent sand transload facilities in the plays, managing the last-mile trucking to the site and “pushing” the sand at the well site. That approach to sand supply oversight has been challenged in the past two or three years, however, as the amount of frac sand being used — and the cost of sand, especially during the 2017 price spike — led at least some E&Ps to consider alternatives that would give them more control.