From RBN Energy:
When The Sand Goes Down – Prospects For Fracking Proppants After The Price Crash
Last year was a banner year for the sand mining companies that cater to the U.S. shale drilling services industry. That’s because in 2014 well operators significantly increased the amount of sand used to complete fracturing operations in shale plays – from an average of about 5 MMlb for a single well to 15 MMlb (7,500 tons) or more. In 2015 however, the stock prices of frac sand producers has plunged in response to lower oil prices, producer drilling budget cutbacks and falling rig counts – signaling the industry is on the ropes. Today we describe how sand producers may be in better shape than expected.Previously:
Hydraulic fracturing (fracking) and horizontal drilling are the two technologies most responsible for the boom in extracting oil, natural gas and natural gas liquids from hydrocarbon bearing shale deposits over the past 8 years. These techniques involve high pressure stimulation using water and proppant (usually sand) to create small cracks in tight shale rock that allow oil and gas trapped in the formation to flow more easily into the well and up to the surface (see Tales of the Tight Sands Laterals).
When the water pressure is released, the fractures attempt to close but the proppant contained in the fluid keeps them open, making a ready path for oil and gas to flow into the well. Once a well is drilled vertically into the shale, horizontal laterals are drilled out in different directions and fracking is carried out in multiple stages along the laterals. We have previously discussed the scale of activity surrounding getting supplies and equipment (water, sand, pumps, machinery etc.) to well sites that are often remote – a process that has become a complex transport and logistics challenge (see “Long Train Running – Bringing Drilling Supplies to the Shale-Rail Revolution”). We also described the sources and use of different frac sand proppants back in August 2013 (see Mr. Sandman). In short, three primary types of proppant are used in fracking; raw frac sand – generally mined at the surface, resin coated sand that has been treated to increase it’s strength and ceramic beads that are manufactured (usually from clay) to withstand greater pressure. The most popular proppant (85% of the market) is raw sand and the best grade of sand preferred by well operators is Northern White - found predominantly in Wisconsin. Sand quality for fracking is very important and is measured by particle size, shape (roundness) and crush resistance using standards set by the American Petroleum Industry (API).
2014 has been described as "The Year of Sand" in U.S. shale plays because more frac sand was being pumped into every well. The reason that well operators used more sand was to improve well productivity at relatively low cost. As we just explained, the main task of sand grains used as proppant is to hold open the tiny fractures introduced into shale bearing rock by high pressure fracking. Proppant has two tasks in the fractures – called conductivity and reservoir contact. Conductivity is the flow capacity created to allow fluid to move through the fracture and is generally improved by increasing the quality of the proppant (roundness and crush resistance). Reservoir contact improves when the fractures spread the well’s access to bigger areas of the formation. Well productivity improves when more reservoir contact is achieved because a greater area of shale is exposed and better conductivity increases the flow of hydrocarbons back to the well.
Generally speaking improving reservoir contact means using more sand and improving conductivity means using higher quality (more expensive) proppant like resin coated sand or ceramics. Using trial and error methods endemic to the entrepreneurial nature of U.S. independent producers, operators discovered that using more sand could improve well productivity and that increasing the volume of sand trumped increasing its quality. Figure #1 below gives an idea of the kind of improved economics experienced by producer SM Energy in the Eagle Ford wet gas window. The graphic compares “old” completions with 5000 foot laterals using 1,128 lbs/ft of sand to “new” completions using 80 % more sand (2,025 lbs/ft). Average well drilling and completion costs increased by less than 2% from $6.73 MM to $6.84 MM (see Stacked Deck for more on drilling and completion costs) but the internal rate of return (ROR) increased by about 40% and net present value (NPV) increased by about $2 MM per well. Based on these numbers, the incremental cost of more sand is easily justified by the improved rate of return. (Note that these metrics are based on 2014 prices, and have been impacted by much lower prices in 2015). ...MORE
Aug. 2014
"Sand: The Hot New Investment Opportunity" (SLCA)
April 2012
What the Frack? U.S. Silica Up 24% since Feb. 1 IPO (SLCA)
May 2012
Commodities: "Midwest Sees a Sand Rush"
Jan. 2013
More Natural Gas Needed For Frack Sand Suppliers
April 2014
State of Sand, 2014
June 2014
What the Frac: "The Past Year’s Hottest IPO Is… " (EMES; SLCA)
