One Nook Of America's Shale Industry Is Eyeing A Big Comeback

One Nook Of America's Shale Industry Is Eyeing A Big Comeback
Amid the gloom and doom that's set in all along America's shale fields these past two years, there has been one small, but consistent, bright spot.

(Bloomberg) -- Amid the gloom and doom that’s set in all along America’s shale fields these past two years, there has been one small, but consistent, bright spot. Sand, it turns out, is a much greater tool in hydraulic fracking than drillers had understood it to be. Time and again, they’ve found that the more grit they pour into horizontal wells -- seemingly regardless of how extreme the amounts have become -- the more oil comes seeping out.

The message from drillers is "more, more, more sand," said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. "All of the numbers are going up and they’re going up dramatically."

On a per-well basis, sand use has doubled since 2011, climbing to nearly 8 million pounds, according to consulting firm IHS Inc. It’s this growth that’s sent the stock prices of the country’s four publicly traded sand miners surging more than 90 percent this year. True, overall sand usage in the fracking industry is still way down from the 2014 peak -- more than three-quarters of America’s drilling rigs, after all, have been idled since oil prices collapsed -- but the per-well increases have analysts and investors betting that the sand industry will boom again as soon as fracking activity starts to pick up even a little bit.

That moment may seem far off right now as crude prices careen again -- they’re down 20 percent since briefly touching $51 a barrel in early June -- but oil-service giants Schlumberger Ltd. and Halliburton Co. have both seen enough positive signs on the ground to declare in recent weeks that the industry has bottomed out. And if prices were to resume their rebound and just manage to climb above $60 a barrel, some 40 percent below pre-crash levels, analysts at Jefferies Group and Bloomberg Intelligence predict that total sand demand will soar past 2014’s record 64 million tons in as little as two years.

Sand is by no means new to the oil industry but it’s taken on an importance in fracking that it never had in traditional vertical-well drilling. Because shale rock is so dense, drillers rely on large quantities of both sand and water to tease the oil out. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand then keeps the cracks open, elongates them and makes them more jagged. Increase the amount of sand, fracking outfits have found, and you increase the amount of fractures that stay open.

Another thing they’ve discovered during the downturn is that the extra money they had been shelling out for white sand shipped in from Wisconsin and Minnesota, instead of the brown sand found in the Southwest, may not have been worth it. While white sand is stronger, brown sand -- which can run as much as 25 percent cheaper at about $60 a ton -- has proved to be equally capable of maintaining cracks open.

Brown Sand

This is why sand mines in Texas and Arkansas have been a lot busier of late than those up north. U.S. Silica Holdings Inc., the largest publicly traded frack-sand miner in the country, estimates that brown sand now accounts for more than 40 percent of the market, up from 16 percent in 2014. Two weeks ago, the company said it was buying NBR Sand, a brown-sand miner not far from Texas’s main oilfields, for $210 million with an eye to more than double output there to 2 million tons a year.

U.S. Silica’s shares have nearly doubled this year, while Fairmount Santrol Holdings Inc. tripled. Hi-Crush Partners LP rose 105 percent and Emerge Energy Services LP climbed 92 percent. In comparison, oil exploration and production companies in the S&P 500 rose 14 percent, while those in a broad oil-services index are little changed.

"People are uber uber bullish on sand," said Matthew Johnston, an oil-services analyst at Nomura Securities. "I get it. I understand where all the euphoria is coming from."

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; David Marino at dmarino4@bloomberg.net Dan Stets

Copyright 2016 Bloomberg News.

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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Philippe | Aug. 5, 2016
Sand is what makes Fracking possible. The water pressure is what frack or crack the geology. The IP production reflects the water pressure that keeps the fracks open. Over time, several months, max 18 months, the water pressure goes down and the fracks close off. The send is what keep the fracks open, but the size of the fracks increases the production pressure resistance which causes the production flow to go in the EUR or Estimated Ultimate Recovery, that may last several years, let say 3 years. The size and hardness of the sand become very important. If the geology is soft and the sand to hard, the sand will incrust itself in the geology, the fracks will close off as the pressure goes down. On the other hand, if the geology is very hard it could crush the sand as the production pressure goes down. Understanding the geology to be fracked is the all game. In some cases when the geology is very hard, ceramic silica coated sand is preferable, but the cost goes up. It may be preferable to start a second fracking to get back the IP pressure. It is all about balancing cost.

Tdp | Aug. 5, 2016
Should we teach them how useful sand is and how to gather it so they can learn everything they need to know from us and Stan us in the back - while pretending to value is as individuals?


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