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.
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 firstname.lastname@example.org To contact the editors responsible for this story: David Papadopoulos at email@example.com; David Marino at firstname.lastname@example.org Dan Stets
Copyright 2016 Bloomberg News.
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