Crude oil and natural gas production could slow amid delays in shipments of the fracking sand used in the hydraulic fracturing process, according to an executive with Halliburton Co.
Extreme cold weather has plagued rail lines and forced delays in delivery of frac sand, a proppant used to open the cracks in shale formations in order to extract oil and natural gas during the process of hydraulic fracturing,
"We are seeing disruptions in our sand supply due to the cold weather," Halliburton CFO Christopher Weber said during a presentation at Credit Suisse' Annual Summit on Feb. 15.
Extreme cold weather has negatively impacted the efficiency of rail lines including those of Canadian National Railway Co., which on Feb. 8 advised customers including Halliburton that it would halt all new shipments across a wide section of Minnesota and Wisconsin for four weeks.
Halliburton has been seeing delays up to 72 hours on sand deliveries since the beginning of February and more recently, up to 96 hours in some cases, amounting to three to four days' worth of sand, Weber said.
The delays will worsen as Halliburton receives about one third of its total sand volume from multiple sand operators with operations in the region where Canadian National Railway shipments have been halted, Weber said.
Suppliers Fairmont Santrol and U.S. Silica Holdings Inc. have the least exposure to the shipment issues, while Smart Sand, High Crush Partners LP and Emergency Energy Services all have material access to Canadian National Railway, Tudor Pickering Holt & Co. analysts said in a Feb. 16 note.
Weber said Halliburton is working to minimize the impact of the disruptions by buying spot sand where it can, working to move sand by truck and working to swap out mesh sizes where it can.
Sand preferences vary from basin to basin, with 100 mesh primarily what is in basins including Permian, the TPH analyst said. This 100 mesh proppant is seeing particular tightness.
Weber said this temporary disruption will impact operating efficiencies and utilization and could reduce first quarter earnings by 10 cents per share.
There are conflicting opinions regarding the industry impact from the shipment delays. While some analysts reportedly see the issue as widespread across the industry, some see the delays impacting Halliburton specifically.
Weber said that despite the delays, Halliburton is still on track for normalized margins of around 20% in North America in 2018.