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Oilfield services sector finding new ways to mitigate sand delivery issues

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


Oilfield services sector finding new ways to mitigate sand delivery issues

Amid an increase in drilling and well completion activity at shale plays across the U.S., growing demand for proppants, particularly sand used in the hydraulic fracturing process, is pushing oilfield service providers to find new ways to contend with the challenges of sourcing and delivering key drilling materials.

Data from the U.S. Geological Survey shows U.S. consumption of industrial sand and gravel was 89.4 million tons in 2016, a 10% decrease year on year. However by 2017, apparent consumption had climbed to 100 million tons, a 33% increase from the previous year, owing primarily to increased activity in the oil and gas sector.

Amid the increasing demand, a survey by Bernstein & Co. LLC found that within the oilfield services sector, investors are expecting price increases in pressure pumping, equipment and proppant. Companies that are positioned to provide both pumping services and proppant have the opportunity to reap considerable profits amid an accelerating trend within the hydraulic fracturing markets of separating the procurement of pumping services and sand supply.

Schlumberger Ltd has positioned itself to prosper under this new market environment after implementing a vertical integration strategy whereby it owns and operates two "Northern white" sand mines and was slated to start up its first Permian-based mine in June.

"This allows Schlumberger to competitively bid on integrated and standalone sand contracts," Schlumberger's vice president of wells Patrick Schorn said June 12 at the Wells Fargo West Coast Energy Conference.

For other oilfield equipment and service companies, including major Halliburton Co., sand sourcing and delivery could remain a challenge. After frigid February weather caused rail issues and sand delivery delays that negatively impacted first-quarter earnings, Halliburton CEO Jeffrey Miller said the company would increase the use of local sand.

Sourcing local sand can save the industry millions of dollars in transportation fees and sand providers are working to expand resources.

Alpine Silica, a domestic producer and supplier of fracking sand, announced June 6 two new projects in Van Horn, Texas, and Fay, Okla., further adding to their existing portfolio. The firm currently owns and operates one plant in the Permian basin, with production capacity of approximately three million tons of high-quality frac sand per year.

Alpine Silica has secured nearly 51 million tons of reserves for the Oklahoma initiative and is estimating that the plant will produce more than three million tons of premium frac sand per year. The project in Oklahoma is expected to break ground within the next 30 days with construction by an affiliated construction group expected to last six months.

The firm also confirmed plans for a frac sand plant in Texas, which is estimated to produce approximately three million tons per year. Groundbreaking for this plant will take place in the coming months and a construction time of seven months is estimated.

In the Permian basin fracking sand supply is struggling to meet the pace of robust demand, but companies are working to mitigate the issues with the development of local sand facilities. About 25 million to 30 million tons of in-basin Permian sand will be available to the market this year, Hi-Crush Partners LP CFO Laura Fulton said in late May at Hart Energy's DUG Permian conference in Houston.

Currently, eight sand plants have opened in the Permian, including the Kermit site, Hi-Crush's first facility in the region. Still, significant delays in capacity additions persist due to construction delays, access to financing, logistics constraints, labor market tightness and lack of experience and proficiency, Fulton said.

Further, despite local sand sourcing at the Permian and basins across the U.S., Northern White sand still has a prominent role and logistics remain a sticking factor.

While Fulton said the ability to get Northern White sand into the Permian basin via rail is an advantage, at basins across the U.S., companies like Halliburton are looking for solutions beyond rail. Miller said Halliburton planned to roll out containerized sand solutions currently deployed across one third of its fleet, as trucking also faces labor and infrastructure issues.

Hi-Crush is addressing logistics issues with its PropStream last-mile proppant logistics solution that uses containers to deliver the sand to well sites and then uses the containers and conveyor systems to actually deliver sand into the hopper for its customers.

PropStream and similar systems can reduce costs and environmental impact. By enabling the company to put more containers on each trailer, the number of trucks traveling to and from specific well sites has fallen by 10% in some instances, Fulton said.