5 Key Trends In The 2018 Frac Sand Marketplace - May 9, 2018 IMA-NA Spring Meeting
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5 Key Trends In The
2018 Frac Sand Marketplace
May 9, 2018
IMA-NA Spring Meeting
1
1. Today’s Oilpatch Feels More Like The Sandpatch…
Oilfield Fashion In The Aughts (2000-2010) Oilfield Fashion In The Teens (2010-2020)
Photo credits: Solaris, Hi-Crush, Apache Corp, Infill Thinking, Adobe Stock Photos
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…As Frac Sand Has Replaced Rigs & Wells…
Half The Rigs, Full Oil Production Growth How? Frac Sand Pumped Drives Production Now
1.5 2,000 1.5 125
1.0 1,500
100
Y/Y Change In Oil Production (mmbpd)
0.5 1,000 1.0
Millions Of Frac Sand Tons
0.0 500
2011 2012 2013 2014 2015 2016 2017 2018E 75
Y/Y Δ In US Oil Production (mmbpd) LHS
Annual Avg. US Land Rig Count RHS
-0.5 -
0.5
Half The Wells, Full Oil Production Growth
1.5 40,000
50
1.0 30,000
0.0
2011 2012 2013 2014 2015 2016 2017 2018E 25
0.5 20,000
0.0 10,000 Y/Y Δ In US Oil Production (mmbpd) LHS
2011 2012 2013 2014 2015 2016 2017 2018E Tons of Frac Sand Consumed (mm) RHS
Y/Y Δ In US Oil Production (mmbpd) LHS -0.5 -
-0.5 Total Well Count RHS -
Sources: Company Filings, BHGE, EIA, DPR, Frac Focus, Infill Thinking estimates
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…Translating Into Extraordinary End Market Growth
2009/2010
“The O&G gas proppants end market was estimated at $326mm in 2009. We believe… the
oil and gas proppants end market [exceeded] $600mm [in 2010].”
-US Silica IPO SEC Filing (July 2011)
2018
“Infill Thinking estimates that O&G proppants is a $4bn to $5bn end market in 2018 (FOB
mine). On a fully delivered basis, we believe this addressable market is ~2.5x that
($12bn), after accounting for logistics, storage and handling from mine to well.”
-InfillThinking.com ( May 2018)
Source: US Silica SEC Filings, InfillThinking.com Estimates
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2. Dune Sand Is Transforming Permian Supply…
February 2017: 0 Known Local May 2018: 18 Planned Sites Moving Forward,
Permian Mines, 0mmtpa Nameplate >70mmtpa Nameplate*
*We track a grand total of 24 Permian plants in various stages of planning and
permitting - 6 of these are pending final investment decision, with 18 moving
forward. Options with known locations are included on the map.
Source: Google, TCEQ, Company Filings, InfillThinking.com Estimates
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…Other Shale Plays Are Joining The In-Basin Trend…
• We monitor 48 known, potential “in-
basin” sand mines Rigs ( s) Vs. Potential In-Basin
• mostly announced in past 18 months
• 138mmtpa potential local nameplate Frac Sand Plants ( # s)
capacity, vs. 110mmtpa total US 2018 frac
sand demand
• MANY RISKS REMAIN: some will not
be built, completed or fully produce
• Most of the usable in-basin frac sand
material is 100-mesh
• Permian in-basin sand happened first
and fast, ramping now
• 9 new mines are online 2 mines
• Current production: 16mmtpa per annum 3mmtpa
• The Eagle Ford rush has moved into
the build-out phase (in-basin
announcements could fully supply 100 6 mines
mesh demand here) 15mmtpa
• Mid-Con land/permit grab is on – 6
known plants with 2-3 more expected 24 mines 5 mines
to come to light soon 80mmtpa 13mmtpa
• Meanwhile, the Haynesville has
quietly become regionally supplied
Source: BHGE rig count map, InfillThinking.com sand analysis
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…And Local Sand Mining Has Attracted New Faces
13 Newly Formed Entities Account For 40%+ Of Known Potential In-Basin Nameplate Capacity
Source: Company websites, Infillthinking.com analysis
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3. Wall Street: Undersupplied Today, But Oversupplied Tomorrow?
• The frac sand market today is extremely tight
• Producers are increasing prices ( ↑5-10% in 2Q18 alone)
• Recent rail issues showed tightness (unsanded frac jobs, surging spot prices)
• But…
• Investors spooked by supply announcements worry the good days are numbered
• Simply put, here is why:
• 125mmtpa (January 2017 US frac sand capacity)
• +143mmtpa (Greenfield & brownfield expansion announcements since January 2017)
• =268mmtpa supply (December 2019 US frac sand capacity if all plans are fully built and executed)
• VS. 150mmtpa demand (a reasonable estimate for 2020 US frac sand demand)
• LOTS of new proppant capacity continues to be announced (in first 4 months of 2018, we
found 14 new mine plans - 33mmtpa – which could supply 25% of 2018 demand if built)
• We believe the “worst case bear scenario” is unlikely; but we do believe oversupply risk
is real and likely to cause price competition by 2019 in fine grades
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4. Not Your Grandfather’s Last Mile Logistics Game
• Well-site volume surge and in-basin
Permian Frac Sand Driver sourcing have focused the entire industry
Need Is Up 5x From 2015/2016 on last mile logistics
3,500
• Transloads are adapting to in-basin
sourcing by offering “mid-mile” storage
Number Of Active Frac Sand Trucks In W TX
3,000 (Twin Eagle’s name for mobile bulk)
2,500 • We estimate New Generation well-site
handling solutions (boxes and silos) now
serve sand to 70%+ of US frac fleets
2,000
• This is up from 0% just a few years ago
1,500 and necessary with sand truckloads / well
now often exceeding 400
1,000
• New solutions are safer, more efficient on
the well pad, reduce congestion on the
500 road, and control dust better
- • We believe software represents the next
2013 2014 2015 2016 2017E 2018E 2019E leg up in last mile logistics
Source: InfillThinking.com estimates
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5. Procurement Upheaval: Unbundling Is Now Material
Encana
Lo 1.2
Hi 1.6 We Track 18+ Unbundled E&Ps Buying Sanchez
“We control about 75%
of our spending through our More Than 1/4th Of US Frac Sand “We've taken a de-bundled approach.
We will bid out each individual task Lo 1.3
centralized supply chain.We manage individually.We self-source our Hi 1.7
the supply chain by self-sourcing key proppants directly from proppant
consumables like sand, water and mines.We buy our chemicals and
chemicals, casing and drilling mud.” handle all of our logistics.”
WPX Callon
“We've been purchasing direct from “The direct sand sourcing we have as
the mines.We've been doing that for a well as the sand sourcing that we do Lo 0.3
couple of years now… Two FTEs are through our pumping services Hi 0.6
responsible for our frac sand relationships are not only local sand
sourcing.” or Wisconsin white sand. It's a blend
Lo 1.3 of the two.”
Hi 1.7
Devon
EOG “We've unbundled [completions] EQT
“We also are vertically integrated and Lo 5.0 services.We supply our own sand.We Lo 2.0 Lo 2.5
“Rice had a significant frac sand
we supply our sales force, our own Hi 6.0 supply our own diesel.We do it much Hi 2.5 sourcing and logistics effort, which we Hi 3.0
sand and water and a lot of other more economically than an integrated leveraged to improve efficiency.”
things.” solution from providers.”
Note: 2018 frac sand and demand for each operator is shown in mmtpa and
is our estimate based on public commentary about completions programs 10
Source: InfillThinking.com estimates, company filings, Alpha Sense transcripts
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