A Surprising Turnaround in Frac Sand Demand
A Surprising Turnaround in Frac Sand Demand
Frac sand (proppants) have seen a surprise turnaround in demand projections during the first half of 2016. Many investors and industry observers left this segment of the oil market for dead at the beginning of the year, however, a perfect storm of factors has caused a surprising turnaround in this niche oil services segment.
A recent report from Tudor Pickering highlighted some of the reasons for the turnaround in frac sand demand (and consequently higher price for frac sands):
White sand pricing at the minegate should reach US$65/ton+ vs. the current US$15-20/ton.
2017 demand could be well above 2014 levels and 2018 sand demand could end up ~2x 2014 levels.
Well operators are using more proppants per well than initially forecast as they increase lateral length and push proppant per lateral foot well above current levels.
Proppant per horizontal well from ~8mm pounds today to ~11mm pounds in 2017 with further upside in 2018 and beyond.
With activity increasing in the Permian Basin proppant demand is expected to increase significantly as the Permian catches up with other basins in terms of proppant usage.
This unexpected surge in proppant demand could cause logistics issues across the oil&gas space as operators scramble to get a hold of enough sand to execute their high intensity frac driven field development plans.
According to Brandon Dobell, an oil & gas analyst at William Blair, sand usage overall should rise even if oil prices stay within a range of $40 to $60 a barrel because drillers are now using two to three times more sand per well than they were three years ago. One only has to take a look at a chart of SLCA (U.S. Silica) to get an idea of how investors have been caught off guard by the rapidly changing dynamics in the frac sands market:
SLCA shares have nearly tripled in less than four months as investors have rushed to benefit from surging frac sands prices in a supply constrained environment.
A smaller frac sands player, Select Sands (TSX-v: SNS), is uniquely positioned to benefit from the rapidly changing dynamics in the frac sands market. We caught up with SNS CEO Rasool Mohammad this week and he couldn’t be much more optimistic as to SNS’ prospects in the current environment:
“SNS is well positioned to take advantage of this turnaround in the sand pricing! We are hearing from energy customers as of today. Our industrial sales are increasing with a healthy gross profit. ” ~ Select Sands CEO, Rasool Mohammed
With one of the largest silica sands resources in the U.S. uniquely positioned near the heart of the U.S shale oil industry (Arkansas) SNS appears to be in the right place at just the right time as U.S. shale oil springs to life again.
The SNS chart has been forming a broad based bottom since January and a breakout above ~.31 would quickly target .40+:
To summarize, frac sand demand is surging at a time in which most producers are ill prepared logistically to meet demand. Select Sands is uniquely positioned to seize the opportunity presented by a V-shaped bottom in crude oil and well operators increasing the lateral length of producing wells. Select Sands CEO Rasool Mohammad couldn’t be more confident with how his company is positioned:
“Due to increased demand from our repeat industrial customers, our limited production runs continue to get larger. Additionally, with no debt and no logistics restraints, we are poised to deliver a high quality sand, very quickly to meet the additional growing demand from the oil and gas market we are seeing in the market today.”
The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. Select Sands Corp. is a high-risk venture stock and not suitable for most investors.. Consult Select Sands Corp’s SEDAR profile for important risk disclosures.
EnergyandGold has been compensated to cover Select Sand Corp. and so some information may be biased. EnergyandGold.com, EnergyandGold Publishing LTD, its writers and principals are not registered investment advisors and advice you to do your own due diligence with a licensed investment advisor prior to making any investment decisions.
This article contains certain forward-looking information and forward-looking statements within the meaning of applicable securities legislation (collectively “forward-looking statements”). Certain information contained herein constitutes “forward-looking information” under Canadian securities legislation. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “expects”, “believes”, “aims to”, “plans to” or “intends to” or variations of such words and phrases or statements that certain actions, events or results “will” occur. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed by such forward-looking statements or forward-looking information, standard transaction risks; impact of the transaction on the parties; and risks relating to financings; regulatory approvals; foreign country operations and volatile share prices. Although management of the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements or forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. Accordingly, readers should not place undue reliance on forward-looking statements and forward looking information. The Company does not undertake to update any forward-looking statements or forward-looking information that are incorporated by reference herein, except as required by applicable securities laws. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.