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Sands shifting as E&P players seek direct proppant supplies

Cost-conscious exploration and production companies in the US are expected to continue directly sourcing sand to use as proppant for well completions, a trend that has been growing over the last five years, writes Julia Martinez.

Operators have shifted to purchasing sand from in-basin mines as a way to decrease transportation costs, which are a major component in sand pricing.

Many have also taken on the task of sourcing proppant for hydraulic fracturing directly from suppliers instead of relying on pressure pumpers and oilfield services companies.

“Operators have continued to challenge their supply chain teams to persistently cut costs as some companies struggle with financial discipline, and one of the low-hanging fruits has been sand,” said Brandon Savisky, energy market research associate at IHS Markit.

While many operators, typically smaller ones, do not want to take on the risk or logistics of managing sand inventories, others are opting to go directly to the suppliers to cut costs.

“We’ve really seen E&P companies take ownership of the frack sand supply chain,” chief operating officer of Pronghorn Logistics Stephen White said at the recent EnerCom conference in Denver. “It’s not for everybody but we’ve seen that big shift.”

Oilfield services companies have also started to cut themselves out of trying to manage buying and holding sand inventories, Savisky said, and have started to focus more on the technology element of completions.

Some companies have offloaded sand assets while others continue to run their own mines, but such arrangements are few and far between these days, Savisky said.

E&P companies are expected to directly source about half of the frack sand to be supplied in 2019, according to an article published by RBN Energy. Savisky echoed that statistic, saying that the range is about 40% to 50% of companies.

"Every operator out there is going to continue to experiment with increased sand loadings and different designs," Chris Scholla, vice president of supply chain and logistics for Atlas Sand, said at EnerCom.

"They’re still trying to figure out the new cost profile of a well," Scholla said.

In Texas, Atlas Sand has two open-dune frack sand mines in Kermit and Monahans, which lie on the end of the sand fairway and have annual production capacity of 8 million tonnes.

Operators have since 2016, when sand demand was low, been tinkering with their completion designs in an effort to cut costs, and found that optimising higher intensity completions with more sand and more proppant worked better. “It was a marriage of two things that happened well for the operators at one time, especially when the market started to pick back up,” Savisky said, adding that companies are sticking with higher intensity completions and are now starting to go longer with lateral lengths.

Proppant suppliers like Hi-Crush, Savisky said, have switched their strategy to directly sell sand to oil and gas operators, instead of targeting pressure pumpers, especially given the oversupplied market that has led to extreme cost deflation. Hi-Crush acquired Pronghorn Logistics in May.

Last year, US independent Pioneer Natural Resources signed a deal with US Silica for a stake in the Lamesa, Texas sand mine, signing into a 15-year agreement.

The long-term deal has Pioneer taking in a supply of 1.4 million tonnes in 2019 and increasing that supply to 2 million tonnes per year in 2020 and beyond.

Savisky said he believes the bottom of the sand pricing market may have been hit, adding it is anticipated to stay flat for the third quarter and might creep up moving forward.

He added that there has been a noticeable switch back to Northern White sand in the south Texas Eagle Ford shale play, where operators are drilling deeper wells and need higher crush strength sand.

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