Demand for frac sand

[dan_s]

The U.S. is now addicted to oil & gas from tight formation like shale. Each new horizontal well will take over 100 train cars full of sand to complete.

Permian Will Need $300 Billion Over Next 5 Years to Maintain Growth

Investment would fund drilling and completion of 41,000 new wells in West Texas

From The Houston Chronicle

A new report shows that West Texas’ Permian Basin will continue to post the biggest oil production gains of any U.S. shale field in October. The Eagle Ford Shale in South Texas will also continue to grow.

The Permian Basin will need $310 billion over the next five years in order to continue to grow and potentially add 3 million barrels of oil production by 2023.

The investments would fund the drilling and completion of up to 41,000 new oil wells in the West Texas region, according to a new report by the consulting firm Arthur D. Little.

The Permian, which is the top oil producing field in the United States, is producing more than 3.4 million barrels of oil a day. Growth of 3 million barrels a day by 2023 would put it near 6.5 million barrels a day, a production level above Canada, Iran and Iraq.

The Permian has faced continuing constraints on its growth as pipelines out of the region fill and companies struggle to hire enough workers for the labor-heavy jobs in the field, from drilling rigs to transport trucks.

The analysts at Arthur D. Little suggest oil and gas companies in the Permian collaborate more on their operations in order to reduce the impact on the already strained infrastructure in West Texas. They pointed to Pioneer Natural Resources’ effort to work with other companies to pool power generation resources as an example of such needed collaboration, but said more will need to be done.
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The United States will need 25,000 to 30,000 new horizontal wells each year just to hold production flat.

[ddlopata084]

A couple additional comments. Spears' brothers latest podcast (The Drilldown) had some interesting comments about the Permian situation.

They believe Permian producers will continue to drill at a higher rate - but not complete wells as they wait for the new pipes to come online, growing Permian DUCs from 3500 now to 7000 by mid-next year (Whole of US only has 8000 oil DUCs now).

They believe frack crews are going to be laid off, will be the slowest element to return (folks move to other basins) and they will be the limiting factor to Permian completions and the return of growth (more so than the pipelines) in 2H - 2019.

The one takeaway for me was - when those crews start coming back and adding to the baseline drilling and fracking (pipes can handle about 3.5 mmbbls/day now with Permian bbls/day at about 3.3M now, so 200 mbbls/day from limit), the Permian is going to need one heck of a lot of sand...

Seems like there could be a spike in sand volume in the 2H - 2019 as the frack crews return to add incremental fracks to baseline???

That's why the current oversupply of sand and poor spot market seems very temporary to me, and the discussion of contracts being broken is a too extreme worst case (HCLP has excellent contracts at good prices).

Another interesting discussion from a couple podcasts ago - if they world needs 1.5 mmbbls/day new supply next year, they believe the rest of the world can only supply about 500 mbbls/day, which means the US needs to supply 1 mmbbls/day incremental new volume!!

And we all know US production has been flat for some months (and Permian isn't going to do it, at least not in 1H19 and perhaps all of 2019), as mentioned by Dan on the board...

And another wild card, assume Colorado votes in prop 112? The final implications of that outcome could take time to reveal themselves (state legislature could modify or overturn), but it is immediately effective...

Lot of risks to the upside for oil prices...

[dan_s]

I was just discussing with one of our members that if the DJ Basin becomes "off limits" because Proposition 112 passes, it will slow U.S. oil production growth. The DJ Basin is one of the top five oil producing areas in the United States.

Regarding frac sand demand: The only way that there is a significant long-term decline in frac sand demand is if we see a significant decline in horizontal drilling. I see ZERO chance of that happening.

So what if there is a short-term increase in DUC wells. Those wells all need to be completed eventually.

We will be sending out an updated profile on Plains All American Pipeline LP (PAA) tomorrow. They are the #1 midstream company serving the Permian Basin. They are working hard to solve the takeaway capacity issue. It will be solved because there is HUGE money at stake.