Frac Sand Mega Trends

Transcription

1 Frac Sand Mega Trends Dynamic Environment Will Continue Taylor Robinson, President, PLG Consulting May 23, 2018 Forth Worth, TX 1

2 Experience // Partial List PLG TEAM Real-world, industry veterans Over 50 logistics, supply chain, market, and engineering experts Delivering value to over 200 clients since 2001 CORE EXPERTISE Bulk commodity logistics Surface transportation and logistics Energy and chemical market intelligence Investment strategy and corporate development Logistics infrastructure design SERVICES INCLUDE Supply chain design and operational improvement Market analysis & strategy Investment thesis, target identification, due diligence, posttransactional support Diagnostic assessments and supply chain optimization Independent logistics technology assessment and implementation Site selection 2

3 Our Clients // Partial List 3

4 Frac Sand Market Overview Supply is barely keeping up with growing demand in Q2 Legacy mines running at capacity now 10 new Permian mines now in production Total market demand likely topping 100mtpa in 2018 Sand pricing remains strong, still inflationary $70 WTI will drive more demand 4

5 Frac Sand Market Overview When will the new supply overtake demand? Northern White and regional capacity still remain available Permian mines will add 6-8 more mines and ramp production 2018 New Eagle Ford, Haynesville, and SCOOP/STACK mines will start production in 2018/2019 5

6 Frac Sand Growth Drivers Rising oil prices driving rising rig count and completion crews Longer laterals continue Higher sand intensity/foot followers still catching up to leaders Pad drilling with zipper fracs mass production completion growth Local sand cheaper and more abundant supply will spur higher intensity wells Growth risks Oil price drop, local sand adoption slows, last mile challenges, sand dune lizard, technology breakthroughs Average Proppant/Ft.

7 Pipelines at Capacity in the Permian Impact to Sand Growth Curve? Limited logistics alternatives Limited high-volume rail loading terminals will limit crude by rail growth Trucking growth challenged by driver shortages and no existing long haul crude network Crude production growth will be limited by bottleneck Download this PLG whitepaper at 7

8 Frac Sand Is Now A Strategic Differentiator for Shale O&G Producers Growing bottom-line impact Logistics challenges grow with volume Opportunity to more tightly control supply chain costs and performance 8

9 Frac Sand Mega Trends Transition to Local Sand E&P Direct Sourcing Last Mile Focus 9

10 The Northern White supply chain long/complex Logistics makes up about 3/4 of the total delivered cost Mining Processing Rail Load-out Long Haul Rail Transloading and Storage Trucking to Well Operating Costs = $10 - $20 / ton Freight + Railcar Leases + Fuel Surcharges + Logistics = $30 - $60 / ton Transload Facility Fees = $7 - $20 / ton Last Mile Trucking Costs = $15 - $50 / ton Northern White X X X X X X Local Sand X X X 10

11 Local Permian Sand // Cost Savings Impact in Two Waves 1 st wave (Logistics) 2 nd wave (Competition) -$50~$60/ ton Eliminate rail & transload 5k-7k x = tons Average sand per well $250k- $420k Savings range per well Reduced market pricing after adequate supply $100k+ savings/well 11

12 Local Sand Could Become Majority of Permian Supply Later in 2018 With further share and volume growth expected in

13 Local Permian Sand Development in Progress Permian Mines in Production 1. Hi-Crush 2. Aequor 3. Alpine Sand 4. Black Mountain Vest 5. High Roller 6. Vista 7. Preferred Sands Monohans 8. Black Mountain El Dorado 9. Fairmont Santrol 10. U.S. Silica Crane County Source: Baker Hughes (11/24/17), EIA, Infill Thinking, PLG Analysis, May 2018 Announced Not yet in Production 1. Unimin 2. Badger Mining 3. Atlas Energy Kermit 4. Schlumberger 5. U.S. Silica Lamesa 6. Preferred Sands Kermit 7. West Texas Sand 8. Atlas Sand #2 13

14 Local Sand Growth Not Just the Permian Permian SCOOP / STACK Eagle Ford Haynesville 14

15 Direct Sourcing Debundling Self Sourcing Producers are exercising more control of their supply chain beyond frac sand Mud Water Diesel Fuel Chemicals Other Consumables

16 Direct-Sourcing Frac Sand Not for everyone Estimated to be 1/4 to 1/3 of current frac sand market Challenges: NPT/demurrage can quickly wipe out savings Need skilled logistics experts on team it is hard work! Need to gain leadership support with investment and long-term commitment Change management Opportunities: Real cost savings potential Team can include capable 3rd party logistics providers Up-front oilfield supply chain strategy is critical to future success Leveraging new technology applications 16

17 Key Issues Impacting Frac Sand Last-Mile Local Sand Growth E&P Direct Sourcing New Entrants Offering Last-Mile Solutions OSHA Silica Dust Mandate New Equipment Innovations Trucking Industry Challenges Sand Intensity Per Well 17

18 Wellsite Storage - Conventional, Box or Silo? It depends on.. Buyer preference / commitment Safety Sand pumping velocity Well site layout OSHA silica dust compliance from June Bottom-line and capital cost impact Note Conventional systems still over 50% share

19 Trucks - Pneumatic, Flatbed or Bottom-Dump? It depends on.. Conventional or containerized solution choice (previous page) Equipment, trucking company and driver availability Bottom-line, total delivered cost impact Bottom-dump still under development especially feed system into silos

20 Permian Last-Mile Total Delivered Cost Study With good wellsite management, total last-mile cost within ~$7/ton for all lastmile solutions Poor wellsite management can wipe out savings with demurrage/npt Wellsite sand planning/execution is still a major challenge for lower level performers and it costs them! ($12/ton+ differential) * Note: Based on 100-mile haul with high volume sand including fixed and variable costs * Limited data available 20

21 Summary Tight supply now - tipping point later 2018 SERVICES INCLUDE into 2019 Local sand will be revolutionary in southern shale plays Direct sourcing trend will take time to grow not an easy transition Last-mile - still last frontier in frac sand Frac sand has been a dynamic industry and will continue to be in the future! 21

22 I Look Forward To Your Questions! Thank You! For follow up questions and information, please contact: Taylor Robinson President PLG Consulting And thanks to our friends at: +1 (508)