At the start of 2016, some timid indicators suggested that a
degree of improvement in oil prices, however feeble, may be in
the offing, although it is too early to guess how this may
reflect on oilfield mineral businesses.
Since June 2014, Brent crude – the main
international benchmark for oil commodities – lost
over half of its value and hit price levels that had not been
seen for some 15 years. The downtrend quickly infected mineral
markets correlated with oil extraction activities. Sluggish
demand and price pressures were seen in silica (frac) sand and
ceramic proppants, as well as in barite, while bentonite was
In a pricing rollercoaster ride, Brent crude stalled at some
$115/barrel (bbl), then fell to $50/bbl in January 2015,
subsequently dropping further to below $30/bbl in January this
year. In the first six months of 2016, the price has gradually
edged up and remained stable for some weeks at around $50/bbl,
prompting cautious hopes on the part of operators.
The index was abruptly hit by panic following the
UK’s referendum, which resulted in a vote to leave
the European Union (EU) – an outcome that sent
shockwaves through the global stock markets and Brent dipped
once again to below $50/bbl, closing at the time of writing at
The oil price decline has been attributed to a number of
factors that converged to limit demand while supply continued
Large emerging markets such as China, which consumes a lot
of oil, reduced demand as economic growth slowed. In parallel,
other Asian countries began cutting energy subsidies, leading
to higher fuel costs and decelerating consumption growth, as
seen in India with the reduction of diesel subsidies.
In Europe, sluggish economic activity led to a slowdown in
manufacturing and consumer purchasing power, once again
reducing demand for oil.
Hydraulic fracturing (fracking) operations expanded in North
America, taking hold between 2010 and 2014. This progressively
curtailed US imports of crude from abroad, which shrank from
some 9.4m barrels per day (bpd) in 2010, down to 4.7m bpd last
year – a decline of 51%.
On the supply side, production from Libya – an
important supplier to southern Europe – increased
following a few years of disruptions during the Arab
More significantly, the Organization of the Petroleum
Exporting Countries (OPEC), which represents the largest
exporters of the commodity, did not act swiftly to counteract
global oversupply and OPEC output remained unchanged at over
Brent crude oil price
Refusing to cut output as prices went through the floor was
part of OPEC’s strategy to maintain market share
in the face of an expanding US fracking industry.
However, this price war was not without its victims among
some of the more vulnerable OPEC members. In Venezuela for
example, revenues from oil exports make up over 50% of the
country’s GDP and the fall of crude prices
liquefied its main source of income, triggering skyrocketing
The pattern of the global rig count – a regular
census of the number of rigs active in producing countries, put
together by oilfield service provider Baker Hughes Inc.
– makes for disheartening viewing, particularly for
operators left completely exposed to the oil price
It took a decade for the rig count to reach its 2014 peak
– a steady climb that brought it from below 2,400
sites active in December 2004 to close to 3,600 sites 10 years
later (+49%), with a significant slowdown only seen in 2009/10
at the height of the financial crisis. Nevertheless, in the
course of the last year alone, the rig count slumped to 2,337
in December, lower than in both 2008 and 2004.
Oilfield service providers
Some of the casualties of the oil price decline were
oilfield service providers, which offer services such as
evaluation, drilling, construction, assembly and maintenance.
With oil and gas commodities as their core – and
sometimes only – revenue source, oilfield services
firms could not escape the downturn.
"It’s been devastating," Brian Teutsch, product
line manager at Baker Hughes, told IM.
This is not an overstatement. The North American oilfield
services provider closed 2015 with a $2bn net loss,
compared with a net income of $1.7bn the year before. US-based
Halliburton Corp., one of the world’s largest
oilfield service providers, meanwhile reported a deepening of
its net loss to $2.42bn in the first quarter of 2016, compared
with a loss of $641m for the same period the previous year, as
a result of prolonged negative market conditions.
Teutsch told IM that oilfield service
companies were forced to kick-start "a process to reevaluate
the status quo", shrink in size where possible, innovate and
generally lose weight. This translated into high profile
lay-offs, cost-cutting programmes and capacity scale-downs.
Drilling activity – and demand for its associated
services – was impacted right away, as investments
were cancelled overnight for work that had yet to start or was
Production took longer to feel the impact of lower prices,
and was less affected overall. As funding dried up for new
projects, operators tried to maximise output from the fewer
rigs that remained in operation.
To counteract the weak market conditions, Halliburton and
Baker Hughes entered into merger discussions in November 2014,
however the deal was scrapped earlier this year as the two
parties failed to secure approval from antitrust
Proppants: frac sand and ceramic
Used in fracking operations, proppants are injected with
fracking fluid down horizontal wells and prop open fissures
created during the fracturing of the rock, allowing for shale
oil or gas to be extracted.
Frac sand, resin-coated sands and ceramic proppants are the
three main types of proppant on the market and have witnessed a
rapid increase in demand leading up to 2014, as fracking took
hold. This was particularly accentuated in North America, which
decisively embraced fracking as other regions, like Europe,
resisted the practice.
|Frac sand (above) is a more
affordable proppant choice than ceramic proppants
(Source: Fairmount Santrol)
In terms of cost, frac sand is the most affordable proppant
available. Ceramic proppants, which are made from bauxite,
kaolin or a blend of both, command a premium price. However, as
exploration and production (E&P) companies became more
confident in their approach and drilled deeper wells, ceramic
proppant market share began to grow.
The situation changed as oil prices headed down and the
economic viability of shale production decreased.
Ceramic proppants lost the market share they had previously
gained, as users switched back to cheaper frac sand. For this
reason and due the long-term nature of frac sand supply
contracts at the time, producers of frac sand continued to post
profits despite the decline in activity. While ceramic
proppants were hit instantly, the negative effect on frac
Imerys Refractory Minerals’ energy solutions
and specialities division saw a €11.7m ($13m*) decrease in
sales in Q1 2016, down 3.7% y-o-y, as a result of weakness in
ceramic proppants and steel.
Asked by IM at the time whether
the company expects a further slowdown in proppants sales, CEO
Gilles Michel said: "The market remains flat, so
we’ve adjusted our industrial tools and paired
down our structures and our costs [moving sales and marketing
resources away from proppants]."
"The knock-on effect of [the] sharp decline [in proppants
sales] last year was €24m, and this year will not exceed
that number. We’re ready for it," he added.
Ceramic proppants producer Carbo Ceramics Inc. worked to
realign its business in 2015 with muted market demand for its
products, but sales remained depressed. Carbo first reduced its
workforce in March last year and by September 2015 has started
to idle capacity. 2016 is expected to see spend on capex at
levels six times lower.
Raw and coated frac sand supplier Fairmount Santrol Holdings
Inc. reported a Q1 net loss of $11.78m, down from net income of
$30.76m for the same period the previous year, as revenues
almost halved. Despite a focus on cost cutting – its
latest staff reduction of 10% last May meant staff had been
reduced by 40% since 2015 – average proppant prices
fell 5% sequentially in the last quarter of 2015.
According to Houston-based Hi-Crush Partners LP, its average
frac sand sale price in Q4 2015 had fallen to $52/tonne, down
from $57/tonne in Q3 and $67/tonne in Q2 – a drop of
Canada also saw a decline from around 7.4m tonnes traded in
2014, frac sand volumes dropped 23% to 5.7m tonnes in 2015.
This year, demand is expected to pick up marginally, possibly
to 6.4m tonnes, according to IM sources,
although this is far from certain.
Opportunities in the decline
As with every crisis, windows of opportunities are arising
in the frac sand market, despite the present concerns.
Untimely as it may sound, Canada-based Brilliant Sands Inc.
is gearing up to establish a frac sand operation, sourcing
locally and serving the domestic market.
The idea is being well received by market participants,
Brilliant Sands’ president and CEO, Mark Andrews,
told IM: "We are receiving a large amount of
interest and enquiries."
Brilliant Sands is aiming to position itself as an
alternative supplier of frac sand for Canadian companies,
hoping to tap into the customer base so far covered by
Wisconsin-produced sand, which supplies practically the entire
Andrews said his product would compete with
Wisconsin’s, as production would be closer to the
Canadian end users, thus reducing freight costs –
which make up a significant part of the final sale price
– and as customers would buy in their own currency,
rather than using Canadian dollars to buy US dollar-priced
"There is a huge market also in North Dakota [that we could
reach], which is closer to us than to the US producers," he
Admittedly, it has become harder to secure financing for the
project, due to the tough conditions in the sector, Andrews
said. On the other hand, he added that, paradoxically it is the
tight scenario in the industry that is driving interest in
Brilliant Sands’ business idea: "Companies are
tightening their belts, trying to cut costs and are paying much
more attention towards being efficient."
While the market was booming, operators were willing to
accept offered prices without question, Andrews said. Now
companies are paying attention to smaller details.
In shallow wells, operators have started experimenting with
Tier 2 sand, which is cheaper and more readily available,
whereas Tier 1 sand was previously employed for all types of
Another notable trend is the volume of sand used per well.
While the number of wells in operation has dwindled with market
activity, the volume of sand used in operating wells has
increased. According to mining consultant Roskill, proppant
consumption rose from 5m lb/well (2,268 tonnes/well) in 2010-12
to 16m lb/well (7,258 tonnes/well) currently.
The practice of re-fracking (fracking existing wells to
extract any leftover resources) is also gathering traction as a
valuable method to keep going through hard times. This is
something that majors like Halliburton and Baker Hughes are
The bottom line is that cost-performance ratios are being
stretched to the limit.
"The longer [the market] stays this way, people will
continue to pursue efficiency," Andrews said.
Aside from its application as a filler in paper and rubber
making, and in x-ray technology, barite is used in oilfield
applications as a component of drilling muds. In the US, up to
97% of the mineral ends up in oil fields, used as a weighing
agent in drilling fluids, to cool the drill bit, carry rock
cuttings upwards and help to prevent blow-backs.
Since oil and gas is by far the core end use for barite, its
market is strictly related to the performance of fossil fuel
Global trade of the commodity peaked in 2014, when 6.79m
tonnes barite were exported globally, generating revenues of
Customs data for the same year shows the uptrend in trade
coinciding with a peak in global rig count, which hit 3,578 on
the back of strong investment in fracking operations in the US
Throughout 2014, Brent crude oil topped $116/bbl and stayed
over $80/bbl until November.
Barite exports plateaued in 2014, but in the course of a
single year, deliveries slumped back down by 29% to 4.85m
tonnes in 2015. In value terms, 2015 global trade generated
some $250m less – a drop of 25%.
By July/August 2015, oil prices plunged and the rig count
was in freefall. The correlation with barite export trends is
Global barite exports volume and
The behaviour of individual barite producing origins was
nevertheless different. China was, and still is, the largest
unrivalled producer, dwarfing second-largest exporter Morocco
and other origins such as India, Mexico, Turkey and the US.
Chinese foreign deliveries of barite have been subjected to
high volatility in recent years, following closely global
macroeconomic events. With the financial shock of 2008, Chinese
exports halved, from close to 4m tpa to 1.8m tpa. These
gradually recovered in the years leading up to 2012, once again
narrowing 3m tpa. In the last three years, more downward
volatility was seen on the Chinese export market, which had
lost another 1m tonnes by the end of 2015.
Part of the gap left by declining volumes out of China was
filled by other producers, although China still churns out as
much as three times more barite than India.
Between 2010 and 2014, India tripled its barite exports hitting
1.45m tonnes, but the increase was short-lived: in the two
years to 2015, exports lost pretty much all they had previously
In contrast with the sharp downturn in India, Morocco saw
its exports climb in 2013-14 almost in parallel as
India’s fell. As of December last year, Morocco
had settled at below 800,000 tonnes exported. The country was
also affected by the general downturn of the past year.
Movement in Mexico, Turkey and the US has been more
moderate, although the three producers did see an increase in
volumes exported, more specifically in the run-up to 2014. As
for the other origins, the slump in oil and gas of 2015
nullified any growth that had taken place with these
In terms of prices, the last 18 months saw barite quotes
declining steadily worldwide as drilling activity slowed. More
recently, IM sources said prices may have
bottomed out, and may be looking at a gradual recovery next
Drilling grade barite FOB Morocco (ground, SG 4.22, bagged)
at the end of June stood at $100-$150/tonne according to
the IM Pricing Database, while drilling
grade product FOB Chennai (unground lump, SG 4.2) was priced at
With uses as diverse as metal casting, oil well drilling,
iron ore pelletising (IOP), paper, ceramics, detergents and cat
litter, it is hard to single out patterns in the share of
bentonite used solely in oilfield applications.
In 2015, global bentonite production was estimated by the
USGS at some 16m tonnes. Metal casting and IOP account for 50%
of global consumption; a further 15% goes into cat litter, and
civil engineering takes another 10%. Drilling mud accounts for
some 10% of total output.
As regards market share, about one-third of production
originates in the US, followed by China with 20% and India with
10%. Additional notable output comes from Greece, Mexico,
Brazil, Russia, Iran, Japan and Germany, plus a myriad of minor
When it comes to exports, on the other hand, it is India and
the US that shape the world market.
Global exports of bentonite climbed over the last few years.
Between 2005-15, global trade rose by 1.5m tonnes in volume, to
last year’s 4.6m tonnes exported throughout world
Bentonite exports volume and
Growth in exports of the mineral was driven by higher demand
in oil drilling, together with increased consumption in foundry
and IOP applications.
Due to its variety of end market uses, bentonite was able to
buck the downtrend evident in other oilfield minerals, where
performance is more strictly tied to fossil fuel prices.
Over the last five years, bentonite trade peaked twice in
volume, to 4.8m tonnes in 2013 and again last year. In value
terms it performed well, staying firmly over the $600m mark
every year since 2011. The sharp decline that affected barite
in 2014-15 was notably absent in bentonite. Export values
decreased marginally, although this was due to a contraction in
prices, specifically, rather than a drop in demand (volumes
traded actually increased).
In a matter of years, India went from being a medium-sized
supplier to the largest exporter of bentonite. From a yearly
output of some 400,000 tpa (2009), Indian exports rose by 250%
to 1.4m tonnes by 2015. The growth rate was rapid and
continuous, with only a slight dip in 2014. India has taken
today the share of the market that was previously held by the
US – which was the unrivalled global supplier until
US exports followed a different trend, peaking in 2007 at
1.4m tonnes, which gave way to a subsequent decline in the
coming years. Between 2010-15, deliveries from the country were
characterised by a degree of volatility, although trade
rebounded in 2015 after two slow years.
Output from Turkey and China, respectively the third and
fourth-largest exporters of bentonite, remained overall more
stable compared with the two other origins. While Turkish
exports gradually increased in the past decade to just over
410,000 tonnes last year, Chinese shipments had a bumpier ride
and settled at 200,000-220,000 tpa in 2015.
Industrial-grade bentonite prices range from as low as
approximately $30/tonne for cat litter to $220/tonne for
foundry-grade, according to IM data,
while other specialised grades command higher prices.
During the closing months of 2015, bentonite prices for
drilling, cat litter and foundry grades remained stable on the
US market, sources told IM at the
Selling rates generally held up over the course of 2015,
staving off market weakness led by the oil price decline. Cat
litter bentonite (ex-works Wyoming) was offered at $47-58/s.ton
($52-64/tonne at the then conversion rate) and prices for
drilling (API) grade bentonite (bagged, rail car, ex-works
Wyoming) stood at $86-125/s.ton ($95-137.5/tonne) by the end of
Stabilisation on the way?
Industry operators remain cautious about the significance of
the recent uptick in oil prices on the long-term, and activity
in the oil and gas sector is unlikely to strengthen until a
sustained price increase materialises.
Most sources canvassed by IM suggested that
the strengthening of crude indexes is having more of a
psychological effect on the sector, giving the impression of a
gradual stabilisation of the market, rather than a tangible one
with actual improvement taking place on the ground.
"There has been some improvement in world pricing, but not
an increase in activity," pointed out one source. "To see some
real market uptake we’ll need to have crude stable
at over $55/barrel."
"This is not a magic moment," another contact added. "This
is a psychological increase more than a fundamental one. It
would give the market some confidence [to edge up
Although the market remains volatile, both sources agreed
that further oil price strengthening may be on the way between
now and the end of the year, gathering more force into 2017,
when activity on the ground would follow.
Operators expect oil exporting countries in the Middle East
to be the first to experience a more solid recovery, due to
their lower production cost profile. This would then give way
to progressive improvement in activity in other areas, notably
In a recent interview with the Houston
Chronicle, Khalid al-Falih, Saudi Arabia’s
new energy minister, said "the oversupply has disappeared" from
the oil market.
Baker Hughes’ Brian Teutsch is also cautiously
positive towards the rig count: "The bleeding has almost
stopped. Hopefully we’ll start seeing some plus
At the Proppants Investment Forum held in London in
April this year, delegates stated that oil prices have to be
over $60/barrel to justify the economic viability of shale
While crude markets have mainly been on the up since the
start of the year, there is still quite a way to go before
reaching – and, more importantly, maintaining
– the $60+ level.
Most industry sources speaking to IM
believe the worst might be over for oilfield mineral producers,
and that the future holds gradual improvements. This may well
be the case, but the road to recovery is likely to be slower
and more arduous than initially anticipated.
*Conversion made June 2016