Oilfield minerals: A year in review

Published: Wednesday, 27 December 2017

Frac sand demand rises and both drilling and sand intensity increase, leading drive to the Permian.

After an extremely bearish two years in the oilfield minerals markets – defined here as the group of minerals that find their main use in the oilfield services industry, chiefly in drilling oil wells or in extracting shale gas through hydraulic fracturing (fracking) – things started to look up in 2017.

The recovering oil price meant that the US was interested in fracking once again and US frac sand demand was forecast to rise to at least 70 million short tons in 2017, compared to 34 million tons in 2016.

However, as the oil price did not recover by a significant amount, it was indisputably a race to the bottom for frac sand producers this year, as demand grew for cheap, basin frac sand.

It has been a take of quantity over quality, as frackers strive to get as much sand as possible into wells.

Looking ahead, US Silica chief executive officer Bryan Shin forecast a continued rise in US frac sand demand, to as much as 90 million short tons in 2018 thanks to "continuing improvement in North American well economics, partially driven by greater proppant usage."

Basin sand rush

Investments were made by several leading sand producers in new frac sand mines. The most notable examples were those in the Permian basin, where Hi Crush Partners LP, US Silica and Unimin Corp pushed for new capacity in the Texas play, after oilfield activity in the state boomed.

The Permian basin is attractive because of its proximity to the massive oil and gas fields in Texas. More than two thirds of the cost of delivered frac sand from Wisconsin, the traditional heartland of sand production, to a Texas wellhead consists in freight cost.

In-basin production has the potential to reduce freight costs, delivering a more competitive product at a time when margins are shaved paper thin due to low oil prices.

In February, Hi-Crush paid $275 million for Permian Basin Sand Co, and its 3 million short tons per year capacity.

This was followed in June by US Silica announcing a $225 million investment, to establish 4 million short tpy of capacity in the basin. In September, the company added another acquisition to the list, when it announced it would build a second frac sand mine in the Permian basin.

The mine is expected to have capacity of some 2.6 million short tpy, with production commencing in March 2018. 

Frac Sand 17 

At this year’s IM Frac Sand 2017 Conference, in Denver, US, delegates heard how ceramic proppants were "dead in the water" as raw sand wins out.

"It’s clear, the data is in: today raw sand is the choice," Joel Schneyer, managing director at banking services provider Headwater MB, told attendees.

One attendee told Industrial Minerals that ceramics were still being used in fracking, but only as a way of clearing stocks accumulated by the industry when demand was expected to be higher.

Elsewhere, new US regulations on dust exposure for workers are opening up opportunities for equipment and sand producers servicing the fracking industry, delegates heard. Regulation on silica dust exposure for workers came into force in September for construction companies.

Elsewhere in the world

While frac sand opportunities were clear in the US, elsewhere the picture was more muted.

This was true not just of frac sand markets but of the overall gas and oil market. The Baker Hughes Rig Count, released every month, showed that while activity was creeping up in the US, it was stagnating in other parts of the world. 

In January, a new study published by trade body UK Onshore Oil and Gas (UKOOG) showed that the development of 400 well pads in the UK could reduce its dependency on gas imports by 50% with a limited impact on countryside areas. 

However, this did not translate into public support or more wells being taken on. In fact, sentiment around fracking was cool in 2017 – a survey* undertaken by the Business and Energy Department revealed that public support in the UK for fracking had fallen to 16%, from 21% in the previous year.

Also, at the beginning of the year, the Scottish government launched a public consultation on the extraction of unconventional oil and gas in the country.

Scotland placed a moratorium on hydraulic fracturing (fracking) in January 2015, while the government investigated the potential impacts of the practice.

Over the year, the Scottish government carried out a comprehensive period of evidence gathering, public engagement, and dialogue on the issue.  This culminated with a four-month public consultation, "Talking 'Fracking’", which closed on 31 May and received over 60,000 responses.

On October 3, 2017, in response to the publication of the consultation responses, the Minister for Business Innovation and Energy made a statement to the Scottish Parliament on the future of unconventional oil and gas.  

The statement set out that the Scottish government does not support the development of unconventional oil and gas in Scotland.

Indeed, in August, BHP warned that fracking opportunities "do not exist" outside the US.

The comments were made as the Anglo-Australian mining giant put its shale oil business up for sale just six years after it made a surprise entrance to the sector.

Speaking to investors, BHP boss Andrew Mackenzie suggested that the $20 billion investments made back in 2011 had been overambitious.

"The shale acquisitions were poorly timed," Mackenzie said. "We paid too much and the rapid pace of early development was not optimal."

*2,000 people polled

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