Oilfield markets are seeing a swift recovery in 2021, despite
the lingering effects of the Covid-19 pandemic and the threat
of tighter regulation.
Demand for oilfield minerals including barite and frac sand
has been under heavy pressure from the recent downturn in
oilfield activity. But the US onshore drilling market, which
drives demand for frac sand and SG 4.1 barite, is starting to
show green shoots after a brutal year in 2020.
Rig counts in the United States are still rising, despite
short-term weather disruptions in Texas, with the recovery in
oil prices spurring further activity.
The oilfield industry is dealing with short-term concerns,
after extreme weather hit Texas in February. The arrival of a
polar vortex in February pushed temperatures in many parts of
the state below -10 degrees Celsius, putting huge pressure on
the state’s deregulated energy grid. The knock-on
effects of this affected other utilities, including gas and
water, of particular concern to fracking operations, which rely
on large amounts of water for their procedures.
The result was a rapid drop in the number of active fracking
fleets in Texas, dealing a hard blow to sand demand. But this
issue is expected to abate in the weeks to come, with fracking
fleets coming back into operation, and the overall picture is
supported by a sustained rise in oil prices.
Oil price recovery
The price of benchmark West Texas Intermediate crude oil was
more than $62 per barrel in late February 2021, the highest in
nearly two years and up by 27% since the start of the year,
sparking a boom in oilfield activity.
This marks a full recovery from the sharp oil price slump of
2020, which was driven by the spread of Covid-19 in the US.
This briefly saw the unprecedented occurrence of negative
prices, with storage capacity in Texas filled up, and pipeline
infrastructure struggling to move oil out to American
Oilfield demand is closely tied to oil prices. The breakeven
price for fracking, which means the price at which it is
profitable to produce oil, varies widely from region to region.
But in the Permian Basin in Texas, the center of US
fracking, it is usually thought to be around $50 per
Low prices in 2020 caused a massive drop in frac sand demand
in an industry that was already struggling to absorb the large
volumes of sand being produced in Texas, meaning that prices
were already low at the start of 2020.
The effects of Covid-19 on markets also increased the rate
of US Chapter 11 bankruptcies and business restructurings
during the course of last year. Frac sand companies including
Covia Holdings Corp., Vista Proppants and Logistics LLC and
Carbo Ceramics Inc. filed for Chapter 11 bankruptcy protection,
as did exploration and production company Chesapeake Energy
Corp., one of the pioneers of the 2000s fracking boom.
Green shoots now
Oil drilling, the main driver of onshore barite and frac
sand demand in the country, is similarly recovering, although
it has yet to catch up to the levels seen before the pandemic
On February 26 this year, oilfield services company Baker
Hughes reported the number of active oil and gas drilling rigs
at 402. This is an increase of five rigs week on week, and
compares with a low of 244 in August 2020, although it is still
well down from the 796 rigs reported at the start of 2020.
In the Permian Basin, the number of active drilling rigs was
reported at 208, compared with a low of 117 in August 2020.
On January 19, Halliburton, the largest oilfield services
company active in the US fracking sector, reported North
American revenues of $1.24 billion in the fourth quarter of
2020. This was an increase from $984 million in the third
quarter, but still well down from revenues of $2.33 billion in
the last three months of 2019.
In a call with investors on January 19, Halliburton chief
executive Jeff Miller forecast rising numbers of well
completions, which include the pumping of frac sand into
drilled wells. "We expect completions activity in North America
to continue improving in the first half of 2021 with commodity
prices remaining supportive and customers completing their
backlog of [drilled but uncompleted] wells," Miller said.
"For the full year, provided that the effect of the pandemic
moderates, economic activity continues to increase, and oil
prices remain solid, I am optimistic that our customers will
sustain activity in order to hold their production plant to
2020 exit levels, with completion spend outpacing drilling,"
There are also signs of consolidation in the fracking
industry that could spur further investment in the sector.
In October 2020, ConocoPhillips announced that it would buy
rival US shale oil producer Concho Resources for $9.7 billion,
creating the largest independent oil and gas producer in the
US, with a total output of 1.5 million barrels per day.
And in September, Liberty Oilfield Services announced that
it would buy Schlumberger’s massive American
shale-oil unit. The combined company will have a market
capitalization of $1.2 billion. Its 2019 revenue would have
been $5.2 billion, making it the third-largest US oilfield
services firm by sales.
The frac sand industry is also starting to adjust to the new
improving reality. For example, in November, frac sand producer
Select Sands reported that demand for its products revived in
the third quarter of 2020. Canada-registered Select Sands sold
49,248 short tons of sand during July-September, compared with
April-May when the company made no frac sand sales, and just 73
short tons of industrial sand were sold.
Change in administration
This optimism has continued into 2021, despite a change in
the US government that many fear could bring in a less
supportive regulatory environment for fracking.
The first move by new US President Joe Biden was a change to
federal leasing policy that will have little immediate effect
on fracking operations. On January 26, he imposed a freeze on
new oil and gas leases on federally owned land.
"To the extent consistent with applicable law, the Secretary
of the Interior shall pause new oil and natural gas leases on
public lands or in offshore waters pending completion of a
comprehensive review and reconsideration of Federal oil and gas
permitting and leasing practices," an official statement
But the immediate effects of this are likely to be limited
since only 22% of US oil production takes place on public land,
and most of this is offshore production. The large majority of
onshore activity such as fracking takes place on private
In addition, the pause only affects new leases, and has no
effect on either the issuing of new permits, or the drilling of
previously permitted wells, on public land.
So while the pause somewhat limits potential areas of
expansion for the fracking industry, it does little to
undermine current operations, and huge potential exists for
growth on private land, particularly in the Permian Basin.
Other questions for the industry have yet to be answered,
such as those concerning the administrative burdens of
permitting, gas flaring, and protection of the dune
A key concern for drillers is whether the new US
administration will move to disrupt the permitting process. The
White House does not have the power to halt this entirely
without introducing legislation, but there are concerns in the
industry about the potential for permitting of new projects to
get tied up in red tape. And if the federal lease process
turned into a permanent ban through Biden’s
four-year term in office, that could push new activity
For mineral sands, this would be supportive of demand for
frac sand and 4.1SG barite, but would sharply cut US demand for
4.2SG barite, which is used in offshore fracking.
Onshore drillers will have other possible hurdles to
negotiate from the new administration, with potentially greater
effects on onshore activity.
A longstanding concern for the Texan fracking industry has
been the possibility of increased controls on natural gas
Oil extraction in the Permian Basin produces a large volume
of natural gas. Ideally, this would be captured and sold via
natural-gas pipe infrastructure. But thanks to years of
sustained growth in Texan oil production, and a shortfall of
pipe capacity, producers have instead had to burn away excess
gas through flaring, which both creates pollution and is
This flaring was less common in 2020 because oil activity
was slowed, allowing existing pipeline infrastructure to handle
the gas produced, but it is rising with the resumption of
Legislators in the state of New Mexico have already proposed
a 98% gas capture rule. A similar rule in Texas would leave oil
companies in forced inactivity while waiting for new pipeline
Another unresolved potential threat to the Permian Basin
fracking industry is protection of the dune sagebrush lizard
and its long march towards status as a federal endangered
The lizard is native to the shinnery oak scrubland of west
Texas and New Mexico, where it makes its home in the same sand
dunes where Permian Basin miners operate.
Over the past decade, there has been slow but steady
progress in attempts to have the lizard listed as an endangered
species. This would bring in strict legal controls on any
attempt to operate within its habitat, which could affect the
operations of sand miners and drillers and frackers.
In November 2020, the US Fish & Wildlife Service
announced a consultation on a plan to allow permits for some
industrial activity on dune sagebrush lizard habitat in west
Texas, including sand mining, fracking and pipe
Of particular concern for the industry is a set of dunes
near Kermit, in west Texas, which is home to many of the sand
mines that have been helping to keep frac sand prices in the
state low since 2018.
The proposed permits would protect companies legally should
lizards be harmed or killed during operations, and would remain
effective even if they were listed federally as an endangered
species. But observers wonder whether the recent departure of
Fish & Wildlife Service director Aurelia Skipwith, who was
appointed during the former presidential administration of
Donald Trump, could bring about a change in approach from the
President Biden has yet to nominate a new Fish &
Wildlife Service director, but his administration is thought
unlikely to select a candidate who is particularly receptive to
the concerns of the fracking industry.