As U.S. shale oil activity surges, sand could be in short supply

Fri Feb 17, 2017 4:14am EST
 
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By Jarrett Renshaw

NEW YORK (Reuters) - Demand for frac sand has surged in recent weeks as U.S. producers rush back to the oil patch, stoking concern that supplies of the key component of drilling may not be able to keep up with demand later this year, industry professionals said.

The growing appetite for frac sand comes as oil producers have added hundreds of rigs in U.S. oil fields from Texas to North Dakota. Last week, the U.S. rig count hit 591, the highest since October 2015 and nearly double the figure seen seven months ago.

Raymond James predicts the number of rigs could approach 1,000 by the end of 2018.

“The worm has turned,” said Chris Keene, CEO of Rangeland Energy LLC, a privately held logistics company in Sugar Land, Texas.

U.S. producers pump frac sand and other materials into wells to break up shale rock and produce oil. Wells are getting longer and wider, requiring larger amounts of sand.

The frac sand industry was among the hardest hit during the oil rout of the past two years, as producers slashed capital budgets and looked to shed – or renegotiate – long-term supply contracts with sand companies that had been made during the boom years. Several of the major frac sand companies saw shares plummet amid investor skepticism.

But frac sand producers like Fairmount Santrol Holdings and U.S. Silica Holdings are regaining their price leverage and producers are once again looking to lock in long-term supply contracts amid widespread optimism that global oil production cuts will provide stable, higher prices.

Raymond James, in a January investor note, estimated frac sand demand would hit record levels this year at roughly 55 million tons and exceed 80 million tons by next year, 60 percent above 2014 levels, due in large part to producers requiring more sand per well.   Continued...

 
A pumpjack brings oil to the surface  in the Monterey Shale, California, April 29, 2013. REUTERS/Lucy Nicholson