Rock Products

OCT 2012

Rock Products is the aggregates industry's leading source for market analysis and technology solutions, delivering critical content focusing on aggregates-processing equipment; operational efficiencies; management best practices; comprehensive market

Issue link: https://rock.epubxp.com/i/88019

Contents of this Issue

Navigation

Page 16 of 59

ing allows for a larger number of fractures to be created at specific locations within a single wellbore. Where fractur‐ ing jobs usually included two or three stages, they can now include up to a few dozen stages. Although it is expected that the number of stages per fracturing job will continue to grow, it is anticipated that this growth will be slower than the pace seen in the past several years. Meeting Demand an Issue Hi‐Crush Partners L.P., a Wisconsin producer of frac sand, kicked off an Initial Public Offering (IPO) on August 16. The company, in its prospectus released prior to the IPO, docu‐ mented some of the supply‐line challenges the company and others like it face in the future. The company concluded, "As demand for raw frac sand has increased dramatically in recent years, the supply of raw frac sand has failed to keep pace, resulting in a supply‐de‐ mand disparity. While a number of existing and new com‐ petitors have announced supply expansions and greenfield projects, we do not expect the magnitude of these expan‐ sions to meet expected demand." The company noted that there are several key constraints to increasing raw frac sand production on an industry‐wide basis, including: ■ The difficulty of finding frac sand reserves that meet API specifications. ■ The difficulty of securing contiguous frac sand reserves large enough to justify the capital investment required to develop a processing facility. ■ The challenges of identifying reserves with the above characteristics that either are located in close proximity to oil and natural gas reservoirs or have rail access needed for low‐cost transportation to major shale basins. ■ The hurdles to securing mining, production, water, air, refuse and other federal, state and local operating permits from the proper authorities. ■ Local opposition to development of facilities, especially those that require the use of on‐road transportation, including moratoria on raw frac sand facilities in multiple counties in Wisconsin that hold potential sand reserves. ■ The long lead time required to design and construct sand processing facilities that can efficiently process large quantities of high quality frac sand. The Over-Supply Rumor The buzz among some people analyzing the frac sand mar‐ ket is that the industry is about to become over‐supplied. "An over‐supplied commodity will price to a level that re‐ duces supply enough to balance the market by forcing pro‐ ducers out of business. While we have not come across a frac sand project with cash operating costs north of $35 per ton, we consider that to be a reasonable base‐case level for where pricing will return to in the coming quarters. www.rockproducts.com This would represent a decline of more than 50 percent from current levels," said one analyst, writing on the web‐ site SeekingAlpha.com. Other analysts disagree. Sara Joyce, of Badger Mining Corp., concludes in her presentation "What is Happening with Sand Supply," that: ■ High frac sand demand will continue. ■ Average frac sand prices remain well above other industrial users. ■ Suppliers are diverting capacity to frac sand. ■ Suppliers are adjusting their processes to create more frac sand. ■ New capacity coming on line will be dedicated entirely to frac sand. This is not to say there will not be issues with frac sand mining. According to Joyce, issues facing current and future plants include: ■ Capitalization. ■ Permitting. ■ Meeting quality/specification requirements. ■ Public backlash due to environmental concerns, damage to local infrastructure and hours of operation. What does this mean for aggregates producers? It means if you have the right deposit and the right equipment – and most importantly, the transportation logistics to get the product to the key markets where it is being used – you will have a viable and profitable product line for a long time, and one that is not tied to construction or federal in‐ frastructure spending. E Where is Frac Sand Needed? Hydraulic fracturing is one of the key methods of extracting unconventional oil and gas resources. According to the International Energy Agency, the remaining technically recoverable resources of shale gas in the United States are estimated to amount to 7.3 quadrillion cu. ft., tight gas to 2.7 quadrillion cu. ft., and coal bed methane to 1.7 quadrillion cu. ft. So where are the main deposits of shale gas where hydraulic fracturing is being used? ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Antrim Shale, Michigan. Barnett Shale, Texas. Caney Shale, Oklahoma. Conesauga Shale, Alabama. Fayetteville Shale, Arkansas. Floyd Shale, Alabama. Gothic Shale, Colorado. Haynesville Shale, Louisiana. New Albany Shale, Illinois Basin. Pearsall Shale, Texas. Chattanooga and Ohio Shales. Marcellus Shale, Pennsylvania. Utica Shale, New York. ■ Woodford Shale, Oklahoma. ROCKproducts • OCTOBER 2012 15

Articles in this issue

Links on this page

Archives of this issue

view archives of Rock Products - OCT 2012