Halliburton sand warning is going against the grain
Texas oil is booming, and so are the sand mines needed for fracking the wells. But hydraulic fracturing leader Halliburton is warning that its surging sand use is finally topping out, and maybe even falling.
Fairmount Santrol, an Ohio company, announced this week it will build yet another sand mine in the Permian Basin to churn out more Texas sand, which is mixed with water and chemicals to crack open the shale rock and release the crude oil. With several new mines proposed, frac sand production Texas could more than double within two years, adding about 30 million tons annually.
As drillers have pushed to become more efficient in producing oil, wells have become deeper and longer, and the amount of sand used to frac each well has surged. The larg-
est wells now consume up to 25,000 tons — 50 million pounds — of sand each, up from 1,500 tons, or about 3 million pounds, just a few years ago.
Still, Fairmount Santrol’s news comes just as Halliburton said it saw its sand usage per well decline in the second quarter for the first time. With sand costs rising and availability temporarily limited, Halliburton is developing injection chemicals that can help increase the oil flow from wells as opposed to simply blasting more sand.
“Sand is not infinite, and it’s not free,” Halliburton CEO Jeff Miller said.
Energy analysts, however, said the data still points to the amount of sand used per well growing, even if the pace has slowed. Halliburton buys its sand and produces its own injection chemicals, so the company stands to financially benefit by touting chemicals and downplaying sand, analysts said.
Jamees West, an energy analyst at Evercore ISI in New York, said Halliburton’s decline in sand use is more a blip reflected by temporary sand shortages before new mines open up.
“You’re still seeing increased amounts of sand being consumed overall,” West said.
Raymond James energy analyst Praveen Narra agreed that Halliburton’s reduction in sand is more of a hiccup than a trend. While sand usage eventually will peak, the industry is “still a decent ways away from that phenomenon,” Narra added.
Still, Miller’s comments caused the stock values of sand producers to plummet Monday as concern grows that new sand production is coming online. Fairmount Santrol’s stock fell by nearly 15 percent on Monday before rebounding a little on Tuesday.
Fairmount’s stock has plunged 80 percent from its January peak of nearly $13 a share to a closing price Tuesday of $2.70 per share.
Most frac sand has historically come from the fine-grain “northern white” sand from Wisconsin and Minnesota, but the rapidly growing demand and longer travel distance have pushed companies to build more sand mines in Texas to serve the booming Permian Basin. The Texas brown sand isn’t of quite as high a quality, but proponents argue it’s not far off. The Texas sand also is cheaper and much closer.
As for Fairmount Santrol’s latest project, the company signed a 40-year lease to open a mine on 3,250 acres of sand reserves near Kermit in Winkler County in the Permian Basin. The mine has reserves of about 165 million tons of fine-grade sand. The proposed mine is expected to churn out 3 million tons of sand annually. Fairmount is planning to spend $110 million to build the mine and have it opened by mid2018.
Texas sand companies are growing as well. Smart Sand, of The Woodlands, recently went public to help fuel its expansions. Houston-based Hi-Crush Partners is building a mine at the former Dunes of Kermit. Emerge Energy Services, a Fort Worth company, bought a recreational mine south of San Antonio that sells sand to golf courses that it will transform into a much larger frac sand mine operation.
A project by Pennsylvaniabased Preferred Sands is moving the location of another proposed mine outside of San Antonio because of environmental and truck traffic concerns, but the mine is still moving forward. U.S. Silica, of Maryland, and Unimin Corp., of Connecticut, also are building Permian mines.