Increased use of sand in shale wells leads to increased production

Bloomberg/Fuel Fix:

Amid the gloom and doom that’s set in all along America’s shale fields these past two years, there has been one small, but consistent, bright spot. Sand, it turns out, is a much greater tool in hydraulic fracking than drillers had understood it to be. Time and again, they’ve found that the more grit they pour into horizontal wells — seemingly regardless of how extreme the amounts have become — the more oil comes seeping out.

The message from drillers is “more, more, more sand,” said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. “All of the numbers are going up and they’re going up dramatically.”

On a per-well basis, sand use has doubled since 2011, climbing to nearly 8 million pounds, according to consulting firm IHS Inc. It’s this growth that’s caused the stock prices of the country’s four publicly traded sand miners to more than double this year. True, overall sand usage in the fracking industry is still way down from the 2014 peak — more than three-quarters of America’s drilling rigs, after all, have been idled since oil prices collapsed — but the per-well increases have analysts and investors betting that the sand industry will boom again as soon as fracking activity starts to pick up even a little bit.

That moment may seem far off right now as crude prices careen again — they’re down 20 percent since briefly touching $51 a barrel in early June — but oil-service giants Schlumberger Ltd. and Halliburton Co. have both seen enough positive signs on the ground to declare in recent weeks that the industry has bottomed out. And if prices were to resume their rebound and just manage to climb above $60 a barrel, some 40 percent below pre-crash levels, analysts at Jefferies Group and Bloomberg Intelligence predict that total sand demand will soar past 2014’s record 64 million tons in as little as two years.
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Another thing they’ve discovered during the downturn is that the extra money they had been shelling out for white sand shipped in from Wisconsin and Minnesota, instead of the brown sand found in the Southwest, may not have been worth it. While white sand is stronger, brown sand — which can run as much as 25 percent cheaper at about $60 a ton — has proved to be equally capable of maintaining cracks open.
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The transportation cost on the more local sand can be significant savings also.  It also provides another opportunity for Texas jobs during the downturn.

The increased production from the use of more sand presents another problem for OPEC and its ability to manipulate the markets.