• 3 minutes Shale Oil Fiasco
  • 7 minutes "Leaked" request by some Democrats that they were asking Nancy to coordinate censure instead of impeachment.
  • 12 minutes Trump's China Strategy: Death By a Thousand Paper Cuts
  • 16 minutes Global Debt Worries. How Will This End?
  • 1 hour americavchina.com (otherwise known as OilPrice).
  • 4 hours Forget The Hype, Aramco Shares May be Valued At Zero Next Year
  • 39 mins Democrats through impeachment process helped Trump go out of China deal conundrum. Now Trump can safely postpone deal till after November 2020 elections
  • 2 days Wallstreet's "acid test" for Democrat Presidential candidate to receive their financial support . . . Support "Carried Interest"
  • 19 hours Natural Gas
  • 2 days Everything you think you know about economics is WRONG!
  • 10 hours Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 5 hours POTUS Trump signs the HK Bill
  • 53 mins READ: New Record Conoco Eagleford Vintage 5 wells, their 5th generation test wells . . . Shale going bust . . . LAUGHABLE
  • 47 mins Iraq war and Possible Lies
  • 1 day 2nd Annual Great Oil Price Prediction Challenge of 2019
  • 1 day Winter Storms Hitting Continental US
  • 23 hours Aramco Raises $25.6B in World's Biggest IPO
  • 15 hours My interview on PDVSA Petrocaribe and corruption
Alt Text

The Danger Of Deeper OPEC+ Cuts

Oil prices jumped as OPEC…

Alt Text

Iran: We Won’t Agree To Any Production Cuts In The Future

Iranian Oil Minister Bijan Zanganeh…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Frac Sand Shortage Threatens Shale Boom

Higher drilling costs could threaten the recent surge in United States shale production. 

Halliburton said last week that its earnings could be negatively impacted because of bottlenecks related to the supply of frac sand used in shale drilling. The Wall Street Journal reported that Halliburton’s shares were briefly halted on February 15 after Halliburton’s CFO Chris Weber told an audience at the Credit Suisse Energy Summit that the company’s first quarter earnings could take a hit by a whopping 10 cents per share.

The reason, he said, was because of delays by Canadian rail companies that would slow the delivery of frac sand. Halliburton saw its shares drop by more than 2 percent on a day that saw broader gains to the S&P 500.

Frac sand is integral to growing shale production, increasingly so these days with more and more sand pumped down into a well. Shale drillers have credited the heavy doses of sand with squeezing out more oil and gas from the average well. Demand for frac sand surged from 34 million tons in 2012 to 61.5 million tons in 2014. Consumption fell in the ensuing years as drilling dried up when oil prices collapsed, but frac sand consumption surpassed previous highs in 2017 as drilling resoundingly came back. Related: Oil Prices Diverge On Mixed Data

In 2018, frac sand demand is expected to top 100 million tons, according to Rystad Energy. “Right now, the market is really stretched thin,” says Thomas Jacob, a senior analyst at IHS Markit, told the FT in December. “Everyone is running at full capacity.”

Much of the frac sand has come from places like Wisconsin, which produces “northern white sand” that is hard and round, helping to create porous fractures in shale wells. It is high quality, but expensive, particularly because it has to be shipped by rail to Texas shale fields. The FT reported that frac sand could cost $120 per short ton on at the Texas well head in 2017, essentially triple what it costs at the mine in the northern U.S.

That led to new investment in frac sand mining in Texas, where “brown sand” could be produced. The quality was not as good, with finer grains, but Texas brown sand could cost a third less than its northern cousin, and it is located much closer to drilling operations.

But as the mines in Texas are still in the process of coming online, the U.S. shale industry’s dependence on far away suppliers continues. And because drilling is ramping up, and the average shale driller is using more proppant than ever before, sand supplies are feeling the strain.

“During the fourth quarter, we also saw cost inflation in sand and trucking. The price of sand escalated over the last few months of 2017,” Jeff Miller, Halliburton’s President and CEO, told investors on an earnings call in January. “[B]ut I believe that increasing sand capacity, particularly from localized mines combined with our supply chain strategy will reduce the cost throughout 2018.”

He went on to try to reassure investors. “Now, these headwinds were anticipated, are transitory, and are not a surprise at this point in the cycle,” Miller said. Related: U.S. Crude Exports Hit A Major Milestone

The effects could wear off as new mines startup close to the action in the Permian. “We're using local sand with a few customers in the Permian and I believe this will become an increasing trend as additional capacity is activated. Therefore, sand cost should go down in 2018 as regional sand mines come on line and capacity is increased,” Halliburton’s CEO Jeff Miller said last month. “This will not happen overnight, but we are working with our customers and suppliers to ensure that we can provide desired profit at a reasonable cost.”

In the meantime, drilling operations could face some obstacles. The WSJ reported that Evercore ISI warned in a research note that “customer frustration is rampant given the impact to production. Most other pressure pumpers will likely see similar headwinds, further hampered by the cold weather Texas experienced in January.” Canadian National Railway Co. said that it halted all new frac-sand shipments for a week in Minnesota and Wisconsin during some brutally cold winter weather

It will be a while before the impact on oil production, if any, becomes clear. But Halliburton’s warnings indicate some near-term problems for shale drillers.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment
  • ziggy on February 20 2018 said:
    Well so much for that 1 million B of O out of the permian...looks like the price of oils going higher
  • Paul on February 22 2018 said:
    Maybe the drillers need an excuse to claw back production so they can sell for a higher price in the future? Why not take a page out of the OPEC playbook?

    With the bills set on auto-pay and the inventory of drilled but uncompleted wells sitting here as an eventual cash machine or bailout fund, some discretion is afforded US producers that is not maintained by others.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play