Proppant Insights: Decoupling of Supply Chain Continues
The volatility during the quarter caused more uncertainty in the industry, even though oil stabilized near $40 at the end of Q1’16, Many now believe that “the bottom” was reached earlier this year.
In-basin Delivery Becomes Vital
The logistics of getting to the wellsite are challenging to say the least. The last mile trucking from terminal to well site is critical, especially in today’s market. Numerous frac sand suppliers and chemical supplier relayed stories of E&P’s expecting in-basin delivery of supplies in hours or as fast as possible. Fairmount Santrol expects 75% of frac sand to be sold in basin, according to investor presentations.
The “store front” model is increasing the competitiveness between the suppliers since the inventory must be on or near the well to deliver in such a short period of time. Long lead times now mean the company will lose the bid.
Market Down But Not Out
The total frac sand and proppant pumped across basins by the quarter is declining. Due to the lag in reporting the month of March is not complete and more filings are expected for the March well completions. Once additional completions are reported, we expect the quarter to be around 5 to 6 M Tons of proppant, a ~30-40% drop from the previous quarter.
Key Basins Drive Proppant Per Well Metric
Proppant per well continues to increase across most basins. Over the last two years, Permian, Eagle Ford, and Cana Woodford have the most significant increases in proppant per well.
Service & Supply Companies Must Adapt
As operators continue to revise their drilling and completion plans, service and supply companies are forced to adapt, react, and change. Operators are drilling and completing wells at current prices; however, most operators are slashing budgets, adding to the backlog of uncompleted wells (DUCs), and evaluating potential acquisitions.
Service and supply companies must be proactive and stay in front of operators to win business. Chemical and frac sand companies must deliver supplies on-demand, almost at a moment’s notice.
Drilling and completing services are decoupling with operators stressing immediacy, reliability, and safety in well operations. However, when oil and natural gas prices recover, the in-basin business model will limit the immediate sales and require additional lead time for suppliers to deliver materials.
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