Halliburton touts chemical proppants as sand per well falls for first time
Halliburton, the biggest provider of services to the US shale drilling industry, said it saw its sand usage per well decline in the second quarter for the first time as it sought to be more strategic with the resources amid rising prices. The company instead has been investing in the quality of the chemicals it uses in the fracking process. The amount of sand per well has surged in recent years as they grow deeper and longer and more sand is pumped per foot. Analysts said that the decline is probably temporary and may reflect a shortage of sand.
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Texas oil is booming, and so are the numbers of sand mines needed to keep fracking the wells.

Ohio-based Fairmount Santrol announced it will build yet another sand mine in the Permian Basin to churn out more Texas sand to pump into West Texas wells to crack open the shale rock and release the crude oil through hydraulic fracturing.

The continually growing number of Texas mines comes as the amount of sand per well has surged because of deeper and longer wells, as well as more sand pumped per foot. The largest 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 as just as U.S. fracking leader Halliburton said it saw its sand usage decline in the second quarter for the first time. With sand costs rising and availability temporarily limited, Halliburton was more strategic with its sand use for its customers.

Energy analysts, however, said the data points to sand rates per well growing, even if the pace has slowed. Halliburton buys its sand and produces its own injection chemicals, so Halliburton stands to financially benefit by touting chemicals and downplaying sand.

"It's not free," Halliburton CEO Jeff Miller said of sand.

Miller said escalating sand prices are pushing Halliburton to maximize science - the injection chemicals - and become more strategic, as opposed to blindly blasting more sand.

However, energy analysts James West, of Evercore ISI in New York, said Halliburton's decline is more a temporary 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 the Halliburton commentary is more of a "hiccup" than a trend. Still, Miller's comments caused the stock values of sand producers to plummet Monday, and there is the concern of sand miners overcompensating and opening up too much new sand capacity in the next year or so.

"While we do think that proppant intensity growth rates are slowing and will eventually top out, we also believe we are still a decent ways away from that phenomenon," Narra noted, remaining relatively bullish on sand.

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 has increasingly led more companies to build more Texas sand mines 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. Also, the Texas sand 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 Texas' Winkler County in the Permian Basin. The reserves contain about 165 million tons of fine-grade sand. The proposed mine is expected to churn out 3 million tons of proppant sand production annually. Fairmount is planning to spend $110 million to build the mine and have it opened by mid-2018.

"The unique characteristics of this property, which include contiguous reserves of fine mesh sand, water availability and prime access to existing roads, make this an excellent opportunity for Fairmount Santrol to expand our broad product offering by providing a low-cost, in-basin solution to meet the changing requests from some of our customers," said Fairmount CEO Jenniffer Deckard.

Texas-based sand companies are growing as well. The Woodlands-based Smart Sand recently went public to help fuel its expansions. Houston-based Hi-Crush is building a mine at the former Dunes of Kermit. Fort Worth-based Emerge Energy Services 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. And out-of-state rivals U.S. Silica and Unimin Corp. also are building new Permian mines.