North American shale is not going away, and neither is the sand used to fracture it. But the way massive amounts of proppant make it to the blender is changing dramatically, along with well economics.
The U.S. is the world’s largest producer of oil and gas and is on pace to become a net energy exporter. That is the result of a game-changing surge of horizontal wells drilled to produce unconventional resources. In 2018 the U.S. Energy Information Administration (EIA) said long lateral wells in tight formations accounted for 96% of U.S. crude production and 97% of natural gas production.
Frac sand plays a key role in well economics. Proppant was 14% of the cost of drilling and completing a typical U.S. onshore well in 2016, according to the EIA. Combined, frac pumps and equipment (24%), completion fluids and flowback costs (12%), and proppant accounted for 50% of the total well costs. As of August 2019, U.S. land average completion costs now account for about 59% of total well costs, according to Rystad Energy.
The volume and cost of proppant are reinventing traditional service and logistics models and driving integration across the full supply chain. To control more of the value chain, enhance communications and manage costs, companies are taking on new roles and building in-house expertise or choosing select collaborative partners.
Efficient sand delivery is a massive undertaking. High-intensity methods may pump 20 MMlb or more into a single well; the industry consumes more than 100 MMtons per year. Every single grain of sand must be transported from the point of supply to the well site by companies able to provide efficient and safe last-mile services and wellsite storage.
The last mile is a complex process with many interdependent parts. It must orchestrate many variables that affect hydraulic fracturing efficiency, execution and safety, from proppant size and volume required by the frac design to road conditions and wellsite footprint. Delivering proppant to the well site, and ultimately to the blender, requires the application of technology and skillful execution as well as close attention to a host of safety factors, from OSHA-regulated silica dust to noise and traffic congestion.
The efficiency, reliability, safety and technology required to address these challenges are best achieved through fully integrated mine-to-wellsite frac sand production, delivery and inventory management. This integration is required to develop and apply the technologies and expertise necessary for creating greater efficiency, flexibility, safety and reliability, and therefore, better frac economics.
These capabilities provide new and much-needed options for large and small operators and pressure pumping companies. The integrated proppant supply chain is increasingly important as large producers form a greater share of market activity and employ mass manufacturing techniques and assembly line completions.
Integrated last-mile offerings are resulting in new technologies and logistics capabilities that are improving well economics. Working with the full scope of the process provides new insights and opportunities to create efficiencies, reliability and safety through a focus on specific customer requirements.
Hi-Crush’s recent operational reorganization into distinct business units reflects an evolving capability across proppant logistics, equipment sales and rental, frac sand supply and IT. These changes are crucial to addressing the primary focus—lower delivered cost per ton into the blender—of E&P and service companies. These distinct business units are coordinated in an integrated proppant supply chain as a strategic response to drive improvements in customers’ well economics.
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