The companies that provide sand for hydraulic fracturing operations are the latest casualties of shale industry cutbacks as low oil prices and demands for higher investor returns stunt drilling activity.
Two years ago, U.S. sand companies were racing to open West Texas mines to capitalize on a boom in oil and gas drilling, with more than 20 popping up across the region. That led to an oversupply that has driven down profit, which along with a drilling downturn has led some to close mines and others to consider an exit.
Demand grew by 50% in the last two years, and at its peak the U.S. sand and logistics market was worth about $12 billion a year, according to Joseph Triepke, president of consultancy Infill Thinking, but supplies grew nearly three times as much.
“If you look at Permian frack sand prices, we estimate they are down about 80% from the peak,” he added in an interview Nov. 11, noting that at least two mines in West Texas have closed.
Carbo Ceramics Inc. late on Nov. 8 issued a “going concern” warning to investors after its largest customer stopped buying its sand, sending its shares down 46% to 85 cents Nov. 11.
Its warning comes as companies that fracture wells are cutting workers and idling equipment. Services firm ProPetro Holding Corp. recently told investors it would run up to 28% fewer frack spreads this quarter, while market leader Halliburton Co. cut jobs at least twice this year and has idled equipment.
Oilfield firm Cudd Energy Services also last month warned it would cut 117 jobs in San Antonio, according to a state filing.
Carbo Ceramics did not identify the customer that halted purchases. Its 2018 annual report named oilfield services firms Keane Group, now called NexTier Oilfield Solutions Inc., and Halliburton as its two largest sand customers.
The customer loss will reduce fourth-quarter revenue by 30%, Carbo Ceramics said. The firm has launched a strategic review of its oil and gas businesses.
“The U.S. onshore oil market is very tough,” Carbo CEO Gary Kolstad told analysts on a conference call Nov. 11. He blamed in part low oil and gas prices for the industry’s downturn.
Sand executives at an industry summit this summer estimated the market was oversupplied by 15 million tons a year.
Sand provider U.S. Silica last month said it believed some “less capable” sand competitors would soon shut down, helping next year’s margins.
Devon Energy had been actively shopping the Permian Basin assets, and others in the Rockies, the past several months.
Oil major Exxon Mobil said Jan. 31 it would create three new separate E&P companies, effective April 1, in an effort to double its profit by 2025.
Devon Energy also plans to run two hydraulic fracturing crews in the second half of the year, and expects to exit 2020 with a backlog of 100 drilled-but-uncompleted wells.