More pressure-pumping supply is coming online in the first half of 2011, but the gridlock in well completions across the U.S. will meet with another problem: a shortage of proppant. Proppant holds the fractured rock open, increasing the flow of oil and gas, and the greatest use for this application is ceramic, resin-coated sand and sand.
Carbo Ceramics Inc., the leading provider of ceramic proppant, has been running full-out for several years. Brian Uhlmer, oilfield-services and -equipment analyst for Global Hunter Securities LLC, says the dry-gas rig count has peaked, “but strong demand in the growing (oily) Bakken, Eagle Ford, Granite Wash and Niobrara and more than 3,000 uncompleted wells bodes well for the company to continue to sell out capacity.”
An expansion of Carbo’s Toomsboro, Georgia, plant, adding lines 5 and 6, is likely in the works for mid-2012 already, he suspects. “Selling out new capacity is not a concern. The company has proven that it can sell essentially all that it can produce.”
Carbo’s existing 20% company-wide capacity expansion via Toomsboro lines 3 and 4 is coming online at the same time as additional pressure-pumping equipment.
In the Bakken and Eagle Ford, producers are showing a preference for ceramics, rather than sand or resin-coated sand, “and have been forced to mix resin-coated sand in with the ceramic proppant due to lack of (ceramic) product availability,” Uhlmer says.
Jeff Tillery, oilfield-services analyst for Tudor, Pickering, Holt & Co. Securities Inc., says Toomsboro’s lines 1 and 2 make 500 million pounds of proppant per year or 40% of all of Carbo’s output. Companywide output in 2010 will be some 1.5 billion pounds—twice that of 2005—and Carbo may double this during the coming five years. To reach that, six more lines at Toomsboro, lines 5 through 10, would have to be completed, he says.
“Carbo is looking at the resin-coated sand business to supplement its current operations, which constitute exclusively ceramic-proppant production, but, if this path were taken, it would probably be developed in-house rather than acquired. The resin-coating process not very complex.”
Wunderlich Securities Inc.’s research team reported in August, after EnerCom Inc.’s oil and gas investment conference in Denver, “Technology and other efficiencies have helped reduce well costs. Multiple E&P companies discussed static—to declining—well costs using new technologies and better efficiencies.
“For instance, we spoke with multiple management teams with Bakken plays that discussed the use of sand rather than ceramic proppant that costs seven to 10 times as much, and some companies are looking to use sliding-sleeve fracture completions rather than plug-and-perforate completions, as the former costs about half as much.
“We believe that, even as service costs continue to creep up in the hot oil plays, the technological gains and efficiencies should mitigate these increases.”
–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at email@example.com.
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