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  • Roger S. Conrad

Bucking Tradition

By Elliott H. Gue on May. 31, 2013

Two varietals of API-grade sand have moved to the fore: Northern White and Brady Brown.

Producers consider Northern White the superior proppant and have traditionally paid a higher price for this varietal. The premium Northern White sand that Hi-Crush Partners produces can withstand between 9,000 and 12,000 pounds per square inch (psi) of pressure and is generally more uniform in size than API specifications require.

Resin-coated sand improves the crush resistance of the raw material to up to 15,000 psi–the coating helps individual grains bond together–but this enhanced proppant also costs five to 10 times more than plain-old Northern White. 

A manufactured product, ceramic proppant exhibits crush resistance of up to 20,000 psi but fetches a price that’s 10 to 15 times the cost of an equivalent amount of Northern White sand.

Shares of CARBO Ceramics–one of the most heavily shorted stocks on the New York Stock Exchange and a name that we’ve long advised investors to avoid–have tumbled from a high of roughly $180.00 in mid-2011 to less than $70.00 today.

The reason for CARBO Ceramic’s prolonged slide: Oil and gas producers increasingly prefer the raw sand produced Hi-Crush Partners and US Silica (NYSE: SLCA) in many of the hottest US shale plays.

For example, upstream operator Pioneer Natural Resources (NYSE: PXD) has focused on reducing well costs and optimizing drilling efficiency to maximize returns on production in the Eagle Ford Shale, a liquids-rich play in southern Texas. This passage from the upstream operator’s most recent 10-Q filing notes that the firm has reduced its use of ceramic proppant in favor of Northern White sand with little concession to well performance:

The Company’s drilling activities in the South Texas area during 2013 continue to be primarily focused on delineation and development of Pioneer’s substantial acreage position in the Eagle Ford Shale play. The 2013 drilling program has been focused on liquids-rich drilling, with only 10 percent of the wells designated to hold strategic dry gas acreage.

The Company completed 37 horizontal Eagle Ford Shale wells during the first three months of 2013, all of which were successful, with average lateral lengths of approximately 5,100 feet and, on average, 13-stage fracture stimulations. The Company plans to incur $575 million of drilling capital and utilize 10 drilling rigs in 2013 to drill approximately 130 Eagle Ford Shale wells. The Company plans to primarily use two Pioneer-owned fracture stimulation fleets during 2013 in the Eagle Ford Shale area.

The Company’s drilling operations in the Eagle Ford Shale continue to have a focus on efficiencies. The number of wells drilled from pads, as opposed to single-well locations, is expected to increase from about 45 percent of the Eagle Ford Shale wells during 2012 to about 80 percent in 2013, reflecting that most of the Company’s acreage is now held by production. Pad drilling saves the Company a significant amount of capital costs per well, as compared to single-well location drilling.

The Company has been using lower-cost white sand instead of ceramic proppant to fracture stimulate wells drilled in shallower areas of the field. The Company is expanding the use of white sand proppant to deeper areas of the field to further define its performance limits. Early well performance has been similar to direct offset ceramic-stimulated wells. The Company fracture stimulated 22 wells with white sand proppant in the first quarter of 2013, with significant capital savings per well. The Company is continuing to monitor the performance of these wells and expects that greater than 70 percent of its 2013 drilling program will use lower-cost white sand proppant.

Pioneer Natural Resources isn’t the only major producer that’s slashed well costs by reducing its use of ceramic proppant in favor or raw Northern White sand. 


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    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor