Exploration

Frac sand mines to open

A surge in demand for frac sand brought a wave of company announcements this year of plans to build sand mines in West Texas. But the effects of the frac sand mining boom won’t likely become clear until 2018.

So far, just three sand mines have opened. But another six mines are scheduled to open in the next two months, bringing with them a demand for workers and concentrated local impacts such as heavy truck traffic.

The availability of the local sand could lower the cost of bringing oil wells into production and support more crude flowing from the region. But the advent of locally sourced sand is not without uncertainty.

The oil industry research firm Infill Thinking now tracks a total of 16 companies that have announced 23 mining sites.

“It’s been the year of announcements and the beginning of construction,” said Joseph Triepke, the founder of Infill Thinking. “We really haven’t seen a whole lot of trucks coming out of the gate yet, but that’s coming.”

The local sand is of a finer grade than traditional Midwestern supplies, and questions remain about how using the Permian Basin sand will affect wells in the long term. But the sand mining boom follows finding by oil companies that the more fine-grade sand is pumped down a well, the more oil it produces.

The mines are water intensive. There are renewed fears of an endangered listing of the dunes sagebrush lizard, with a unique habitat in the shinnery oak among the dunes.

And there are questions about whether all the mines will all come online and produce what the companies behind them say they will.

One of the biggest constraints could be finding enough truck drivers to haul the sand, Triepke said. The mines will also compete for local workers.

Two of the mines that opened this year are north of Kermit. Those mines, opened by Hi-Crush and Alpine Silica, each have a capacity of about 3 million tons of sand per year. The third mine that opened belongs to Aequor in Culberson County, with a capacity of about 2.5 million tons of sand per year that the company may expand.

Companies set to open mines in the coming months include Black Mountain Sand, which plans to open its first sand mine capable of producing 4 million tons of sand per year in January. Black Mountain plans to open another one in February. Both are in Winkler County.

Preferred Sands plans to open a plant capable of producing 3.3 million tons of frac sand per year around the southwestern border of Ector County near the Monahans Sandhills State Park.

U.S. Silica is expected to open a plant capable of producing 4 million tons of sand per year in Crane County.

Hi Roller will open another plant of about the same size near Kermit.

And, also in Winkler County, Vista Sand will open its sand mine capable of producing about 3 million tons per year.

In October, Halliburton’s area vice president for the Permian Basin Chris Gatjanis said the local sand mines could slash sand costs by about 40 percent through savings on transportation, lowering the breakeven cost of an oil well.

Many companies have said they are experimenting with it.

Last month, executives of Centennial Resource Development told investors that they had entered into a contract for local sand that expected to account for half of the supply pumped into wells belonging to the Permian Basin-focused independent oil company over the next three years, saving 5 to 10 percent on total well costs.

Two wells fracked with the Permian Basin sand outperformed other wells in terms of initial production.

“We are pleased with these results, as they are in line with our offset production, while realizing significant cost savings,” Chief Operating Officer Sean Smith said in a Nov. 7 earnings call. “With continued success, we expect to utilize in-basin sand on approximately half of our operated wells in 2018.”

SOURCE: OAOA.com By Corey Paul

Compiled and Published by GIB KNIGHT

Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of OklahomaMinerals.com, an online resource designed for mineral owners in Oklahoma.

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