Fairmount Santrol, one of the largest sand and resin-coated sand providers in the U.S. onshore, continues to see customers expand their use of proppants in each hydraulic fracturing stage, even with the downturn in the marketplace.
The market continues to evolve, and Fairmount is working with customers to make it through the abrupt pricing changes. Last year was a banner period for proppant providers, as exploration and production (E&P) companies pumped more sand than ever into fractures to improve estimated ultimate recoveries (EUR) (see Shale Daily, Nov. 12, 2014). However, as rigs have fallen, pressure pumping suppliers also have seen their fortunes decline, with many indicating an uncertain future (see Shale Daily, Jan. 27).
It is an uncertain time, CEO Jenniffer Deckard told analysts during an hour-long conference call Monday morning. She and her team discussed last year's performance and provided a bit of insight on the market today. Fairmount has cut its costs around 10% to date for E&P customers, and it's continuing to work with them, she said.
Raw sand and resin-coated proppants (RCP) still are big sellers -- by select customers in select basins, said Deckard.
"Proppant intensity is going to continue to increase, mainly driven by the continued increase in proppant per stage," she told analysts. "There's several multipliers in that proppant intensity, but that's the one that will probably continue to increase, and more strongly in some basins versus others.
"As we look at our proppant demand, we look at not only the number of rigs in a basin, but we look at the types of rigs, horizontal versus vertical. We look at the number of stages. We look at the proppant per stage. And that proppant per stage, we feel, is still going to continue to increase in 2015 in some basins more than others."
The amount of proppant used by the operators varies by basin and in plays within a basin, Decker explained. It’s not an across-the-board increase in proppants, she said. "We're seeing that some of the operators in some of the basins are expecting to have double-digit growth in proppant per stage...Some are going to be flat. Each basin is in a little bit different portion of their life cycle around proppant per stage and proppant per well."
For example, in the Permian Basin, the average use of proppant per well in 2014 "was half of what we are seeing by average leading-edge operators," she said. "If there were an average of just under 3,000 tons per well, the average leading-edge operator was placing 6,000 tons per well. And in the leading-edge experimental [well], we're placing up to 10,000 to 15,000 tons per well. So there's great room for continued growth in the proppant per well by basin."
One of the biggest onshore operators, Devon Energy Corp., indicated in February that it was using more fracture stages and more sand per stage to improve its EURs and efficiencies (see Shale Daily, Feb. 18).
"E&Ps are focusing on what they term the sweet spot of their acreage," said Fairmount Executive Vice President Van Smith. "They also are being a little more selective on where they perforate. Although their fracture stages in some cases may be going down per well, they are very happy with the results that they're seeing with increased proppant per stage. So they may be pushing the envelope in terms of proppant in those selected basins.”
Fairmount recently completed its largest well in the Three Forks play of the Bakken Shale using its proprietary Propel SSP technology. It was completed with more than 4,500 tons of sand. "I think that's indicative that people are still putting large amounts of proppant into these wells," he said.
Propel, introduced last year, has been used in trials in more than 400 fracture stages in 24 field trials across 11 plays. In a six-well study performed by a customer in the Utica Shale, cumulative hydrocarbon production over the first five months of operation was 31% higher in the wells that used Propel as compared with direct off-set wells over that same time period, Smith noted. Fairmount also launched a new RCP, Coolset, last year, which prevents flowback in low-temperature wells without the use of an activator, which reduces maintenance costs while increasing hydrocarbon production.
Last year the Chesterland, OH-based firm sold 7.2 million tons of proppant, up 40% from 2013. Proppant sales volumes last year consisted of 5.7 million tons of raw sand versus 4.1 million tons in 2013. It also sold 1.48 million tons of RCP, an increase of 45% year/year. During the last three months of 2014, sales volumes increased to 2.5 million tons, up 15% year/year.
Fairmount recently added 0.5 million tons of capacity at its Wedron, IL, doubling an expansion from last year. The company also completed the start-up of 1.0 million tons of capacity at its Brewer, MO facility. The rail fleet last year was increased to more than 9,300 rail cars, with three terminals added and more unit train origin capacity. Fairmount delivered 53 unit trains during 4Q2014, bringing its total unit trains delivered for the year to 129.
Because of the current market uncertainty, Fairmount has suspended guidance for its adjusted earnings "until such time as we can gain more clarity around customers' business activity levels and the associated demand for the company's products," Deckard said.
"We believe that our long-standing customer relationships, industry-leading logistics platform, high-quality reserves, strong technology portfolio and commitment to sustainable development will serve us well in 2015 and beyond," she said. "While we expect 2015 to be challenging, we believe these attributes differentiate Fairmount Santrol from our competitors and will allow us to gain market share this year. Our experience is that we emerge from down cycles as a stronger company, and we are highly confident in our growth prospects for when the oil and gas market rebounds."