Ceramics

This post is not ready for prime time. It has not been edited (much). It has not been formatted (well). It may be way too early to post this article, but in keeping with the spirit of the mission statement of the blog (see "Wecome") I will post it:

This is an incredible article Mike Filloon has posted at SeekingAlpha. Mike is providing, incredibly, an amazing amount of analysis that many folks would charge "huge bucks" to provide.

I have not read the article ll the way through, and when I do, I will need to re-read it at least twice more.

This is a key paragraph:

The most pressing issue I have begun to see in horizontal applications within the United States are a switching to all sand fracs. From 2006 to 2008, operators had started using ceramic proppant leaseholds targeting formation deeper than 8000 feet. Due to the expense, many decided to use a mix of sand and ceramic proppant. In 2010 and 2011, wells were using sixty to seventy percent sand and the remainder in ceramic proppant. Newer frac technologies are beginning to stimulate the source rock with shorter, wider fractures. It was initially thought a well would perform better with long thin fracs. The idea was to reach as deep into the formation as possible trying to connect with natural fracturing increasing the flow of overall resource. The shorter, wider fractures have brought about a different mix of proppant. EOG Resources was the first to successfully use this tech. By focusing the hydraulic horsepower closer to the well bore, the shale is pulverized. Greater surface area is fracced, and in turn needs larger volumes of proppant. More importantly, these wells use no ceramic proppant.

Here are just a few of the story lines:

1. Mike Filloon seems somewhat surprised by this switch to all sand. He may or may not be surprised; it does not matter. I am surprised, and I would bet that half the industry is surprised.

2. Mike was one of the first, outside the industry, to note that EOG  was going all out with huge amounts of proppant and water -- much more than ever previously used -- but Mike did not say much about whether all sand, half-half, or all ceramics was the best.

3. I don't know if readers recall, but when QEP bought HELIS, QEP said it was going to go to ALL-SAND fracks. I don't know if they did. At that time, there were a lot of articles discussing sand vs ceramics. Regular readers will remember all that. I did not follow up on QEP to see if they stuck to their word, about using all sand.  Somewhere at the link below, there might be more of the discussion (I will continue to look for the exact post that mentioned QEP and all-sand -- it was in a earnings transcript by QEP or a transcript in which QEP talked about their Helis acquisition).

http://themilliondollarway.blogspot.com/2012/08/what-you-will-be-discussing-friday.html

4. Now, with regard to investing in Carbo Ceramics, this article would make me nervous. If it turns out that new methods work, and sand is just as good (or better) than ceramics, that's a huge, huge story. Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or what you think you might have read here.

5. The best story line, of course, is this: the operators are not sitting around, resting on their laurels. They continue to experiment, looking for the best method to complete a well. They have come a long way in the drilling aspect: reaching total depth in less than 20 days (when the Bakken started, 60 days); pad drilling, which saves all kinds of time; bigger, more powerful rigs; and, they will continue to work on the drilling.

But it's the completion technique, fracking, that will get most of their attention right now.

This was a very, very good article.