Random Update On Fracking Sand -- September 5, 2014; Huge Amounts Of Fracking Sand Being Used In The Bakken

A week or so ago I posted a note about the transportation cost for hauling frack sand by truck. Here's an update from the same source:

This weekend I’m moving 100 loads of 30/50 frac sand out of Marshfield, WI, to Denver, CO, $174.00 per ton, about $4.25 per mile.

We are also moving sand out of Woodbury, MN, to Sidney, MT, @ $100.00 per ton, Next week Alama Center, WI, to Genoa, NE, $64.00. Plant-to-plant move. 

More on this later, perhaps.

On a separate note, from the Berry Petroleum Company message board, from a Global Hunter Securities report yesterday:

Incredible. Last year the average well took 20 train cars of sand. This year on average 75 train cars. Lots of concern about deliverability of sand due to transport bottlenecks on the rails, but trucking has done OK making up any shortfalls, just more expensive. Big pump replacement program also, and upgrade, I expect the more sand you use the harder it is on equipment.  

And more: Sand comments from HAL. HAL spoke at an investor conference yesterday and expounded on a number of points related to sand logistics.

• Proppant volumes have increased by 37% vs. year-ago levels last quarter. A year ago, a typical job required 4MM lbs. of proppant (20 railcars) whereas today the company is doing jobs with 15MM lbs. (75 railcars, or one unit train). The issue is moving the material rather than sand availability (which is 40% excess capacity at the mine).

• HAL has spent two-thirds of its $300MM increased capex on Q10 pumps (designed for longer lives and a reduced failure rate) and one-third on transloading facilities and rail spurs to better service the Bakken, Niobrara and Permian. HAL has also increased the number of trucking companies it works with by 25 to 30 companies.

• More horsepower is required on location. The average crew size on location has increased by 10%-15%. HAL has heard anecdotally that crew sizes for other companies have increased by 25%-50%. This has driven down excess industry capacity abruptly over the last six months.

• HAL is unlikely to achieve its prior guidance of a 200 bps sequential improvement in NAM margins due to the logistic issues. Still, the company has 60%-65% of its contracts (92%-93% of its fleets are currently on contract) rolling off in Q3 and Q4 and intends to reset the sand prices to get ahead of the cost inflation issue. Our take: HAL is well positioned for the sand challenges due to its proactive expansion of trucking and rail capacity, process efficiency improvements and upcoming contract adjustments.

My hunch: the next big thing we will see in North Dakota -- huge frack sand storage sites. Fracking slows down in the winter; drilling slows down in the winter. The trucking industry tends to slow down in the winter. Truckers looking for work during slow periods. How to use those winter slow days? Haul fracking sand. Analogy: cargo planes landing at night at Frankfurt Airport about 40 years ago.