Ceramics Vs Sand -- (C)Rude Awakening? September 22, 2014

Updates

Later, 4:26 p.m. CDT: a reader sent me a link to the one-year graph for CRR. The sell-off did not begin today. The sell-off began in July / August and was much, much worse, or certainly as bad. Check out the one-year CRR chart at Yahoo!Finance. There's more going on than what the article from IBD had today; see below.  If this portends more about the oil and gas industry, or the global economy or the national economy, than just CRR, it could be the canary in the coal mine. Scary.

Original Post

Shares of Carbo Ceramics plummet 18% today. The graph is stunning.

This is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

Investor's Business Daily is reporting:

Carbo Ceramics expects ceramic proppant sales to take a hit as drillers try new techniques that require sand proppants, sending shares plummeting Monday.

The company also noted increased price competition on ceramic proppant sales from domestic and international manufacturers, especially in the Bakken play.

"We plan to manage the current competitive pricing environment, caused by proppant oversupply, by focusing on sales volumes and introducing new technologies," CEO Gary Kolstad said in a statement.

Some Carbo clients are also seeing delays with well completion, pushing some sales the company expected to make in September to later in the year.

The company sees third-quarter ceramic proppant sales volumes of 375 million pounds, similar to first-quarter sales, as demand for frac sand rises from drillers like Rosetta Resources.

Carbo shares plunged 19% on the stock market today. Frac sand producers U.S. Silica and Emerge Energy Services were down more than 3%.

Stock market analysts seem to see things on a quarterly basis.

Pad drilling is causing havoc with frack schedules. Winter is almost here in the Bakken, though the "winter" weather should not affect the fracking schedule in any meaningful way until December at the earliest.

However, combining pad drilling with winter weather and the industry may be into November by now, for planning purposes.

If so, it's very possible, in addition to everything said in IBD, operators are slowing down in purchases of proppant as we move into November/December fracking schedule.

Again, I have no formal training in this stuff and no background whatsoever in the oil and gas industry, and so this is simply armchair/idle chatter from someone who probably knows less about the Bakken than you do. So take my comments for what they are worth: my comments plus $1.89 will get you a cup of coffee at Starbucks.

Also, just for grins, there could be a lot of pressure on BNSF and the rest of the railroads to minimize non-agricultural products while trying to meet the demand of the 2014 harvest. The farmers have a lot of clout in Washington and nothing surprises me any more. It's very possible, BNSF, others are under great pressure to replace some of their sand/ceramic hoppers with grain hoppers.

Idle chatter.

Just out of curiosity, sand or ceramics for those two nice Whiting wells reported this weekend? Both. Sand and ceramic.

I believe EOG is pretty much 100% sand, but always has been, nothing new.

The most-talked about "current" Bakken presentation is probably the CLR presentation which mentions "high volume proppant" but does not compare sand vs ceramic. There is one slide and one slide only in which sand is mentioned; ceramic is not mentioned. The generic term "proppant" is used throughout. Unless the oral presentation suggested something different, there seems to be no evidence in the presentation whether CLR prefers sand over ceramics.

CLR does stress slickwater. Can ceramics be used with slickwater. Here's one answer: http://www.worldoil.com/Ceramic-proppant-for-slickwater-fracturing.html.

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.

Oasis Moving To Pad Drilling -- SeekingAlpha; In Support of Less Ceramics

Link here.

In particular, the company has sought to decrease the company's use of ceramic proppant, which tends to cost more than sand and doesn't necessarily produce superior results. Management estimates that a well with a 36-stage lateral that uses sand as a proppant costs about $0.8 million less to complete than a development than one that relies on a mix of sand and ceramic material. That being said, the firm continues to use a full load of proppant when targeting thicker formations that exhibit relatively low levels of water saturation.

The article is about "all" of Oasis, but I just wanted to pick out one point that I will be discussing later.