Why US Shale Is Not Drilling -- Commentary -- March 6, 2022

Updates

March 11, 2022: there are operators that are trucking frack sand to the Permian from Oklahoma right now due to sand shortages ... link here. 

March 8, 2022: this is not 2017 / 2018. Taps are tapped. Labor, pipe, sand, tools, etc., all harder and harder to come by every week. Covid wrecked supply chains; government stimulus made it worse. Link here.

Original Post

Fracking sand:

• Fracking sand: getting sand to location is now a huge issue due to rail logistics. No source for this tweet. I am unaware of rail logistic issues. February 7, 2022. 
• Top story: we are out of fracking sand. February 26, 2022.  
• North American oil patch: "We are out of sand." Link here. February 25, 2022. 

Background:

• the fracking sand story, October 15, 2016.
• soaring cost of sand, April 23, 2017.
• to frack one well, 100 railcars and 200,000 truck loads (no typo), March 23, 2017.
• EOG: 23 million lbs to frack one well, December 31, 2016.

Rail:

• UNP: best performing stock this past week? March 4, 2022. What happened? There are two stories here.
  

Pet peeve: whining, and no analysis. Three problems with Javier Blas' tweet:

• one, no analysis; operators are not "not drilling" because they can't make money on $100 oil; they are "not drilling" for other reasons -- Javier: where's the analysis?
• two: in general, publicly-traded companies have a fiduciary responsibility to their shareholders first and foremost; not to any outside entity, or agency; why are they not drilling with $100 oil? Javier: where's the analysis?
  
• third: in general, most companies are in business to make money; companies are not "political." Companies work to adjust to all headwinds, including antagonistic government policies; companies are not "not drilling" because they don't like Biden, they are "not drilling" for other reasons. Javier: where's the analysis?
• I'm with Josh on this one.

I may or may not provide an essay / commentary with regard to my thoughts, but it seems most folks should be able to connect the dots.

The most difficult "dot" to connect / analyze is this week's list of wells coming off the confidential list and the initial production for those wells. 

But my guess is that some folks won't be able to connect the dots. So, if I get the time (and haven't lost interest) I'll post the commentary.

By the way, part of the commentary, and don't take this out of context: rigs don't matter; fracking is what matters. It used to be fracking spreads, but now it's fracking sand. 

Geologists Looking For Fracking Sand Source In North Dakota -- Fracking Sand Costs -- Transportation -- August 26, 2018

Cost of sand / transportation:

• Wisconsin sand producers seek transportation relief; Transport Topics, July 30, 2018
• the cost of mining frack sand in Illinois, June 10, 2018: $110 / ton; $40 of the $110 is "pure profit"
• $40 / ton, WSJ, March 23, 2017
• Permian, $350K of sand / well; SeekingAlpha, March 7, 2017
• Hi-Crush buys Permian Basin Sand, March 1, 2017
• $30 - $40 / ton; John Kemp, February 22, 2017
• Hi-Crush: $64 / ton -- 2016
• cost of shipping from mid-Wisconsin to northeast Colorado, $175 / ton; reader; August 26, 2014 
• this article,  Wisconsin sand producers seek transportation relief; Transport Topics, July 30, 2018:
• complaining about lack of rail competition
• nominal rail cost has doubled since 2001
• a lot of complaining, but no cost / ton / distance provided

So, in round numbers, maybe:

• $60 / ton for fracking sand (up from $20 / ton at the beginning of the Bakken boom)
• $150 / ton for shipping by truck (?)

But here's the best analysis, perhaps, from a PDF that I cannot link, a PLG presentation at JPMorgan, January 11, 2018:

Notice the cost to get the sand the last mile!

Now the article sent to me be a reader, data points:

• operators looking for "local" source of fracking sand to cut down on shipping costs
• operators using an average of 2,500 to 5,000 tons / well
• from the article:

Fred Anderson, geologist with the North Dakota Geological Survey, authored a study in 2011 that said North Dakota sand sources approach oil industry standards for use in fracking but are lower in overall quality than other U.S. sources.

There's a renewed interest in that research, however, as demand for sand increases and companies experiment with lower-cost options.

"They're accepting sands that we probably never would have accepted 10 to 15 years ago," said Monte Besler, owner of FRACN8R Consulting in Williston.

For CLR, twenty million lbs of sand = 10,000 tons

• product at $60/ton = $600,000
• transportation at $150/ton = $1.5 million
• sand + transportation: upwards of $2 million 

At a more conservative 5,000 tons, the cost can come down to $1 million (sand + transportation).