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The Fracking Spring Rush is Here!

Since Old Man Winter hasn’t blown in too terribly strong and fracking teams are booked out for the year, sand demand is on the rise! Activity started up earlier than usual!

Before we do a market analysis, thank you to all of you who emailed and called to inquire about us. We haven’t been able to respond to everyone. During the downturn, we worked on projects. Demand didn’t warrant updating offerings. But, we are back in the swing with Spring!

I look forward to catching up with all of you. We are receiving new listings and prices, which we will start posting on Thursdays. We have been deluged with calls in the recent months with customers looking for items of all kinds, so suppliers shoot us an email to let us know your status of equipment, commodities, or service offerings.

On another note, I am proud to announce that DHT’ team played a key role in facilitating Select Sands’ acquisition of Ozark Sands in Arkansas and a second purchase of a sand reserve in the same area, referred to as Sandtown. Below is the news release:

Select Sands Completes Purchase of Wet/ Dry Plants, and Sand Inventory on Union Pacific Rail Line in Arkansas, USA

We don’t publicize client purchases. However, since Select Sands shared the info, we can share one of our many successes. Select Sands produces a Northern White Tier-1 sand cut at 40/70 and 70/140 (100 mesh). Their Arkansas reserve has a beautiful clean sand. It is more equivalent to northern white sand, but sits closer to Texas, which significantly reduces logistics costs. Give us a call, if you are interested and we will personally introduce you to Rasool Mohammad, the COO.

“For sure, things are looking up!”

We saw some interesting trends shift as the market came back. Frackers started locking in long term sand supplies early. We know of several crews booked for 2017. The usual dance of pricing and negotiating was usurped by the wise, who recognized that surety of supplies was in question. They secured their sand early. No sand – no fracking!

Most of our southern sand mines are sold out. Also, we have had at least a dozen phone calls from groups developing mines, particularly in the south. Five of those have locked in reserves and a few are quickly advancing to production. We just sold a used frack sand drying unit and have several more but don’t expect them to last. We also had a group up in LaRonge, Canada developing a reserve.

Pecos, Texas looks to be the next Permian Basin. Suppliers positioned with resources to solve infrastructure problems will capture great opportunities there.

We have several solid sources of logistics, distribution of supplies, and transloading in the Permian, if you have any needs. Folks often call looking to sell warehouses with rail spurs or other resources.

We are seeing lots of new technology offerings, especially water disposal solutions. We have one in particular, which could be a game changer for disposal well water. And, we have our usual offerings of barite, guar, chemicals, and equipment coming in. We have several inquiries for railcars. I expect that the fertilizer sector is grabbing up cars right now to source agriculture demand.

The OPEC move to reduce production has contributed to optimism in the market, attracting capital to the field. Investment capital groups have been calling.

We are very optimistic for sustained growth and momentum for this sector for several reasons.

First, OPEC is still trying to figure out how to move oil prices higher and maintain market share. Their production cuts are helpful. It takes six weeks for oil to be shipped from the Middle East to the U.S. In the next few weeks, we will start to see deliveries reduced, which will help diminish the high level of supplies that we are carrying. Some analysts believe that OPEC has to sustain cutbacks into June and July to support an upward trend line for oil prices. The next few weeks will provide a better idea of the affects. Supplies just hit record highs at 528M barrels.

Second, economic growth will bolster demand in the U.S. and abroad.

Third, is the news on world population growth. We are on the edge of population making a run. As, the last of the WWII generation dies and the Baby Boomer’s grandchildren are born, demand is rising. Plus, the younger generations consume more than the older folks. The world population just hit 7.5 billion with 82+ million in growth last year. Check this out:

India increase by 15,711, 130
China increased by 5,909,361
Nigeria increased by 4,848,373
Pakistan increased by 3,9917,874
U.S. increased by 2,355,226

Fourth, when major oil companies and producers started shelving large production projects, significant volumes of new production were postponed – the kind that doesn’t get turned on and delivered to market in six months. Fracking is the answer.

U.S. Frackers: the A team!

Now that asset values have fallen, companies are moving to the fracking fields purchasing reserves, assets and positioning at discounted prices. Exxon acquired reserves in the Permian spending nearly $10 billion. They paid $6.6B in one acquisition that doubled their Permian position. Noble Energy Inc. said it would pay $2.7 billion to buy West Texas producer to boost its operations. There is clearly a trend for oil companies to move capital to fracking and abandon some of the more expensive endeavors. This is great news for our sector.

Finally, pumpers are demanding more sand than ever with increased volumes per frack. I have heard 42M pounds, 49M pounds and one company at 54M pounds. What? Those numbers were around 2.5M to 7M in 2014.

Rig count is up 90+% in over nine months! Multiply that by increased pounds per frack and you have SAND DEMAND! As far as U.S. production, forecasts suggest a 235,000 bpd increase in 2017.

We are very optimistic for this sector……..

A FEW THOUGHTS FOR SUPPLIERS: Demand for fracking resources looks to be sustainable, but pricing is key. Sustainability requires competitiveness. BUT, oil prices put a glass ceiling on how much buyers can spend. If prices run up too much, demand will naturally fall off. Keep your prices competitive and above all, build your relationships with your customers. They always remember who tried to take advantage of them and who was reasonable and fair in good times and bad.

It is better to be in the game than sitting on the bench!

Have a great Spring forward!


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