The upstream sector of the energy industry has been on a continuous roller coaster of oil price uncertainty over the past few months. Eventually low crude prices will thrust concerns into other avenues of energy development and manufacturing.
But sand used for hydraulic fracturing hasn’t had to face those challenges quite yet. Wisconsin, a super-producer of frac sand, hosts at least half the frac sand mines in the nation. It is estimated that two-thirds of total frac sand production in the U.S. comes from Wisconsin. According to a Milwaukee Journal Sentinel report, the state’s sand patch shows few signs that crashing oil prices are having an effect. Sand plants and mines are still looking for workers, and development plans for new sand mines are moving forward.
Currently, a huge market exists for sand required in the hydraulic fracturing process. Out in the Marcellus Shale, the drive of natural gas production in particular is keeping the sand demand alive and well—regardless of crude oil prices. With this glowing business prospect, many seasoned logistics veterans have switched focus to support the booming oil and gas industry of the Marcellus and Utica.
Trent Elliott of Well Site Supply Inc. is one such operator adjusting his business plan to support energy production. With numerous facilities including locations in Marietta, Ohio and Parkersburg, West Virginia, the company is in the thick of the Marcellus and Utica fields. Although Elliott and his associates have experience in material handling and logistics dating back to 1960, and experience handling frac sand since 1981, the surge in oil and gas service was a recent phenomenon. Well Site Supply operations began roughly four years ago. On the cusp of the Marcellus natural gas boom, Elliott and his connections were approached by Dan Bolender with the idea of converting their assets to supply materials for the oil and gas industry. “What we do now is move the wide spot of the road closer to the market,” Elliott said of his current operations.
Well Site Supply handles, stores and transports numerous materials necessary for successful drilling operations. With over half a million square feet of warehouse space, they have ample room for production materials. A reputable long term operator with existing infrastructure and corporate connections from previous business applications in the steel and coal trade, Well Site Supply easily found itself ahead of others in the industry. At its disposal, the company has six river terminals on the Ohio River system, a short-line railroad and a fleet of trucks situated to arrange shipments from its facility to the end user.
While the shift to energy support makes sense, it’s not a market to invest in on a whim. “If someone wanted to set up a frac sand depot, they’re going to spend a couple million dollars. That’s a heck of a gamble,” exclaimed Elliott. “We had a facility ready to go, and we have equipment on the water ready to unload the sand.” There is a lot going on upstream in the oil and gas industry before a final product reaches the market. Past transportation and even beyond horizontal drilling and hydraulic fracturing, numerous materials and operations need to come together in order for a well to produce.
Well Site Supply works with aggregates, drilling mud, liquid calcium chloride and collaborates with several pipe manufacturing companies to cut the cost out of transportation for pipe into the Utica and Marcellus Shale plays. But above all, the industry is calling for sand, and Elliott was ready to meet that demand.
At its Marietta facility, the supply company has over 170,000 square feet of warehouse space that is dedicated to both finished and wet unscreened frac sand. However, there’s need for more, and Well Site Supply is looking forward to an additional facility expected to be in operation within three to four months. “We’ll be able to dry, screen, and process a million tons [of frac sand] per year,” Elliott stated about the new facility. “Being able to bring in wet unscreened sand and process it onsite is a major advantage and cost saver.”
Its plants are completely capable of handling all kinds of frac sand (although the preferred is “Ottawa White” sand from Wisconsin and parts of Nebraska out in Marcellus Country). On-site, their facilities will process different grades for different customers and store product in different storage units to assure there’s no contamination. Having such a capacity for fresh cut, damp frac sand could be a savior to year-round producers. In the cold months of December, January and February, shipping is at a standstill due to the frozen waterways and grain transport season. Utilizing existing storage for frac sand and processing capabilities allows Well Site Supply to stockpile product outside without issues of weather.
Market prices on services
“I expect a hit, absolutely.” Elliott added that one of the main reasons he attended the recent Marcellus Midsteam Conference was to try and see what the industry is expecting. However, the consistent response from most folks is that a downturn is obviously expected over the next three months but production is not going away. “By the end of the year, we’ll see things normalize to 70-75 percent of where the activity was at the fourth quarter of 2014.”
Logistic Operations in the Marcellus has two advantages if a company is already established within the market. First, the Marcellus yields primarily natural gas, a commodity that has already dealt with a long history of low prices. Benchmark Brent crude and West Texas Intermediate are good indicators of petroleum’s value but do not necessarily reflect the natural gas market directly. Additionally, out of the numerous U.S. shale plays, operation costs in the Marcellus are comparatively cheap, and major producers such as Halliburton, Schlumberger and Antero are not going to move out so quickly.
“There is a tremendous amount of property acquired in the region over the past two years. If they’re not drilling, they’re losing all the money they used to acquire the acreage. There might be a consolidation where the smaller guys are getting out of the game. But the big companies want to hold onto their assets and opportunities. So they’re going to have to drill even if it’s at a loss.”
Most likely, companies will begin to construct the minimum number of wells required to maintain the lease over acreage. “It’s painful but it’s not the end of the world.”
This article was sponsored in part by Well Site Supply, Inc.
100 Blue Knob Rd. Marietta, OH 45750
Phone: 740-516-8493 Fax: 740-373-6359 firstname.lastname@example.org