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February 2017 SEE Monthly Update

Sand (and Proppant) Storm

Description: map of Petroleum Administration for Defense Districts, as described in the article text
Wisconsin Sand Facility, credit: Chieftain Sand and Proppant, LLC

The subject of sand and proppants—vital for oil and gas well hydraulic fracturing—bears renewed examination. "Proppant" is often used to mean manufactured resin or ceramic beads, while "sand" is obviously sand. However, investors should be aware the meaning of "proppant" is sometimes expanded to include sand.

Oil shale drillers have recovered in concert with oil prices that dropped from $100/barrel to $26/barrel and have now returned to over $50/barrel. OPEC has cut production, but US shale drillers have increased theirs. So far, OPEC countries have been disciplined in adhering to quotas. However, a substantial overhang of stored oil remains and global demand is soft, putting downward pressure on prices.

While any decrease in federal regulatory costs under the new US administration improves the economics of drilling, fracking is regulated at the state level.

Sand-company profits of as much as $35/ton before the oil price downturn dipped to lows of $7/ton in 2015-2016. Sand and proppant sellers are now increasing prices 20% or more to regain margins. Prospects look bright because drillers have boosted their own margins by drilling longer laterals and by using more sand per foot of lateral length.

Increased demand for sand has led to the reopening of sand mines in western Wisconsin, one of the Midwestern states (like North Dakota, Ohio, and Pennsylvania) integral to the US energy business as both suppliers and consumers.

Perhaps the most salient indicator of optimism is the North American Frac Sand Exhibition and Conference scheduled for February 22-23, 2017 in Houston, Texas.

More information about expected demand growth and specific sand and proppant companies can be found in the subscriber section. For more information, log in now or, if you are not already a subscriber, subscribe now.

           Copyright 2017, Starks Energy Economics, LLC. This information may not be disclosed, copied or disseminated, in whole or in part, without the prior written permission of Starks Energy Economics, LLC. This communication is based on information which Starks Energy Economics, LLC believes is reliable. However, Starks Energy Economics, LLC does not represent or warrant its accuracy. This communication should not be considered as an offer or solicitation to buy or sell any securities.

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