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ERIK NYSTROM
VICE PRESIDENT, STRATEGIC MARKETING
WTI forecasts indicate that pricing will remain flat to down
WTI Forwards and Projections
$120
Actuals Forwards WTI average
2018 E 2019 E
Estimates
$100 EIA $66 $62
OPEC announce Credit Suisse $66 $65
leveraged roll-off of cuts
$80
Deflation and currency JP Morgan $62 $58
deleveraging causing
a false start
Simmons PJC $68 $65
$60 OPEC deal
Consensus forecast range
Current WTI estimates are in a tight band for
2019 between $58 and $65, lower than
$40
current traded prices.
Failed OPEC
deal
$20 Lifting Iran This is due to sentiment that demand growth
Sanctions
may not be as robust as forecasted as well
as factoring in the leveraged rolloffs of
$- OPEC production cuts during the next year.
10/1/2018 • 1
Source: FactSet, Market Watch, CNBC
Capacity of drilling rigs has outpaced completion crews
Rig and Completion Crew Capacity
8,031
Total DUC’s across all
1,400
1,300
Rig capacity
Completion
1,200 Crew Capacity
Shale Plays
1,100
900
700
6
Months of Backlogged
600
500
Completions Efficiency calculated using demonstrated capabilities of 1.3 wells per month per rig and 3.1 completions per month per crew
400
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18
An increase of DUCs is attributed to the industry’s ability to drill much faster than to
complete and indicates the decoupling seen in oil and gas between rigs and production
10/1/2018 • 2
Source: Internal Estimates, Energent Group, EIA, Baker Hughes
Active frac crews by play weighted toward the Permian
Bakken
38
Rockies
26
Marcellus
42
400
Active Frac Crews
operating in the US
Mid-Con
43
14% YTD in 2018
Permian Haynesville
164 34
Eagle Ford
53
10/1/2018 • 3
Source: Internal Estimates; current as of April 2018
Growth in frac crews expected to pause until late 2019
Rockies 25 26 23 (12%)
100 Bakken 27 31 42 29%
Haynesville 27 31 33 10%
80
Total US 356 411 389 (5%)
60 Eagle Ford
Bakken
40 Marcellus Crew counts across a number of major
Mid Con
20
Haynesville
Rockies
shale plays are in decline due to
stressed pipeline infrastructure and
- cash flow conscious E&Ps.
10/1/2018 • 5
Source: Internal Estimates
Short term outlook indicates ~105 million tons in 2019
120
Proppant Consumption Forecast (millions of tons)
Shale Play 2016 2017 2018 2019 Canada
Others (US)
100 Haynesville
Permian 12 22 34 33
Bakken
Eagle Ford 7 12 18 22
80 Rockies
Marcellus 6 10 12 11
MidCon
MidCon 4 7 7 8
Marcellus
Rockies 3 7 8 8 60
Bakken 3 5 7 9
Eagle Ford
Haynesville 2 4 6 7 40
Others 1 2 2 2
Canada 4 6 6 6 20
Permian
Total 42 75 100 108
Range 38 - 46 68 - 83 95 - 105 105 - 115 0
2016 2017 2018 2019
60
40
200
MidCon 20
Eagle Ford 0
Supply Demand
150
Permian 30
Eagle Ford
25
20
100 2019 Demand Brady 15
10
5
50 0
Northern White Supply Demand
0 20 MidCon
4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 15
10
Rate of capacity additions from in-basin suppliers is outpacing market
5
growth. In 2019, the Permian, Eagle Ford and MidCon will contain more
0
supply then forecasted demand. Supply Demand
10/1/2018 • 8
Source: Internal Estimates, Company specific websites
WTX capacity hitting its stride, displacing northern white
Capacity buildout timeline
50
Millions of Tons
45 Worst case scenario displacement from
the Permian Basin around 25 million tons
40 *Assumes 100mesh becomes 75% of total demand
30
Permian 2019 100 Mesh Demand
25
20
15
10
0
Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18
Early producers are had significant quality and delivery issues but are
now hitting their stride. Coupled with slower demand due to infrastructure
constraints these factors are placing significant stress on northern white.
10/1/2018 • 9
Source: Internal Estimates, Infill Thinking
Technical need for northern white remains
Reported Pressures of Permian Basin Wells
2.5 6% of Proppant 69% of Proppant 23% of Proppant 3% of Proppant
2.0
Millions of Tons
1.5
1.0
Resin
A technical need will remain for northern white 40/70 and 100 Mesh
giving an advantage to companies with a full suite of product offerings
10/1/2018 • 10
Source: Energent Group
73.1 million tons of in-basin capacity coming online
Company Play Tons Operational Company Play Tons Operational
Total Greenfield Capacity 20.8 million tons Wisconsin Proppants Permian 3.0 Q3 2018
Monarch Eagle Ford 4.0 Q3 2018
Total Greenfield Capacity 24.4 million tons
Company Play Tons Operational
Atlas Permian 3.0 Q2 2018 Company Play Tons Operational
Black Mountain Permian 6.0 Q2 2018 Atlas Permian 3.0 Q4 2018
Emerge (Superior) Eagle Ford 2.4 Q2 2018 Ultra Fine Silica Eagle Ford 4.0 Q4 2018
South Texas Frac Eagle Ford 1.0 Q2 2018 Covia MidCon 4.0 Q4 2018
JW Sands Eagle Ford 1.5 Q2 2018 Preferred MidCon 3.0 Q4 2018
Total Greenfield Capacity 13.9 million tons Total Greenfield Capacity 14.0 million tons
1.4
1.2
Millions of Tons
1.0
0.8
0.6 Resin
0.0
3 4 5 6 7 8 9 10 11 12 13
*Completions January 2016 through December 2017
K Psi
Colorado dune sands are not recommended for usage in hydraulic
fracturing due to very low silica content in the sands which provide low
crush resistance and high acid solubility
10/1/2018 • 12
Source: Internal Estimates, Energent Group
Requirements in the Eagle Ford are higher than most plays
Reported Pressure of Eagle Ford Wells
0.7
5 Million Tons 15 Million Tons 2 Million Tons
24% of Proppant 68% of Proppant 8% of Proppant
0.6
0.5
Millions of Tons
0.4
0.3
Resin
0.2
Northern White 40/70 & 100 Mesh
Local 40/70
0.0
3 4 5 6 7 8 9 10 11 12 13
*Completions January 2016 through December 2017
K Psi
Eagle Ford wells begin at 7k with any density. Most operators in the
basin range between 7k and 10k for most of their work
10/1/2018 • 13
Source: Internal Estimates, Energent Group
MidCon local sands are viable for much of the demand profile
Proppant pumped by reported well pressure
300,000 2.8 Million Tons 6.8 Million Tons 8.3 Million Tons 8.4 Million Tons
37% of Proppant 83% of Proppant 99% of Proppant 100% of Proppant
250,000
200,000
150,000
100,000 Resin
0
3 4 5 6 7 8 9 10 11 12 13 14 15
*Completions January 2016 through December 2017 K Psi
*Assumes a 0.65 pressure gradient
10/1/2018 • 14
Direct sourcing is awaiting a full last mile solution
Top 100 proppant consuming E&Ps in 2017
2 million
tons +
1 million
tons +
Continental XTO
Extraction
500,000
tons + Devon
90%
Of proppant
consumed by the
top 100 E&Ps
Marathon Oxy
EOG
100,000
48%
Ascent
tons +
Anadarko Newfield
Of total 2017
Pioneer
CNX
Hess demand
Concho Conoco
Encana represented by
Full adoption of E&P self
E&Ps either actively
self sourcing or
sourcing if dependent on
Encana
Chesapeake Sanchez SWN
requesting RFPs effective last mile solutions
Vertically integrated (own their own sand mine)
Actively self-sourcing, or seeking RFPs
Not currently self-sourcing
10/1/2018 • 15
Source: Internal Estimates, Energent Group
Final thoughts on the market
It’s all about frac crews
Rig Count decoupled from frac sand demand
Market projected to be 100 million tons this year
Nearly doubling the boom of 55 million tons back in 2014
Headwinds are forming due to lack of pipeline infrastructure, capping market growth
Well designs still moving toward more intense finer grade designs across the industry
The desire of some E&Ps to directly source proppant is changing in many cases how it is sold
and delivered to the well site
True last mile solutions will be integral to success with this emerging customer requirement
10/1/2018 • 16
Source: Covia
Proppant Comparison
FIT FOR PURPOSE VS. NORTHERN WHITE
Findings indicate advantages to using Northern White material
Proppant quality matters for production of hydrocarbons
If you are holding wells for production beyond initial IP, quality northern white proppants should be considered over other Tier II
proppants
Conductivity testing shows a significant degradation in performance of West Texas100 mesh material
Degradation is due to fines generation and migration
Northern White Sand generated 11% fewer fines than regional sand
Crushed sand = increased turbulent flow due to increased angularity of the crushed sand, degradation of proppant pack, insufficient
flow path to reservoir
Northern White 40/70 testing indicated increased performance of wells.
Due to increased flow paths from higher roundness and sphericity allowing for better production
Sub-angular substrate allows for inferior long-term production.
A 2x increase in turbidity between Northern White and West Texas material equates to performance differences as well
as operational challenges from a “dirtier” material
Real world performance indicates 16% greater production from Northern White compared to Texas Gold material due to turbidity and
other performance issues
Up-front Savings from in-basin sands are evaporated within 6 months of production at $60/bbl realized
After 24 months, Northern White wells generated $1 million more in oil production than comparable wells completed with Texas Gold
material
Conditions in the Eagle Ford are more harsh than the technical capabilities of either Texas Gold or in-basin sands
10/1/2018 • 18
100 Mesh testing indicates a distinct performance advantage
100 Mesh 6k Continuous Hold Conductivity Testing Particle size distribution before and after testing
350 50%
Percent Retained
Conductivity, mD-ft
45%
40%
300 35%
30% 15% fines generation after
just two weeks. What
25% happens after two years?
20%
250
15%
10% Northern White
200
1.7x
Greater Northern White
5%
0%
50
West Texas
10/1/2018 • 19
Source: Covia
100 Mesh testing indicates a distinct performance advantage
Normalized 6k hold conductivity results Particle size distribution before and after testing
100% 50%
Percent Retained
Conductivity, mD-ft
45%
90% 40%
35%
80% 30% 15% fines generation after
just two weeks. What
25% happens after two years?
70% 20%
15%
60% 10% Northern White
5% West Texas
50% 0%
50 70 80 100 120 140 200 pan
40%
30%
20%
60%
Reduction in initial vs. 16%
Reduction in initial
West Texas material after 2 Weeks:
A 15% fines generation increase caused
57% decline in conductivity performance.
conductivity seen in conductivity seen in
10%
West Texas Sands Norther White Sands
Sand Type Crush Strength (psi)
0%
0 2 4 6 8 10 12 14 White Sand 11-12k
Day Texas Gold 7-8k
WTX Regional 9-10k
10/1/2018 • 20
Source: Covia
Quality effects productivity, quality sand will produce longer
Northern White Before Testing Northern White After Testing
WTX Field Sample Before Testing WTX Field Sample After Testing
100 mesh Fines generation on from the West Texas sand sample chokes out
production after an extended period under pressure due to inferior strength
10/1/2018 • 21
Source: Covia
40/70 shows consistent, pronounced conductivity differences
40/70 Mesh 6k Continuous Hold Conductivity Testing Particle size distribution before and after testing
700 40%
Percent Retained
Northern White
Conductivity, mD-ft
450
400
West Texas 67%
average performance
0%
-5% 30 40 45
10/1/2018 • 22
Source: Covia
40/70 shows consistent, pronounced conductivity differences
40/70 Mesh 6k Continuous Hold Conductivity Testing Particle size distribution before and after testing
100% 40%
Percent Retained
Northern White
Conductivity, mD-ft
65%
60%
31%
Reduction in initial vs. 14%
Reduction in initial
Similar particle size distributions between
sand types before and after testing still
yielded an advantage to Northern White due
conductivity seen in conductivity seen in
to more ideal roundness and sphericity
55%
West Texas Sands Norther White Sands
Sand Type Sphericity Roundness
50%
0 2 4 6 8 10 12 14 White Sand 0.8 0.8
Day Texas Gold >0.6 >0.6
WTX Regional >0.6 >0.6
10/1/2018 • 23
Source: Covia
Performance differences also stem from turbidity of product
Northern White
Sand Type Turbidity (FTU) Acid Solubility
Impurities dissolve in acid
White Sand <50 <0.6% meaning that to place 7,500
tons of proppant, 7,735 tons
Texas Gold <75 <2.0% must be pumped or an
additional 235 tons of
material must be purchased.
WTX Regional 100 <3.0%
Silt and clay stuck
to sand grains
Northern White sands are generally “cleaner” with less silt or clay material attached to each
grain. These impurities cause break free down hole where the clays swell and choke off
production.
10/1/2018 • 24
Source: Covia
Real world performance impacted by proppant quality
2.00 30.00
Northern white wells peak longer
providing uplift 25.00
1.50 Majority of wells are in the
20.00 outperform range
Outperform
1.00 15.00
Underperform
10.00
0.50
5.00
Barrels per lateral foot Production
Using Texas Gold as a proxy for in-basin sands, observations in well performance indicate wells
completed with higher quality proppants generally outperform their peers due to the proppant
pack's ability to keep fractures open while maintaining conductivity.
10/1/2018 • 25
Source: Internal Estimates, Energent Group
Well averages showcase performance differences
1.40 20
IP is an ineffective comparison
as wells peak at similar levels 18 Northern White
16%
1.20
16 Texas Gold
21%
1.00 14
Mixed
12
0.80
Barrels per lateral foot Production
0.40
Characteristic effects seen in well
cohort averages 8
6
16% Northern white
4
0.20
production advantage
2 over brown sands
- -
10/1/2018 • 26
Source: Internal Estimates, Energent Group
Up-front savings of cheaper proppant quickly wiped out
Northern White After 6k Testing
10/1/2018 • 27
Source: Internal Estimates