The ongoing shale slump is hitting sand miners and haulers that are facing lower demand, intense pricing pressures and competition from oil companies building their own mines to provide the crucial ingredient for hydraulic fracturing.
The Katy frac sand company U.S. Silica said Tuesday that it lost $23 million in the third quarter compared to a $6.3 million profit during the same period a year early. Revenue fell 14 percent to $362 million from $423 million in third quarter of 2018.
In hydraulic fracturing, or fracking, sand is mixed with water and chemicals and pumped into wells at high pressure to crack shale rock holding reservoirs of oil and gas. The sand props open fissures to allow the oil and gas to flow into the well.
During a Tuesday investors’ call, U.S. Silica CEO Bryan Shinn said the U.S. energy market deteriorated further and faster than expected during the third quarter as exploration and production companies slowed completion activities on new oil and natural gas wells.
“We started to experience this midway through the quarter,” Shinn said. “At the same time, we saw many of the new mines in West Texas reach full production capacity, exacerbating sand market oversupply.”
Shale Slump: Oil field service sector braces for more pain
U.S. Silica is the latest company that supplies goods and services to oil and gas producers to report the ill effects of the shale slump, the result of lackluster prices, poor returns and increasing reluctance of lenders and investors to provide the capital that producers need to add new wells. The Houston oilfield services company Halliburton, reporting a steep drop in profits, recently said it would cut its spending by $300 million over three months as it pulled fracking crews and equipment from the field.
The Houston drilling contractor Patterson UTI said it was retiring three dozen older rigs as it reported widening losses in the third quarter.
U.S. Silica said it is not sitting idle as it braces for a rough fourth quarter, which is traditionally slower due to the cold weather, holidays and customers who typically have depleted most of their annual drilling budgets. Shinn said U.S. Silica has reduced hours at some of its mines, idled other mines, stopped supplying less profitable customers and focused on a new line of business that uses silicon, a component of sand, to make a number of commercial and industrial products ranging from roofing materials to filters for blood and plasma.
“Over the next couple of years, you’ll see a number of new products,” Shinn said. “I’m hoping six to 10 new products that launch and then those products will get in the market and hopefully grow.”
While the company makes that transition, it must still deal with the ongoing shale slump. A typical hydraulically fractured well — which can extend for miles — uses up to 2,500 pounds of frac sand per linear foot while the oil and natural gas industry as a whole uses up to 100 million tons of frac sand per year, according to the Houston energy research firm RBN Energy.
Despite the vast amounts, frac sand companies face competition from each another as well as oil companies building their own sand mines closer to their wells in places such as the Eagle Ford Shale of South Texas and the Permian Basin of West Texas.
U.S. Silica moved nearly 3.9 million tons of frac sand during the third quarter, up slightly from the 3.8 million tons during the same period in 2018. The higher volume, however, was more than offset by lower prices, Shin said. With too many frac sand mines in operation, Shinn said, the industry is oversupplied by some 35 million tons — driving down prices as companies compete for market share.
“We believe that some less capable sand competitors may shut down over the coming months,” Shinn warned investors.
Founded in 2008 and headquartered, U.S. Silica has more than 2,800 employees across the United States. The company reported a $201 million loss on nearly $1.6 billion of revenue during 2018.
Read it from Chron – Photo as posted on Chron ( Photo: U.S. Silica / Courtesy Photo )