PLG 2nd proppants summit
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Taylor Robinson, president of PLG Consulting, presents at the 2nd Proppants Summit.

Taylor Robinson, president of PLG Consulting, presents at the 2nd Proppants Summit.

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PLG 2nd proppants summit PLG 2nd proppants summit Presentation Transcript

  • PLG Consulting Prepared for: 1  
  • About PLG Consulting»  Boutique consulting firm specializing in logistics, engineering, and supply chain §  Established in 2001 §  Over 80 clients and 200 engagements §  Significant shale development practice since 2010»  Headquarters in Chicago USA, with team members throughout the US and with “on the ground” experience in: §  North America / Europe / South America / Asia / Middle East»  Consulting services §  Strategy & optimization §  Assessments & benchmarking §  Transportation assets & infrastructure development §  Logistics and Supply Chain operations §  M&A/investments/private equity»  Specializing in these industry categories: §  Energy §  Bulk commodities (Proppants, Chemicals, Plastics) §  Manufactured goods §  Private Equity 2  
  • Correlation of Operating Rig Count with Sand and Crude Shipments 120,000 2500 Operating On Shore Rigs All Sand Carloads Petroleum Carloads 100,000 2000 Operating Onshore Rigs 80,000 1500 Carloads 60,000 1000 40,000 500 20,000 0 0 2007 Avg. 2008 Avg. 2009 2010 2011 2012STCC 14413 (sand) and 13111 (petroleum) Data sources: US Rail Desktop, Baker Hughes 3
  • All Sand Handled by Railroad 40,000   35,000   30,000   Carloads   25,000   BNSF   UP   20,000   NS   CN   15,000   CPRS   CSXT   10,000   KCS   5,000   0   2008   2009   2010   2011   2012   Quarterly  Data  STCC 14413 Source: US Rail Desktop 4
  • Proppant Market Demand Trends»  75% demand growth expected over »  Big 4 plays have over 80% of next 5 years activity US  Proppant  Demand   4000   $USD  (MM)   3000   2000   1000   0   SAND   CERAMIC   OTHER   2006   2011   2016   Data Source: The Freedonia Group, Inc Source: Warlick Energy, August YTD »  Future demand trends by play §  Bakken, Eagle Ford, Permian §  Marcellus –  Continued growth expected –  New activity depressed by gas price & infrastructure –  Major new wells continue to be –  Utica is still very early – tremendous potential for drilled liquids & crude 5  
  • Technology Trends Impacting Proppants Market»  Factors influencing increasing demand §  Increasing lateral drilling length and increased focus on liquid-rich plays could impact proppant demand §  Trend towards “monster wells” and expanded staging Source: Schlumberger»  Opportunities for increasing efficiency §  Increased focus on improving completion and fracturing programs, e.g. Schlumberger HiWAY §  Tagged, detectable “engineered” proppants allow for smarter use of proppant supply Source: CARBO 6  
  • Proppant Industry Trends»  Consolidation & acquisitions in the supply base §  Fracking fluid companies acquiring proppant suppliers (Rockwater Energy, Southwest Proppants) §  Major US suppliers acquiring international facilities (Saint-Gobain in China) §  PE firms continue to be interested in this space»  Partnerships & alliances – Class I railroads & sand suppliers §  BNSF & US Silica §  CN & Superior Silica Sands»  International expansion examples §  Investments in China supply market §  Demand market growth - Argentina»  Local market uniqueness §  Trend toward proppant selection on a well-by-well basis 7  
  • Proppant Shipping FlowsMajor Frac Sand Mining AreasFrac Sand Transloading ClustersForeign Ceramics Import SitesMajor Frac Sand Rail Traffic LanesImport Ceramic Traffic Lanes 8  
  • Hydraulic Fracturing Materials Inputs and Logistical Movements Per Well Source to Transloading toMaterials Waste Water Transloading Wellhead Site ~500 Total Proppants 40 160 TruckloadsOCTG (Pipe) 5 20 Chemicals 3-5 20Clean Water/ Oil / Gas/ NGLs Local source ~1,000 Cement Truck, Rail, 50 Total ~1,200 Total Pipeline Railcars Truckloads Based on a 30-stage well 9
  • Natural Sand Total Delivered Cost»  Benchmark cost with flawless »  Significant cost adders caused performance by strategic and tactical issues: §  Delivered sand cost to TX can be $180/T §  Sub-optimal logistics network §  Logistics drives ~60% of the total design or infrastructure delivered sand cost §  Uncompetitive sand price §  Above market rail rates §  Manifest service vs. unit train §  Poor planning & execution causes –  Rail or truck demurrage costs –  Performance penalties §  Equipment/driver shortages §  Cost of Poor Quality (COPQ) Source: PLG analysis 10
  • Sand Mining Continues to Expand »  Proppant processing and shipping activity growing rapidly in Western and West Central Wisconsin counties §  Chippewa §  Barron §  Trempealeau §  Jackson §  Monroe §  Crawford »  New announced projects §  Superior Silica Sand – Clinton, WI §  $35MM main line rehabilitation by CN §  U.S. Silica – Sparta, WI §  Smart Sand – Oakdale, WI §  Pattison – Prairie du Chien, WI »  Minnesota areas also active §  Southeastern border along Mississippi River §  Western Twin Cities »  Established Illinois companies seeing significant upturns in volumes and financial returns New Growth AreaSource: Federal Reserve Bank of Minneapolis, July 2012; PLG analysis 11
  • Changes in Rail Shipment Pricing Q3 2011 vs. Today - Sand»  Since Q3 2011, have seen an overall rail price increase of 10 - 14% in public pricing (varies by corridor)»  In the 600-1,300 mile range, rates vary from $0.045 - $0.074 per ton-mile for manifest shipments»  Shippers who are willing to ship unit trains and make volume commitments have realized significant savings with longevity over public pricing»  Western carriers are driving single line hauls to Eagle Ford via pricing differentials»  Canadian and Eastern carriers are aggressively working to grow their markets by providing very competitive pricing and securing sand originations §  CN/Superior Silica Sands – Poskin, WI»  Major sand providers are establishing “in the play” transloading facilities to provide ready access to product §  U.S. Silica - East Liverpool, OH Source: PLG analysis 12
  • Sand Railcar Market Conditions»  New-build market has run its course §  Much smaller backlog –  3Q 2011: 10,000 cars, ten month wait –  Today: no significant wait §  Significant drop off from ~15,000 new cars per year §  No new spec building by lessors – all deal specific now §  Lower pricing §  Some new cars going into storage»  Lease market also post-peak §  Existing 286K cars available now §  Cars with sub-optimal specs (grain, <286K, cement) are being phased out of frac sand fleet §  Creditworthiness an important criteria»  Long-term horizon §  No sign of cement market return, easing pressure on small cube hopper cars §  “Rational” vs. gold rush conditions 13
  • Destination Transload / Trucking Cost & Market Trends»  Ability to receive unit trains is dictating sizing and design of destination transload facilities §  Use of unit trains is key competitive factor §  Many facilities are sized to handle 60,000 – 100,000 tons per month»  Destination transload facilities becoming more integrated solutions – same company transloading and trucking»  Trucking to well sites can be most problematic area of proppant supply chain §  Driver issues §  Equipment issues §  Trucking company financial issues»  Local trucking supply bases are ripe for consolidation by professional, financially-sound trucking management»  End customers are willing to pay premium price for reliable, consistent service 14  
  • Future Market Drivers»  Demand levers §  US Natural Gas prices §  Global Oil prices §  Domestic crude displacing imports §  Export of low cost refined products & plastics –  LNG –  Propane –  Polymers §  New Natural Gas applications – CNG, liquefaction technology §  Fracking technology & trends»  Supply market shifts §  Further proppant market consolidation §  Development of mine-to-well supply alliances §  Vertical integration or outsourcing by large players? 15  
  • Looking Ahead: Logistics as a Key Factor in Proppants Market»  Like other “gold rushes” before it, market is continuing to evolve and mature §  “Survival of the fittest” material & service providers §  Margins will be rationalized as market matures §  “Continuous improvement” mindset will impact cost»  Transportation & Logistics buying power/leverage is beginning to accrue to fewer, more efficient and sophisticated buyers §  Has become a key competitive advantage §  Who pays/controls the freight cost?»  Opportunities still exist to establish competitive advantage §  Total supply chain view vs. fragmented approach §  Other industry best practices will give early adopters advantage 16  
  • Thank You!For follow up questions and information, please contact: Graham Brisben, CEO +1-708-386-0700 / gbrisben@prologisticsgroup.com Taylor Robinson, President +1-508-982-1319 / trobinson@prologisticsgroup.com This presentation is available at: WWW.PLGCONSULTING.COM 17