• Per-stage pricing for well stimulation is rising.
  • Price increases originated in greater proppant use per well.
  • Price increases now reflect greater demand for fracture spreads.

There is a sandstorm underway—and it’s not just another West Texas spring day. Sand, in the form of proppant for hydraulic fracturing, is now the first indicator that cost inflation is returning to the oil patch.

Per-stage pricing rose 24% sequentially in fourth-quarter 2016. Well stimulation pricing now exceeds $42,000 per stage in every tight formation market after spending the previous 15 months adrift in the mid-$30,000 range. That initial fourth-quarter price increase—the first for any oilpatch sector—originated in greater use of sand as proppant on a per-well basis.

Prices rose as inventories of Northern White and other fine mesh sands, the preferred proppant in oil and gas slickwater completions, were drawn down. Oil and gas operators reported a tightening proppant market in West Texas and the Midcontinent for higher grade sands in second- half 2016. Operators in Texas responded by moving to coarser, less expensive regional browns and tweaked the completion recipe to use a small tail of expensive resin-coated sand to finish out individual stages.

True to form, the price for regional browns also began rising at year-end 2016 as a shortage of truck drivers increased the cost of moving sand from regional mines in central and east Texas to high-demand applications in the Permian Basin. Sand price increases were approaching the low double digits for regional browns in Texas as 2016 came to a close.

Meanwhile, operators are drilling longer laterals, increasing stage count, decreasing stage spacing and boosting proppant load to a ton or more per foot in slickwater applications. The trend has resulted in a significant jump in sand consumption per well.

The completion recipe constitutes an industry response to low oil prices, which made slickwater/ plug-and-perf completions the predominant method to finish a well as operators high-graded to the very best rock.

Interest in greater proppant loading originated in the Eagle Ford Shale in 2012, when high proppant volumes were first implemented in an industry that previously emphasized the light sand slickwater fracture. Greater proppant loading produced significant increases in IPs, which were colloquially labeled “monster” wells. Larger proppant loading quickly spread across the Eagle Ford and subsequently jumped to other tight formation basins, then hit full stride after oil prices collapsed in 2014.

As sand prices fell more than 30% from peak, operators discovered that higher proppant loading was the cheapest way to boost IPs and sustain payout in a low commodity price environment. Recently, the industry entered the nuclear armament phase of sand use. During the last half of 2016, a handful of Haynesville wells saw proppant loading as high as 2.5 tons per foot on a 3,048-m (10,000-ft) lateral.

Meanwhile, the increase in completion intensity means crews are spending more time at the well site, and operators began experiencing wait times on fracture spread availability as 2016 came to an end. Indeed, price increases for well stimulation entered a second phase in January 2017, when well stimulation firms began pushing pricing for well stimulation services over and above the increase in proppant cost.

Will sand volumes continue upward, or are there limits? Operators are discovering diminishing returns after a certain level, which will become a factor as sand pricing rises. The sweet spot, depending on play, ranges from 1,700 lb/ft to 2,500 lb/ft.

The bigger story is the return of service cost inflation after a two-year downturn. Operators successfully achieved capital efficiency through a beneficial combination of process improvement and service industry price reduction. The second part of that equation is about to reverse.

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