Oil producers in the Permian Basin could save 40%-50% on frack sand costs by sourcing it from local basins, market research consultancy Energent said March 8.
Sand, used to hold open tiny cracks in shale rocks in order to allow oil and gas to escape, is the most widely used proppant for hydraulic fracking.
So far, the industry has relied upon frack sand hauled over 1,200 miles from Wisconsin at a cost of $110 per ton, Energent, which is a part of market research firm Westwood Global Energy Group, said.
By the end of 2018, Energent expects over seven million tons of premium frack sand to be mined inside the Permian Basin every quarter.
That can result in potential savings of $500,000 per well, and cut back dependency on sand-by-rail by 800,000 tons in the fourth quarter of 2018, compared to the first quarter, Houston-based Energent said.
Last year, sand miners including Unimin Corp., U.S. Silica Holdings Inc. (NYSE: SLCA) and Hi-Crush Partners LP (NYSE: HCLP) spent hundreds of millions of dollars on new mines to address a surge in demand from the Permian.
"It [local sourcing] will also focus attention on logistics within the basin itself ... which will also drive well economics," Energent founder Todd Bush said.
Apart from costs, hauling sand over large distances bring other logistical challenges. A severe winter has disrupted rail lines in recent quarters, delaying deliveries of sand from the U.S. Midwest and Canada.
No.3 U.S. oilfield services provider Halliburton Co. (NYSE: HAL) and sand miner Fairmount Santrol Holdings Inc. (NYSE: FMSA) have said they expect rail delays of sand deliveries to affect their quarterly results.