With 90% of U.S. shale explorers burning cash and supply-demand imbalances aplenty, frac sand prices risk being low for the foreseeable future.
Share to twitterThere was a time when the price of frac sand, a critical component of the hydraulic fracturing mix, appeared to be highly correlated with the price of West Texas Intermediate crude oil. However, the last 12 to 18 months have been anything but.
A number of in-basin mines in the Permian and other basins currently being developed, but which are not yet operational, could boost total U.S. frac sand supply to 250 million tons. It has prompted rating agency Moody's to predict low frac sand prices for the"foreseeable future." "Meanwhile leverage has increased, valuations have collapsed and access to the capital markets has softened – all of which limit the prospects of frac sand producers for mergers and acquisitions."
There is evidence of mine closures and production cuts as well as relatively higher oil prices, but Moody's does not see any significant price recovery on the horizon. Oversupply from in-basin sand production will likely keep current prices range bound, the rating agency says, limiting upward profitability, particularly at a time when demand is constrained.
"Total cash-flow from operations fell from $14 billion in the fourth quarter of 2018 to $9.9 billion in the first quarter of 2019. That is the lowest we have seen since the fourth quarter of 2017," says Alisa Lukash, Senior Analyst on Rystad Energy's North American Shale team.
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