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WISCONSIN FREIGHT RAIL DAY OCTOBER 26, 2012

WISCONSIN FREIGHT RAIL DAY OCTOBER 26, 2012. Superior Silica Sands “We’re in the Logistics Business”. Rick Shearer President & CEO Superior Silica Sands. WELL STIMULATION AND FRACTURING. Hydraulic fracturing is a well stimulation process to optimize or restore production of oil and gas

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WISCONSIN FREIGHT RAIL DAY OCTOBER 26, 2012

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  1. WISCONSIN FREIGHT RAIL DAYOCTOBER 26, 2012 Superior Silica Sands “We’re in the Logistics Business” Rick Shearer President & CEO Superior Silica Sands

  2. WELL STIMULATION AND FRACTURING • Hydraulic fracturing is a well stimulation process to optimize or restore production of oil and gas • Over 90% of the wells drilled in the U.S. now require hydraulic fracturing to produce at economic rates, according to IPAA • Fractures created along the borehole of a well increases the surface area exposed and operators are able to produce 10 times the amount of energy while drilling 1/10th the number of wells • Fractures created are kept open using a proppant – typically sieved round sand, a resin coated sand or a manufactured ceramic proppant • Proppant accounts for approximately 10 – 15% of the total cost of drilling and completing a typical horizontal well

  3. FRAC SAND CONSUMPTION MODEL • Supply of Oil & Gas • Decline of current fields • New sources of supply • Shale gas • Oil sands • Other • Demand for Oil & Gas • GDP growth • Substitutes (renewables) • Regulation (carbon) Price of Oil & Gas Number of Drill Rigs • Regulation • Infrastructure • (water, pipelines, • labor, equipment, • sand, other) • Technology • Horizontal • drilling • Hydraulic • fracturing Wells per Rig Sand per Well Demand for Frac Sand

  4. DRIVERS OF DEMAND FOR FRAC SAND Frac sand consumption is a product of 3 variables: NUMBER OF RIGS WELLS PER RIG SAND PER WELL • Historically, the number of rigs has been primarily driven by the price of energy • Horizontal drilling and hydraulic fracturing make it economic to drill at much lower price levels for oil and gas • 9.5% annual growth since 2002 • The number of wells drilled per rig per year has increased by 50% since 2002 • This improvement has been caused primarily by the rise of horizontal drilling and hydraulic fracturing • 3.8% annual growth since 2002 • There is a very modest amount of sand consumed for vertical drilling • The penetration of horizontal drilling and hydraulic fracturing has greatly increased the average amount of sand used per well drilled • 30.8% annual growth since 2002 • Atwood Industry Review 20070601 v2 Sources: EIA; US Geological Survey; Baker Hughes

  5. HORIZONTAL DRILLING PENETRATION

  6. CORRELATION OF OPERATING RIG COUNT AND SAND SHIPMENTS

  7. LOCATION OF BEST FRAC SAND • The Cambrian quartz sandstone deposits (marked in red on the attached map) found in Wisconsin are a scarce resource • The Cambrian deposits in Wisconsin are unique in that the sand: • Is of unusually high quality • Can be mined in a manner that is cost efficient and environmentally friendly WHERE THE BEST FRAC SAND IS (RED) Source: Where-the-best-sand-is – Brown Presentation

  8. SAND GEOLOGY • St. Peter’s • Jordan • Wonewoc • To date, no high quality frac sand deposits found on the globe better than Wisconsin and Eastern Minnesota

  9. WORLDWIDE RECOVERABLE SHALE GAS RESERVES

  10. UNITED STATES SHALE DEVELOPMENT

  11. NEW AUBURN PLANT RAIL LOADOUT

  12. CLINTON PLANT

  13. FRAC SAND PRODUCER SUCCESS IS BASEDON THE SUPPLIER’SLOGISTICSCAPABILITIES • Rail Infra-structure at Plant • Storage Track at Plant • Rail Service • Transit Time to Strategic Destinations • One-Line Haul Capabilities • Competitive Rates • Destination Storage/Transload Services By definition, “We are in the Logistics Business”

  14. SUPERIOR SILICA SANDS COMMITMENT TOOUTSTANDING LOGISTICS FOR OUR CUSTOMERS • New Auburn Plant: Directly on Progressive Rail • Short-Line to UP Railroad @ ALTOONA • 260 Railcar Storage Capability • Clinton Plant: Directly on CN Rail • 500 Railcar Storage Capability • Providing our Customers shipment flexibility throughout • North America • Building a network of storage/transload locations • Oil & Gas Service Companies are demanding more…

  15. SSS PARTNERED RAIL LINES Union Pacific Canadian National

  16. FRAC SAND: LOOKING INTO THE FUTURE • Dramatic annual growth will level off to about 8% per annum • Frac Market will be cyclical, but with milder peaks and troughs • More capacity coming into the market but leaders remain • International Markets will begin to show significant frac sand demand • Sand producer base will diversify as Service Companies and E&P’s back integrate • Logistics will drive economics

  17. WHAT IT ALL MEANS TO YOU …. THE RAILROADS • Shipping more sand to numerous new destinations • Unit train shipments more common • Managing bottlenecks and turnaround times becomes more crucial • With freight prices not dropping, service is king • Storage and Transload sites are over populated in some locales • Railroad Partnerships

  18. CONCLUSIONS • The Frac Sand Boom is a “Once in a Lifetime” event. • Wisconsin is the Global Epicenter • Efficiency and cost Effectiveness in shipping this important proppant is critical • Rail is a major focal point to complete market success • Any successful frac sand producer is actually in the Logistics Business!

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