The Proppant Market at the Barclays CEO Energy Conference

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Carbo Ceramics (NYSE: CRR) spoke at a recent energy conference and touted its prowess in improving the productivity of oil and gas wells through the use of the company’s proppant products as well as software to help design better fracturing operations.  The company also addressed investor concerns regarding low cost imports of proppant from China.

Overview

Carbo Ceramics manufactures ceramic and resin coated sand proppant used during hydraulic fracturing operations on oil and gas wells.  The proppant is injected into the well along with fluid to hold open the fractures so hydrocarbons can flow properly.  The company is the largest producer of ceramic proppant with production capacity of 1.75 billion pounds a year at the end of 2011.  Carbo Ceramics sells to all the major oil service companies that offer hydraulic fracturing services. In 2010 and 2011, Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB) were the company’s two largest customers, with each accounting for more than 10% of revenues in those years.

Ceramic Proppant

Carbo Ceramics estimates that operators realize a 20% improvement in production and estimated ultimate recovery (EUR) by utilizing ceramic proppant over sand proppant.  The company bases the claim on observed results as well as hundreds of studies conducted by the industry.

Carbo Ceramics offers several different types of ceramic proppant with varying weights and densities to use in the wide range of reservoirs in North America and other areas. 85% of its ceramic proppant sales are composed of lighter weight products.

Resin Coated Sand

Carbo Ceramics also produces resin coated sand proppant and reported 100 million pounds of capacity at the end of 2011, and 400 million pounds of current capacity.  The company is holding off adding any more capacity but can expand at an existing facility if demand improves.

Carbo Ceramics does not consider all sand of equal quality and uses only Northern White or Ottawa sand in its resin coated operations.  This sand is the highest strength and has the most uniform shape and size, leading to higher conductivity.

Chinese Competition

The management of Carbo Ceramics downplayed the competitive threat posed by imports of low cost ceramic proppant from China.  The company said that imported ceramic proppant is of low quality and has an irregular shape and size, which leads to more compaction and lower flow rates.

Carbo Ceramics cited a test where the company’s light weight ceramic proppant produced 31% higher long term conductivity compared to an intermediate density Chinese brand.  The Carbo Ceramics brand outperformed the Chinese ceramic proppant by 55% when products with the same density were tested. 

Other Competitors

Carbo Ceramics competes with several other suppliers of proppant.  U.S. Silica Holdings (NYSE: SLCA) mines and sells Northern White sand used in hydraulic fracturing operations and is also investing in resin coated sand capacity.  The company plans an initial spend of approximately $43 million and will have 200,000 tons of capacity available by the first quarter of 2013.

Hi-Crush Partners (NYSE: HCLP) recently became a public company in August 2012 through an initial public offering of 12.9 million shares at $17 per share.  The company operates a fracturing sand facility in Wyeville, Wisconsin, and recently expanded capacity here to 1.6 million tons per year.  The Wyeville plant has rail facilities on site for transport including three 5,000 foot rail spurs.  Hi-Crush Partners plans further expansions of the company’s proved reserves of sand and processing capacity to meet an expected increase in demand.

Carbo Ceramics is optimistic about future growth at the company as its proppant products make oil and gas wells more productive for operators.  The company expects the current slowdown to be temporary but is moderating capital spending in 2012.


shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of CARBO Ceramics, Halliburton Company, and HI-CRUSH PARTNERS LP UNIT LTD PARTNER INTS. Motley Fool newsletter services recommend Halliburton Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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