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IHS Markit recently published the results of our latest survey
of the proppant industry. The annual survey was sent to roughly 600
professionals with an association to the proppant market and
realized a response rate of roughly 7%, which we feel is favorable
compared with typical response rates for this type of survey.
Furthermore, we received responses from a cross-section of
professionals including proppant providers and operators, providing
us with a data set that captures a full industry perspective.
As with last year's edition, this year's ProppantIQ survey was
an insightful look into the current mood of the proppant market.
Unfortunately, the continuing themes from last year continue to
underpin the industry: the situation is dire for proppant miners
due to very high oversupply.
While this oversupplied environment may seem to be favorable for
operators purchasing proppant, a few comments from market
participants throughout the value-chain clearly indicated
recognition that this situation is neither sustainable nor healthy:
efficiency comes from long-term working relationships between
buyers and suppliers, of which cannot be formed if the latter are
constantly on the edge of financial disaster.
Figure 1: Exhibit 1 - Views on anticipated cost inflation in
2020
Nevertheless, money talks and for both proppant and "last-mile"
solutions, pricing remains the most important factor influencing
vendor selection. Exhibit 1 portrays the survey respondent's view
regarding anticipated inflation. Although the clear majority shows
favor for 'no change OR deflation' (60/40 split), our team was
expecting an even greater sentiment favoring expected cost
deflation.
Along those lines, another continuing theme from the 2018 survey
was the increasing dominance of regional sand vs. Northern White
Sand (NWS): the jury may still be out with arguable opinions on
whether the latter leads to meaningful, long-term well performance
on a relative, regional basis; yet it's clear that the immediate,
lower cost of regional sand is winning operators over
regardless.
Logistics continue to be top-of-mind for survey participants,
and constraints around trucking have been particularly challenging.
Interestingly, "infrastructure and traffic" was selected as the
second most pressing constraint for the first nine months of 2019,
indicating that there is only so much private service companies can
do before running into tangible structural constraints.
Despite the tepid outlook of the proppant market, there were
some bright spots: participants for the most part believe WTI price
will remain relatively flat near mid to peak 2019 levels, as seen
in Exhibit 2; as well, a majority of respondents expect a range of
technology adoptions in the first 6 months of the new year.
Figure 2: Exhibit 2 - Participants' views on WTI oil price by
end of 2019
We provide the results of each year's survey to subscribers of
the IHS Markit Onshore Services & Materials subscription (which
includes ProppantIQ), and participants in the survey itself. Learn more about our ProppantIQ
services.
Brandon Savisky is a Principal Research Analyst at IHS
Markit.
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