the global proppants industry

PROPPANTS INVESTMENT FORUM

GRANGE CITY HOTEL, CITY OF LONDON ● THURSDAY, 21 APR 2016 www.ObjectiveCapitalConferences.com

The Global Proppants Industry Alison Saxby – Director & Manager, Roskill

The Global Proppants Industry

Alison Saxby

Objective Capital

21 April 2016

The statements in this presentation represent the considered views of Roskill

Information Services Ltd. It includes certain statements that may be deemed

"forward-looking statements“. All statements in this presentation, other than

statements of historical facts, that address future market developments, government

actions and events, are forward-looking statements. Although Roskill Information

Services Ltd. believes the outcomes expressed in such forward-looking statements

are based on reasonable assumptions, such statements are not guarantees of future

performance and actual results or developments may differ materially from those in

forward-looking statements. Factors that could cause actual results to differ

materially from those in forward-looking statements include changes in general

economic, market or business conditions.

While Roskill Information Services Ltd. has made every reasonable effort to ensure

the veracity of the information presented it cannot expressly guarantee the accuracy

and reliability of the estimates, forecasts and conclusions contained herein.

Accordingly, the statements in the presentation should be used for general guidance

only.

Disclaimer

• Solely focused on metals and minerals information and research since 1970

• Independent company, privately owned

• Publishes over 40 industry market reports and briefings

• Bespoke consultancy and market studies

• Coverage:

• Steel Alloys

• Minor Metals

• Industrial Minerals

• Carbon and Chemicals

Who are Roskill?

Proppants – a global $6bn industry in 2016

North American frac sands – a $2.2bn industry in 2016

Today

• Evolution of Hydraulic Fracturing

• Proppants – Frac sands

• Proppants - Ceramic

• Trends and Developments

• Outlook

Outline of today’s presentation

Evolution of hydraulic fracturing

(fracking)

Evolution of hydraulic fracturing

Source:aogr.com

First commercial treatments – 1949 in Duncan. Oklahoma by Haliburton for Stanolind Oil Co.

Source: Montgomery & Smith 2010

1930s – First horizontal well 1949: 100-150lbs of sand used 1950s: Water was used as a fracturing fluid 1960s: First 500,000lbs job (Pan American now BP)

Barnet Shale US - first fracturing and horizontal drilling combined

Exploiting unconventional oil and gas demand

Vertical wells – lower proppant use per well

Vertical wells - Main characteristics

Technical Very shallow (3,000 feet) to very deep (18 000 feet) wells

Wells productivity not sufficient to offset decline

Both Oil and Gas basins, used in conventional and tight reservoirs

High EUR (Estimate ultimate recovery) achieved >75%

Relatively low available volume

Low number of stages (<8 stages)

Economics D & C (Drilling & completion) costs $1.5M (US on-shore)

Proppant mass: 300,000lbs

Proppants 1-10% of D & C costs

Source: Saint Gobain

Exploiting unconventional oil and gas demand

Higher proppant use in unconventional wells

Main Characteristics – unconventional wells

Technical Always deeper than sandstone formations in the same area

Both oil and gas basins

Low EUR (Estimate ultimate recovery) achieved <20%

Large available volume

High number of stages (>20 stages) and increasing rapidly

Economics D & C (Drilling & completion) costs $6.5-10M (US on-shore)

Proppant mass: 8-12M lbs

Proppants 10-40% of D & C costs

Source: Saint Gobain, Roskill

Modern art of fracking

Costs driving innovation

Mid 2000s Multi frac stages, 4-6m lbs (3,000st) proppant/well From 2013 40-50 frac stages, up to 20m lbs (10,000st) proppant/well

Source: M O’Driscoll, IMFORMED 2015

Main proppant types

Source: M. O’Driscoll, IMFORMED

Silica sand (“frac sand”, FS): derived from silica sand deposits, 99% SiO2

Ceramic proppants (CP): derived mainly from bauxite and/or kaolin, >50% Al2O3

Resin coated proppants

US proppant market share (80Mlbs, 36Mt) 2014

Source: Carbo Ceramics, M O’Driscoll IMFORMED 2015

Resin coated sands (5-10%)

Silica sands (Frac sands) (80-90%)

Ceramic proppants

(5-10%)

Proppant market structure

Source: Carbo Ceramics

Resin coated sands (5-10%)

Silica sands (Frac sands) (80-90%)

Ceramic proppants (5-

10%)

Typical fracturing fluid components

Water 98%

Proppants 2%

Water

Proppants

Surfactant

KCl

Gelling agent

Scale inhibitor

pH adjusting agent

Breaker

Crosslinker

Iron control

Corrosion inhibitor

Biocide

Acid

Friction reducer

Source: Frac Focus

Proppants – properties

What do you need from a proppant?

• Properties – Strength, shape, size, durability • Proppant availability – Supply source, quality

and cost • Fracture treatment suitability • Conductivity requirements – Desired

conductivity, cost vs benefit, ie the proppant cost set against oil recovery

Krumbein and Sloss roundness and sphericity chart

Source: www.GlobalEnergyLaboratories.com, Frac Sand Specifications "Quick Reference Guide"

Proppants – Frac sands

Shale gas (and oil) basins in North America

Source: Canadian Association of Petroleum Producers©

In 2002 demand for frac sand began to rise…

USA silica sand production from 1915 and frac sand from 1970 to 2014 (mt)

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

IS Production

US Frac Prod

Source: USGS Mineral Commodity Statistics; Roskill

Proppants – ceramic

Primary raw materials • bauxite • kaolin • bauxitic kaolin • bauxite/kaolin blends Alternative raw materials •magnesium silicate (derived from serpentinite, olivine, dunite) •andalusite •metabasalt •fly ash – cenospheres •alumina-rich clays •nanostructured ceramics/glass •metallurgical slag •mine tailings

Ceramic proppant feedstocks

Ceramic proppant grade examples

Carbo Ceramics LWC

Lightweight ceramic

proppant

IDC

Intermediate density

ceramic proppant

HDC

High density ceramic

proppant

Raw material kaolin bauxite bauxite

Apparent SG 2.71 3.27 3.56

Bulk Density (g/cm3) 1.57 1.88 2.00

Alumina % 51.0 72.0 83.0

Silica % 45.0 13.0 5.0

Iron % 1.0 10.0 7.0

Titania % 2.0 4.0 3.5

Raw material kaolin bauxite bauxite

Source: Carbo Ceramics

Ceramic proppant producers – relatively few worldwide

China Over 100 producers

Russia Borovichi Fores Carbo

Brazil Mineral Curimbaba

USA Carbo Ceramics Imerys Saint-Gobain

Located near feedstock deposits, bauxite, kaolin & serpentine

Ceramic proppant producers – facing headwinds

• D&C activity decline in 2015 & 2016 especially in North America • Closures in last 12-18 months • Expansions put on hold • In USA, E&P using higher volumes of frac sands and tailings than

ceramic proppants – short term solution? as after initial high well productivity it declines steeply

Developments • Ultra high strength Proppants from Carbo Ceramics, Saint-Gobain,

CoorsTek • Highway by Schlumberger – slugs of proppant pumped down well to

create flow channels. Enhances conductivity and reportedly uses 40% less proppant

• Proppant transport technology – Fairmount Santrol. Proppant polymer coating decreases specific gravity enables proppant to go further and higher into formation therefore increases stimulated reservoir volume

Outlook

Oil prices & US drilling activity subdued in early 2016

Source: Baker Hughes, World Bank

In the long term, energy production forecast to increase

spurring exploration, drilling & proppant use to 2035

Source: BP Energy Outlook 2016 ‘

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Liquids Natural Gas Coal

Nuclear Energy Hydroelectricity Renewables

Bn toe

More importantly the new sources of supply will require

proppants to 2035

Source: BP Energy Outlook 2016

Top ten countries with technically recoverable shale gas

resources

Source: EIA, IMFORMED, 1EIA used for ranking order

Rank Country Shale gas (trillion cubic feet

Estimated order of commerical development?

1 China 1,115 2

2 Argentina 802 1

3 Algeria 707 2

4 USA 1 665 1 (GOM)

5 Canada 573 1

6 Mexico 545 1

7 Australia 437 2

8 South Africa 390 4

9 Russia 285 3

10 Brazil 245 1

World Total 7,299

Long term positive outlook for proppants

• Long term demand assured by anticipated world gas demand • Volumes assured by increase in horizontal drilling, longer

laterals and rise in fracking stages • Higher volume of proppant consumed per well – up to 16M lbs per well up from 5Mlbs in 2010-12 • Move to pad drilling • World shale gas potential • Long term demand assured by anticipated world gas demand • Anticipated growth markets outside the USA to evolve at different rates

Thank you

• Founded in 1930 as a management consultancy

• Focused on Metals and Minerals information and research since 1970

• Publish over 40 industry market reports and briefings

• Bespoke consultancy and market studies

• Coverage:

• Steel Alloys

• Minor Metals

• Industrial Minerals

• Carbon and Chemicals

Who are Roskill?