American Oil and Gas Reporter - February 2021 - 68

pages 68-72_Layout 1 2/16/2021 11:59 AM Page 68

SpecialReport: Permian Resource Solutions
In January, Kpler issued research that
likely caught more than a few by surprise
by declaring U.S. shale plays would face
constraints following a strong activity recovery at the start of 2021. Specifically,
Kpler's report stated, " Frac sand, a critical-path component in fracs, could be a
chokepoint for the industry's rally in the
first quarter of 2021 as fleets compete to
stay sanded in a weakened supply chain. "
So, how did the industry so quickly
go from supply abundance to potential
scarcity? Alexandre Andlauer, senior
global energy analyst at Kpler, explains
that frac sand supply is following the
same trend line as U.S. oil and gas production output for the same basic reason:
underinvestment. " Many sand mining
companies were underinvested because
of low prices, and a lot of mines were
shut down or idled last year, " he states.
" I am hearing that between one-third and
one-half of the total frac sand capacity
we had two years ago has disappeared. "
Hit first with diminishing economic
returns from falling frac sand prices, and
then by the abrupt halt to completion activity during the depths of the COVID19 downturn, some proppant suppliers
have been forced into bankruptcy, restructuring and mine shutdowns, Andlauer
goes on. That includes both in-basin regional mines as well as Northern White

mines in the Upper Midwest, many of
which had debt-laden balance sheets from
borrowing capital a few years ago to expand capacity when soaring demand bolstered sand prices.
" Some mines will never come back,
but some eventually will be reopened
and return to production, " he comments.
" My view is that that the ramp up in
drilling and completion activity has occurred so much faster than what anyone
had expected-from 250 rigs and 60 frac
spreads in July to 380 rigs and 170 frac
spreads in January-that the sand market
is challenged to respond. "
Consequently, a major roadblock that
could impede a further activity response
to strengthening oil and gas prices appears
to be moving into place. " It looks as if
supply chain disruptions will be unavoidable, " Andlauer says. " They involve more
than frac sand, but that will be one of the
biggest challenges in the months ahead
as prices recover. U.S. shale oil production
ended 2020 down 20% from 2019. Technical constraints are making it very unlikely
to reach 2019 levels again in the next 18
months, even if oil rises to $70/bbl. "
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68 THE AMERICAN OIL & GAS REPORTER

problem: repopulating a workforce that
was downsized drastically in 2020. A
case in point is one of the most basic, but
logistically critical jobs in the oil patch:
delivering millions of tons of sand and
other consumables to the well pad. " I am
hearing more and more that a shortage
of truck drivers could be an even bigger
constraint than frac sand in U.S. shale
plays, " Andlauer reveals.
He points to two issues that are compounding the problem. " I have friends
that have made a lot of money driving
trucks in the Permian, but they have left
the industry and do not want to come
back because of its volatility. They had
been laid off multiple times over the past
seven or eight years. Demand for truck
drivers is strong everywhere, so they have
options outside the industry. "
Money talks, of course, and the opportunity to earn a bigger paycheck than
in other sectors always has been the industry's calling card. " The trucks are
available, but you have to bring drivers
back from other sectors. To do that, you
need to offer salaries high enough to
make up for the volatility and their lack
of confidence in the industry, " he points
out. " But with producers trying to implement capital discipline, nobody wants to
hear about cost increases for trucking or
anything else. "
When it comes to the Permian labor
market, no one knows the score better
than Willie Taylor, who has led the
Permian Basin Workforce Development
Board as chief executive officer since its
inception in 1996 and been involved in
workforce development in the region for
48 years.
" The Permian is in better shape going
forward than any other basin, " he assesses.
" It may take a little time, but oil field activity will come back. Companies are
going to be cautious, especially with the
new administration, but we are going to
have to go outside the area and do some
heavy recruiting as activity returns and
unemployment falls. "
In December 2019, with the previous
administration in the White House and
coronavirus still an unfamiliar term to
Americans, the unemployment rate in
Midland was among the lowest in the
country at 2.0%. Odessa was just behind
at 2.9% and Texas unemployment was at

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American Oil and Gas Reporter - February 2021

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