If you pay more than $18-20/st EXW for your frack sand, you are paying too much!
Updated: May 1, 2018
Frack sand is a major cost driver for E&P companies and drilling companies, therefore, we decided to dive into it, and understand these mining operations, as well as D&C engineers logic and behaviors on how to select and buy frack sand.
On the costing side, we worked closely with a few expert mining engineers from different locations, and we looked at every $ of Capex and Opex needed to operate these frack sand mines.
Below are the main operating cost we took into account:
- Total resources of qualified sand and particle size distribution available
- Stripping ratio
- Ore and Waste production
- Hauling distance at the mine
- # of shift per day and average mining labor rates
- Bench high and powder factor
- # of hydraulic shovels, # and types of front-end loaders, # and types of rear dump & bulk trucks, # and types of rotary drills, # and types of bulldozers, # and types of graders, # and size of water tanks, # of service trucks
- # of lights plants, pumps and pick-up trucks
- Building size and types needed for shop, dry area, office, warehouse and storage
- Pre-production stripping and haul road cost
- # of drillers, blasters, excavator operators, truck drivers, equipment & utility operators, mechanics and general maintenance employees, and their average labor cost for mining operations
- # of salaried personnel needed, including managers, superintendents, foremen, engineers, geologists, supervisors, technicians, accountants, clerks and security
- Total mining equipment capex needed to start operation
- Haul roads / Site work
- Pre-production stripping capex
- Electrical system
- Working capital
- Engineering and construction management
- 20% Contingency
- Useful life of 40 years
- Effective tax rate of 36%
- Tax shied benefits
At the end of the day, one short ton of frack sand cost approx. $15/st to extract from a mine! Add 20-25% gross margin to it, and depending on grade (20/40, 30/50, 40/70 or 100 mesh), you should pay approx. $18-20/st EXW.
At this point, you may want to dig-up a few recent P.O.s or invoices and check how much you are paying or even more entertaining, how much you are being charged... depending on what you find out, you may want to contact us.
And this post is only about top white sand pure & perfect particle size distribution and shape, a.k.a."dream frack sands" that most D&C engineers or frack crews would only consider using for many years! And we will pass on potential rationales substantiating such decisions...
Since I am a chemical and material science engineer, I have spent an inordinate amount of my life studying particle size distribution & shapes, specific surface, rheology and heterogeneous chemistry of sands, silica or alumina-based powders, carbon-based catalysts and many, many other materials mixed with different fluids, additives and proppants... working our your sourcing strategy could further cut your logistic cost by 60%....YES! 60%... Knowing that logistic cost can be another $50-75/st between rail and trans-loading charges, you probably get a good picture of the potential all-included cost reductions delivered to your well site....
One word of caution though: frack sand is a VERY sensitive and technical matter, sometimes even highly political... - and therefore it takes a lot of advanced analysis, broad cross-functional collaboration internally and with your suppliers, and unequivocal executive commitment for any change management to be successful in this spend category. Nobody wants sub-optimal fracking zones output either. Doing so would be tripping on a $ to pick-up a dime... But there is "nice-to-have" and "have-to-have"... and the "dime" in this case, is likely millions of $ per year for your company...
Anyways, if you want to take a fresh look at your frack sand total cost delivered, we can help you better assess your frack sand needs, share our should-cost model benchmark to help negotiations, take a fresh look at your spending & specifications, help you re-negotiate better T&Cs with your suppliers and bring significant cost improvement to your bottom-line. Your call!