Last week’s frac sand conference in San Antonio, hosted by the Petroleum Connection, featured some of the most thoughtful logistics panels that we’ve seen at any oilfield industry event.
With three panels on focused squarely on logistics, frac sand hauling and handling issues featured prominently into the discussion. The challenges and solutions addressed covered a wide range of topics including highway safety, technology, configuration, software, wellsite storage and the driver shortage.
Over the weekend we were again reminded of the importance of trucking when a critical oilfield route just outside of Kermit (TX HWY 302) was closed for hours overnight after a crash involving two sand haulers.
After showcasing three new last mile solutions for the Lower 48 in a separate piece yesterday, we have documented below some of the key logistics trends that got a lot of attention at the conference last week.
Thanks again to the Petroleum Connection for putting together a great event, we look forward to their next one!
Four Last Mile Takeaways From San Antonio
1. Boxes Vs. Silos. It’s Still The Biggest Sand Logistics Debate Going
The boxes vs. silos debate featured prominently into the discussion at the event, both on stage and on the sidelines. At present, we estimate that boxes and silos are pretty evenly matched with close to 40% market share each as hardware platforms in the last mile.
On the first morning of the the tradeshow, operator staff met outside the conference room for an E&P-only breakfast (no vendors or outsiders invited). We of course didn’t attend but after speaking with several operators who were there, we learned that the question of boxes vs. silos got quite a bit of airtime. We learned that the result was inconclusive with folks recognizing that it’s a decision specific to customer, region, and even well-site attributes.
Beyond the operators’ breakfast table, this particular debate also permeated the talking points and Q&A of several formal presentations. In fact, by far the most popular round-table discussion at the end of day one was titled “Boxes vs. Silos.” Around that roundtable, a group of listeners gathered to stand and hear truckers and other last mile stakeholders talk about efficiency with box reps (picture below).
Bottom line: this question is still open for debate as we didn’t sense either solution gaining definitive traction over the other at this event. If anything, both solutions now face heightened competition from other solutions that don’t look like anything like boxes or silos (i.e. bins, pivoting containers, and rapid deployment flexible chutes).
2. Other High Profile Debates & Dilemmas Were Not Ignored
Here are some of the other key last mile debates and dilemmas that we heard making the rounds in conversations at the event:
- Debate: Are sleeper cabs better than day cabs for keeping drivers happy? Sleeper cab fleet owners say they offer drivers the flexibility they prefer, while day cab owners tout higher asset turnover and better quality of life for drivers. To be continued…
- Debate: An operator asked a logistics panel about the potential for B-train adoption in the Permian. Seems like it’s early days given permitting issues and regs and not something that is widely being discussed yet. But we do expect the idea of linking two trailers together could come up more frequently in the future as a way to reduce drivers on the road…
- Debate: Where does trucking ownership fit in? Some of the newer last mile solutions providers like CIG and Sand Revolution swear by operating their own truck fleets (as well as some established LML providers like SandBox and PropStream). They argue that integrating trucking fleets is a distinct advantage that separates them from wellsite storage solution only offerings like Solaris…
- Debate: Are pneumatic trailers dead? It was clear to us at the event that pneumatics still play a key role and are still far from being completely phased out, especially if they have valves on the bottom that allow them to bottom drop. There was a new pneumatic / bottom drop combo trailer on display at the equipment expo. That said gravity-drop trailers (i.e. grain trailer look alikes) do continue to gain traction, especially the new gen larger capacity trailers like CIG’s proprietary trailer (172 of which are deployed) and Sand Revolution’s big trailers (140 are deployed)
- Debate: When will mid-mile become real in the Permian? Everything we heard pointed to 2019 with multiple sand producers, logistics firms, trucking companies, and customers talking more optimistically about the concept of forward staging. Seems like trip division is getting closer to reality at scale…
- Dilemma: Last mile lawsuits were a hot topic, and those that haven’t been subject to litigation because they look different are proud of that fact…
- Dilemma: Driver turnover is high and there was discussion about the best way to combat it. One trucking outfit said their driver turnover ratio exceeds 100% annually and the cost of recruiting a new driver averages $6,000 (they spend several million dollars per year replacing drivers)…
- Dilemma: Permian highways are dangerous, now accounting for 15% of Texas vehicle fatalities despite only 1.5% of the Texas population living in the area. No perfect answer here, but technologies that reduce drivers seems to be the best bet in the long run…
3. A Good Showing For Several New Concepts
Some new last mile logistics platforms were generating some buzz at the event. Here are two that we found to be noteworthy:
- Last Mile Software Market Share Battle. We spoke with several folks on the sidelines who told us that ShaleApps is gaining traction and now competing very aggressively for market share in the frac sand last mile software space. We learned from industry contacts that the company has won business from multiple large direct-sourcing E&Ps and has also taken over as the last mile software provider for multiple pressure pumpers (including some that were previously using other new gen software platforms). Several large and small trucking outfits have also converted to the platform recently, and we spoke directly with one of them. This software platform offers AI designed to improve loads/day/truck and reduce the cost of sand landed at well. We hope to catch up with the ShaleApps team soon for our Silica Valley series to learn more about their plans, which we believe envision deploying logistics AI solutions for more of the oilfield transportation sector than just frac sand.
- Arrows Up’s New JV. On the conference sidelines, we had a chance to speak one-on-one with both Justin Renfro of Omnitrax and Robbie Ballard of 1845 Oil Field Services. The topic was their new joint venture, ShaleTECH Transport, which was press released just days before the trade show. The integration of the two firms’ last mile offering was on full display at the equipment expo with an 1845 trailer married up with two Arrows Up boxes (pictured below). The team told us that the idea is to integrate 1845 expertise on dispatch and management into a full service offering with Arrows Up fleets, giving customers logistics surety/visibility from origin to well through holistic supply chain management and operation. The JV’s management structure will touch half of all Arrows Up fleets by year-end. The team told us their key focus is lowering the total cost of ownership for customers in the last mile, which will be optimized in part by focusing on reducing gate-to-gate times at origin and dropoffs at location.
4. Buzz Building For Several Alternative Transportation Concepts To Curb Long Haul Permian Sand Trucking Needs
The industry seems to be taking more seriously what were once considered “out there” concepts for transporting sand. Two of these concepts we heard quite a bit about at the event last week were i) local sand by rail movements within the basin and ii) hydrotransport systems. Here’s a bit more on each of these:
- In-Basin Rail Moves. On the in-basin panel we moderated, Vista announced that they will begin short haul rail shipments of local sand within the Permian by year-end or early next year. They envision taking Kermit-mined sand west by rail to Pecos terminals and east to the Midland Basin. Other sand producers mentioned that they are also evaluating the concept. On the transload panel, the Liberty Oilfield Services CEO said that this could de-risk the frac supply chain when sand is sourced 150 miles or so away from wells, while Twin Eagle said that they are ready to execute on this front by accepting in-basin sand by rail at their Big Spring terminal.
- Slurry Pipeline. It was clear to us that most of the key completions industry stakeholders have now taken a good hard look at the idea of a slurry pipeline to move local sand over the past 12 months or so. Several sand producers talked about it like it was a viable concept to consider implementing sometime in the 2020s. We caught up with Brad Marcak of Hippo USA on the sidelines of the event. His company has been the driving force behind the concept, and he told us that a significant meeting occurred several weeks ago. In it, multiple Major E&Ps and a large Independent gathered with the Hippo team and the LT Governor of New Mexico to discuss hydrotransportation for Permian sand and water. By combining their “buying power” and pooling their sand demand, a group of large operators could give a midstream company the needed financial assurances (in the form of volume commitments) to get the slurry pipeline built. While it’s still early days for this idea, the fact that multiple large operators with decades of drilling inventory in the area are gathering to discuss and evaluate the potential here is a significant step forward for hydrotransport system believers. No single E&P in the basin has enough sand usage to justify the project, but together some of the biggest operators certainly do. Such a pipeline could address not only getting sand closer to wells but it could also factor into removing produced water. Hippo’s concept for the hydrotransport system is for it to operate similar to a midstream provider, with the E&P’s paying a tariff for each ton of sand delivered from mines to a central storage location or storage at the well site. When a midstream company proposes constructing a takeaway pipeline for oil, gas, or NGL they typically design the pipeline to a capacity that will support future expansion and capabilities. To justify the construction and operation of this pipeline, the midstream company will go to the market in “open season” to secure enough contracted usage (typically 30-40% of design capacity) to justify the investment. While we are not at the stage of “open season” for the sand slurry pipeline, multiple E&P’s now appear to believe that it is in their best interest to jointly study the hydrotransport system, its capabilities and economics.