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Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: What Will Be the Single Fastest Growing Oilfield Segment in 2017 and 2018?
January 23, 2017

Over the past few years, the single biggest driver of improved U.S. well productivity has been getting more sand volumes into each well. Because of this, U.S. sand demand has fallen only about 40% over the past two years (2014 to 2016) while the U.S. rig count has collapsed nearly 75% over the same time. Going forward, we expect the trend toward higher proppant intensity per well (see below right) to continue to drive U.S. well productivities and sand consumption higher.

As shown below (left), we expect to see U.S. proppant demand this year to set all-time highs despite fewer than half the rigs running relative to the previous 2014 sand demand peak. Furthermore, with our expectations for an increasing U.S. rig count over the next few years, U.S. sand demand in 2018 should be at least 150% higher than 2016 up to a whopping 80 million tons.While we certainly expect new proppant supply to hit the market, this sharp demand surge should drive sand pricing per ton significantly higher. Even though sand and sand derivative stocks have done well recently, we do not think investors have fully priced in the rally in what is the single biggest structural tailwind in the oil services space. In this week's stat we will detail the case higher U.S. proppant demand and its impact on U.S. E&P well results. We will also outline why investors should remain bullish on sand and sand derivative stocks as we are still in the early stages of seeing the compounding effect of a U.S. oilfield activity combined with higher proppant intensity.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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