Risk Takers Needed!
The news has been slow this week, so far. Yet, there is a lot still going on.
So, here is what is on my mind late on a Monday evening.
It takes a certain type personality with a lot of risk capital to drill an oil well, much less an oil shale well. But, here, in the most challenging of all oil shale plays, the Tuscaloosa Marine Shale, it takes a special kind of nuttiness.
And, now, if the play is to make it, it will require a lot of other risk takers besides the operating companies to invest money, time, and effort, as well.
During 3rd quarter operating reports, management for all five TMS operating companies commented about the need to lower drilling/completion costs in order to move the play forward.
Infrastructure and supply costs were specifically cited by some.
Encana mentioned they were down to $14.2 million AFE’s (Authority for Expenditure) for single wells. Their goal is $12 million. Other companies, drilling shorter laterals, have lower costs today and even lower goals per well.
No doubt multiple well drilling pads will knock that cost down some, but the last bit of cost savings will have to come from lower costs from service companies locating here.
What difference does it make if a service company actually locates in the TMS or not, you ask?
Can’t the support industries continue to be located hundreds of miles away and simply lower their prices?
No. Not really.
Here’s one example: Sand/proppants.
As I understand it, specific types of sand or proppants are required for fracturing operations. The sand/proppant must be of a certain uniform size or sizes; must be as close to sphere shaped as possible; must be able to withstand a required amount of pressure; must be furnished with a maximum moisture content (dry) and must be available timely in the quantities needed.
For the present, most of this sand is apparently coming from the Wisconsin area, but regardless of where it is coming it is being furnished from companies with stockpiles located out of the area. This not only requires extra trucking distance, but more trucks, too. The extra mileage and extra trucks/drivers increase the costs.
Moreover, due to the necessity that sand be available when needed (Thousands of dollars per hour in charges for men and equipment can occur while waiting on sand!), trucks must “stage” for delivery to sites while fracking operations are occurring.
So, let’s say the sand is coming from 200 miles away. Several trucks are called in from the 200 miles away six or more hours in advance of the need so that these trucks can be on hand for staging and timely delivery of the sand.
Now, suppose that after this order has been placed and trucks are on the way, an issue/delay occurs at the well. What happens? The trucks have to just sit and wait...perhaps for a few hours...perhaps for a few days. Regardless, someone has to pay for all that waiting.
If the sand were available locally all this staging and waiting and extra expense wouldn’t be necessary.
The order for trucks could be held off for several more hours if the facilities are located nearby, say 20 miles away. The staging, if you will, would occur on the yard of the supplier. With less lead time it is also less likely for sand trucks to get tied up with issues at the well site, but if/whenan issue did occur, drivers could park the trucks or even go home, albeit while on call.
So, a sand supplier located in the area can supply sand at a much more reasonable price than can a supplier from hundreds of miles away.
This same scenario repeats itself in many other supply/service areas.
In other words, the TMS has to get geared up for success.
And, it’s going to take lot of risk takers to do so.
I was in a discussion with three men last week who wanted to get set up to supply sand to the TMS. These men explained to me that, once they could get a few more things worked out, it would take a year or so to become fully operational.
Of course, among the things they needed to get worked out was a few million dollars in financing over and above what they had already invested.
Money and time.
But, that’s where the TMS is today.
We’re depending upon some bold risk takers out there to believe in this play to invest their time and money.
We need these companies for housing facilities, drilling fluids, frack sand, rocks for roads and pads, equipment moving services, tanks for chemicals, and much, much more.
Amazingly, despite the various negative reports over the past couple of weeks, I’m hearing there are folks who believe enough in the TMS that they ARE making these bold moves.
A few announcements of service companies’ locating here have been made public lately. I'm aware of one unannounced business committing in Liberty just last week.
Obviously, these companies are receiving some encouragement from the operating companies to do so.
And, personally, I’m drinking the Kool-Aid, too.
Certainly, I’m on a much smaller scale than a lot of other folks, but I’ve already invested a few dollars in the TMS, as well as a fair amount of time.
Why would I or, on a much larger scale, these companies make this commitment?
We believe the play will be able to provide income for our families and investors.
That's what risk takers do. It is what has made America the greatest country in the world. Risk takers, big and small, seeing an opportunity and working to seize it.
We look forward to celebrating success for everyone connected to the TMS, but, today, we are especially hopeful for the TMS suppliers and the risk takers out there.
Your involvement may well be the final piece to making the TMS (and yourself) a success!