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Global Market Demand for Proppant

Base Market as Oil & Gas Drilling

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AGENDA AGENDA

Proppant - Product Overview

Overview of Oil & Gas Industry

Market Outlook for Proppant

Summary

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Role of Proppant in Drilling Program

• Proppants are an integral part of hydraulic fracturing, the process by which unconventional oil and gas

resources are extracted.

Sized particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment.

Typically treated sand or man-made ceramic materials

Each Proppant type has its own

advantages and disadvantages,

and reservoir engineers decide on

the type to be used depending on

Geology, Availability and Prices.

Silica Sand or Frac Sand

3 Main Types of Proppants used

in Oil & Gas Industry

Resin Coated Proppants (RCP)

Ceramic Proppants.

Market Demand for these types is discussed

in preceding slides

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Proppants: By Volume & Value

• In 2011 the world consumed ~60bln lbs Proppants and the value estimated was ~$3.7bn

• By Volume type, Silica Sand is dominating the fracturing market with 75% of the total demand, most of

the oil & gas producers prefer silica sand due to its cost advantage over the other two

• However in terms of value, the market is highly dominated by the ceramic Proppant, users prefer

ceramic proppant mainly because of its high quality and ease of operation

Proppant market share by value - 2011

Proppant market share by volume - 2011

Ceramic proppant

10%

Resin coated

proppant 15%

Silica sand 75%

Silica Sand 45%

Resin coated

proppant 6%

Ceramic Proppant

s 49%

The major application of Proppant is for Hydraulic fracturing in Oil & Gas Drilling program. The outlook

for unconventional oil and gas development is the primary determinant of proppant market.

Source: Internal Projection, based on the market news

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AGENDA AGENDA

Proppant - Product Overview

Overview of Oil & Gas Industry

Market Outlook for Proppant

Summary

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World Oil Reserves and Production

• Currently, oil production is

dominated by 3 regions i.e. North

America, Eurasia and Arab

Countries

• The above mentioned regions, all

together have ~70% market share

Reserves by Region - 2012 Production by Region - 2012 Sou

rce

: En

erg

y an

d A

rab

Eco

no

mic

De

velo

pm

en

t, 2

012

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Global Gas Reserves & Trade Flow In 2020 So

urc

e: G

E G

lob

al S

trat

eg

y an

d A

nal

ytic

s, 2

013

Europe and

Eurasia 38%

Middle East 38%

Africa 7%

Asia Pacific

8%

North America

5%

S & C America

4%

Europe and

Eurasia 32%

Middle East 16%

Africa 6%

Asia Pacific

15% North

America 26%

S & C America

5%

Production Global natural gas production was 3,276 billion Cubic meters

Reserves Global natural gas reserves were 208,400 billion Cubic meters

• Currently, major Gas production

is in the 2 regions viz. Europe &

Eurasia and Middle East

• Keeping together both have a

market share of ~75%

Source : BP Statistical review of world energy 2012

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Regional Oil & Gas Reserves (1/2) So

urc

e: I

EA

- Ja

n-1

0, B

P O

utl

oo

k

C & S America

89

185

Oil

23

50

Gas

Europe

35

140

Oil

22

16

Gas

North America

50

397

Oil

45

92

Gas

Middle East

685

899

Oil

116

23

Gas

Proven Resource

Proven vs. Unconventional Oil resources in Trillion Barrels | Conventional & Unconventional Natural Gas in Billion m3

Conventional Unconventional Unconventional Resources

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Regional Oil & Gas Reserves (2/2)

Proven vs. Unconventional Oil resources in Trillion Barrels | Conventional & Unconventional Natural Gas in Billion m3

Sou

rce

: IE

A -

Jan

-10

, BP

Ou

tlo

ok

E. Europe & Eurasia

65

280

Oil

136

94

Gas

Asia & Pacific

40

170

Oil

33

83

Gas

Africa 77

170

Oil

28

38

Gas

Proven Resource Conventional Unconventional Unconventional Resources

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0

88.9 91.6 96.3 100.7 104.6 108.5

2012 2015 2020 2025 2030 2035

• Demand is forecasted to increases by close

to 20 mb/d over the period 2012–2035,

reaching 108.5 mb/d by 2035, up from 88.9

mb/d

• Which is 22% growth from the existing

demand

World oil demand outlook mb/d

Source: World Oil Outlook 2013, OPEC

World Demand for Oil & Gas

• Global LNG demand by 2035 is expected to

rise from 111 tcf in 2008 to 169 tcf

• The growth would be ~65% from 2008 to 2035

• Demand is highly driven by the emerging

market’s like India and China and the rising

concern over the CO2 emission from other

sources of energy

111 123

133 144

157 169

2008 2015 2020 2025 2030 2035

World Natural Gas Demand in tcf

Source: Global LNG - EY

Huge oil & gas reserves across the world can meet the energy demand for ~250 years

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AGENDA AGENDA

Proppant - Product Overview

Overview of Oil & Gas Industry

Market Outlook for Proppant

Summary

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Unconventional Oil Market in bpd Unconventional Gas Market in tcf

• In 2009 unconventional oil supply was

doubled to 4.1m bpd compared to 2003

• Unconventional supply is projected to grow

by over 650% from 2003 to 2035

• By 2035 unconventional liquids will be

responsible for 12.2% of global supply

2.3%

4.9%

6.0% 7.3%

8.4% 9.5%

12.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-

20

40

60

80

100

120

2003 2009 2015 2020 2025 2030 2035

Demand for Proppant (1/3)

• Natural Gas is going to be a major energy

driver in coming years

• Demand growth will be at ~65% from the

2010 volume

• Unconventional share of production is

expected to raise from 50% (2010) to 65%-70%

(2035)

Source: Internal Projection, based on the market news Source: EIA Projection 2035

40%

54% 58%

62% 66%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

20

40

60

80

100

120

140

2010 2015 2020 2025 2030 2035

Conventional Unconventional

% Unconventional Share

Conventional Unconventional

% Unconventional Share

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• Though technology improvement played a major role in early 2000’s for the proppant market, however,

the established market of hydraulic fracturing is driving the demand for proppant now

• Demand for Proppants is directly proportional to the number of frac job carried out in a year

• Frac jobs saw a growth of ~24% and proppant witnessed 60% growth across the world in 2007

• Similarly in 2011, frac jobs growth stood at ~37% and the proppant market grew at 75%

-

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011

Th

ou

san

ds

USA Rest of the World Canada

Numbers of Frac jobs per year in no’s

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011

Demand for Proppants per year in bn lbs

Source: Proppant Prospects for Bauxite Mike O’Driscoll Source: Hydraulic Fracturing by Robin Beckwith

“Proppant Demand is directly proportional to number of frac jobs per year”…

Demand for Proppant (2/3)

Effect of Decrease in the frac jobs in 2009

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Demand for Proppant (3/3)

0.3 0.4 0.5 0.5 0.6 0.6 0.3 0.4 0.5 0.6 0.7 0.9 0.2 0.3 0.4 0.5 0.6 0.7 0.2

0.5 0.8 1.1

1.5 1.7

0.2 0.3 0.3

0.5 0.6

0.9 1.1

0.6 1.4

2.1

2.6 3.2

3.9

5

0.8

0.8

1

1.2

1.3

1.4

1.5

0.1

0.1

0.3

0.4

0.8

1.1

1.5

0.6

0.7

0.8

1.2

1.4

1.7

2.1

0

2

4

6

8

10

12

14

16

2011 2012 2013 2014 2015 2016 2017

Other MENA Mexico Argentina Poland

China Offshore Australia Russia

International Frac Capacity (MM HHP)

2011 2012 2013E 2014E 2015E 2016E 2017E

3.1 4.4 6 8 10 12.3 15.1

As a result of increase in the contribution by the unconventional oil & Gas market the frac capacity

is expected to increase in coming year

Country wise Increase in Frac capacity 5 years growth of 243%

• US Proppant market contributes to ~75%

and ROW accounts for about 25% of the

global production

• US market is expected to grow at a CAGR

of 10.75% from 2013 to 2017

• Proppant production in ROW is expected

to grow at a higher CAGR of 15.8%

40

60

80

100

2013 2014 2015 2016 2017

Estimated Demand for Proppants in bn lbs

So

urc

e: P

ac W

est

Source: Internal Projection, based on the market news

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AGENDA AGENDA

Proppant - Product Overview

Overview of Oil & Gas Industry

Market Outlook for Proppant

Summary

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Summary

• World oil & gas demand is growing

• Oil market demand is expected to be 22% higher in 2035 than that of 2012 consumption

• Natural Gas market demand is expected to be 63% higher in 2035 than that of 2010 consumption

• Unconventional oil & gas resources will play a major role in meeting the demand

• Unconventional liquids will be responsible for 12.2% of global supply in 2035 from existing ~2%

• Tight & Shale gas will contribute to 65-75% in 2035 as compared to ~54% at present

• The Interstate Oil and Gas Commission - US, reports that 90% of oil and gas wells in the United

States have undergone fracturing to stimulate production

• So fracturing process will soon witness it as a part of all oil & gas drilling program to extract

maximum value

• Hence there will be a huge demand for proppant market

• In line with this, experts in the market like PacWest have indicated that the global

proppant market will grow at a CAGR of 10.75% over the next five years

• Proppant market value will be $7 billion by 2017

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Downside Risk with the Process Which uses the Product

• There are a number of environmental concerns related to hydraulic fracturing. These

include:

1. Fractures produced in the well might extend directly into shallow rock units that are used for

drinking water supplies. Or, fractures produced in the well might communicate with natural

fractures that extend into shallow rock units that are used for drinking water supplies

2. The casing of a well might fail and allow fluids to escape into shallow rock units used for

drinking water supplies

3. Accidental spills of hydraulic fracturing fluids or fluids expelled during a fracturing job might

seep into the ground or contaminate surface water

• Due to these environmental concerns several countries have banned the fracturing

process

• France, Bulgaria banned hydraulic fracturing in January 2013, Romania proposed a moratorium

on fracking after a petition was signed by 50,000 people, Germany stopped plans in 2012 to use

fracking, the Czech Republic imposed a ban in 2012 for two years, Luxembourg suspended

drilling for shale gas and established a moratorium in November 2012, Northern Ireland banned

fracking in late 2011, in Spain there’s a fracking ban in the region of Cantabria, in Switzerland the

Canton of Fribourg bans fracking

• However the recent studies carried out in US by EPA claims that there is no co-relation

between fracturing and ground water contamination

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Thank You