Frac Sand Weekly: Low Oil Prices Force Shell to Take Big Write-Downs

The big news last week was that the Shell oil company announced that it was taking $7.9 billion in write-downs on various oil projects in North America and the rest of the world. The write-downs were the result of weak oil prices. While oil prices have increased over the last year, the current level of $60 a barrel is far below what was expected when many of Shell’s projects, such as searching for oil in the Arctic, were initially undertaken. If oil prices had followed the path generally projected a decade ago, a barrel of oil would sell for more than $140 today.

The write-downs by Shell are a signal that oil from non-traditional sources, like fracking, is likely to be marginally profitable, at best. Shell is now pulling back its investment in these operations, as are other major oil companies.

This is reflected in the number of oil rigs in the country which has been falling most of the year and is now down by almost 20 percent from its year ago level. With economic growth expected to be weak in most parts of the world in 2020, it hard to see the prospect for the industry looking much better next year.

This means there is little hope for any major upturn on the demand side in the frac sand industry. Sand prices are likely to remain low and could go lower.