FTS International Inc., a hydraulic fracturing company partly owned by Chesapeake Energy Corp. (CHK), sees a shortage continuing through the year for railcars needed to haul fracking sand to wells.
“Railcars are in very high demand,” Kevin McGlinch, senior vice president of FTS International, said in an interview today at its Fort Worth, Texas headquarters. The cars are used for moving grain and “also, within the energy space, there’s us and lots of other people trying to get these same cars at the same time.”
Railcar orders more than doubled to 20,165 in the third quarter of 2011 from a year earlier, according to data from the Railway Supply Institute. The order backlog for U.S. freight cars more than tripled to 65,044 in the same period.
Increased fracking to get access to U.S. oil and natural gas has fueled demand for the sand, injected underground in the process along with water and chemicals. The industry will boost its consumption of sand and other proppants 20 percent this year to as much as 100 billion pounds (45 million kilograms), Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston, estimated in a Sept. 23 note to investors.
Fracking an average well in Pennsylvania’s Marcellus Shale region uses about 7 million pounds of sand — more than enough to cover a U.S. football field a foot deep, according to FTS estimates.
About 35 railcars of sand are needed for each well in the Marcellus, McGlinch said. FTS, which mines its own sand, is seeking to increase its railcar count by 700, or 28 percent, to 3,200, he said.
Quick Delivery
“That’s the number we think will allow us to move our sand efficiently,” he said. “We actually have the orders in. It’s just a matter of how quickly they can make them and deliver them.”
The company is leasing an average of 50 new cars a month at $500 to $700 each, McGlinch said.
“Compared to when there wasn’t as much activity as there is today, we were paying less money,” McGlinch said.
Getting a railcar depends on companies such as FTS getting a slot on the manufacturing line, said Lee Klaskow, senior analyst at Bloomberg Industries in Princeton, N.J.
“There’s a handful of manufacturers,” he said. “They plan how much they’re going to manufacture. You have to make sure you get your order in to get those slots that are available.”
FTS International, formerly known as Frac Tech Services LLC, is planning an initial public offering this year. The company is still seeking joint-venture deals with companies in Saudi Arabia, China, Brazil and Argentina, among others, McGlinch said.
