Natural Resources GP The Proppants Market in the

Natural Resources GP The Proppants Market in the US, Canada, elsewhere Vasili Nicoletopoulos Natural Resources GP Oilfield Minerals Outlook 2015 Houston, TX, June 22 - 24

Natural Resources GP Specialized firm • energy: shale oil & gas, renewables, climate change, emissions trading • mines & metallurgy: rare earths, gold & nickel, industrial minerals Services include: consulting, business brokerage, bespoke and off-the-shelf studies, newsletters www. naturalresources. gr Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 2

Natural Resources GP Contents 1. ‘US Proppants Market: Raw Material, Supply & Consumption’: Report overview 2. Proppants in an environment of low energy prices 3. Hydraulic fracturing prospects outside the US & Canada Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 3

Natural Resources GP 1. ‘US Proppants Market: Raw Material, Supply & Consumption’… Report Summary • Proppants in perspective • Frac sand • Ceramic proppants • US and Canada proppant demand & consumption • Market demand [shale plays, energy demand, oilfield service companies, laws & regulations] • ROW • Fracking in an environment of low energy prices Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 4

Natural Resources GP … 1. ‘US Proppants Market: Raw Material, Supply & Consumption’… Basis for HF success 1. Technological devts: horizontal drilling; multipad, 2 -stage drilling 2. Favourable geology for shale 3. Private individuals’ ownership of minerals underneath their land 4. Low population density in resource-rich areas 5. Prevailing entrepreneurial (‘can do’) spirit 6. Specialized service companies with know-how and machinery 7. Availability of high-quality frac sand BP Report June ‘ 15: US recorded largest increase in oil production in the world in ’ 14, replaced S. Arabia as largest oil producer – unthinkable a decade ago. US SG just as startling. US overtaking Russia as world’s largest producer of oil & gas. Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 5

Natural Resources GP … 1. ‘US Proppants Market: Raw Material, Supply & Consumption’… • By volume, FS accounts for the majority proppant demand (up to 85%), rest resin-coated and ceramic proppants. By value, ceramic proppants can account for maybe 50% of market share. • Visiongain: Global proppant market $8. 85 bn in ’ 14 • Nowadays ‘rig count’ can be misleading: Pumping more sand into wellbores → ↑initial flow rates → together with low cost & large quantity (~ 4 m lbs) per well fracture → total US land proppant consumption for well stimulation to go fm 51 bn lbs in 2011 to 83 bn lbs in 2015. Also: re-fracking etc • USGS: May 28 ’ 15 preliminary FS estimates for 2014: Wisconsin's production 24 million mt, 8 for Illinois, 8 for Texas, 5 for Minnesota. Nearly half of FS comes from Wisconsin, June 1 '15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 6

Natural Resources GP … 1. ‘US Proppants Market: Raw Material, Supply & Consumption’… • Morgan Stanley forecasted sand demand growth of 96% in ‘ 16 fm ‘ 13, where 76% of sand capacity growth was recorded • Laird Tomalty, Victory Silica to IM: sand intensity increased by up to 80% in modern wells compared to the wells drilled in the earlier days of fracking • Increasing trends of drilling at greater depths [higher temperatures & pressures] and using multistage (35+ in some cases) fracking procedures, has increased demand for CP • …Nevertheless, towards the end of ’ 14 CP demand faced sharp decline Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 7

Natural Resources GP … 1. ‘US Proppants Market: Raw Material, Supply & Consumption’… • US land proppant consumption for well stimulation would increase fm 51 bn lbs in ’ 11 to 83 bn lbs in ’ 15, ie 12. 9% CAGR • Growth of proppant consumption fm 43 m tpa to 55 m tpa expected by ’ 16 • Pac. West: N. American proppant consumption to slightly increase at 2% pa through ’ 16 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 8

Natural Resources GP … 1. ‘US Proppants Market: Raw Material, Supply & Consumption’ Canada • 3 rd largest NG producer & 2 nd largest exporter, avg annual production 6. 4 tcf • SG production still in nascent stages • Canada’s Territories hold massive shale oil reserves ~ Bakken, May 25 '15 • Its fields & sands added ~1/5 of N. America’s net oil supply growth over past 5 years, or 1. 1 m b/d Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 9

Natural Resources GP 2. Proppants in an environment of low energy prices… • Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 10

Natural Resources GP … 2. Proppants in an environment of low energy prices… • Baker Hughes: Q 1 net loss, citing “extreme market forces”, Apr 22 '15 • Pricing pressure squeezes proppant market, IM, Apr 24 '15 • US Silica sees Q 1 net income fall as oil and gas market remains tough April 30 '15 • EOG Resources to resume fracking if oil hits $65/barrel, May 5 '15 • Emerge Energy sees Q 1 profit decline as FS prices experience dramatic fall, May 6 '15 • Hi-Crush Q 1 ’ 15 revenues up despite challenging market, May 6 '15 • US shale firms, new oil swingers, may put $70 cap on prices, Μay 6 '15 • Low oil price topples FS values, May 13 '15 • Fairmount Q 1 income falls as demand for coated proppants slows, May 13 '15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 11

Natural Resources GP … 2. Proppants in an environment of low energy prices… • Continental Resources’ chief vows shale will bounce back, May 14 '15 • • BHP Billiton hunts for deepwater oil assets, May 18 '15 Moody’s forecast darkens for debt-laden US producers May 19 '15 FS logistics slow in line with oil price decline, May 24 ‘ 15 Oil price slide puts producers under pressure, May 24 '15 US oil producers back in the money, but OPEC not, May 28 '15 OPEC sees rivals boosting oil output despite weak prices, May 28 '15 Low oil prices are affecting project financing, IM, May 28 '15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 12

Natural Resources GP … 2. Proppants in an environment of low energy prices… • Oil prices fall as OPEC prepares to hold output levels, FT, June 5 '15 • Pace of US drill rig count decline softens, June 11 '15 • US chemical companies thrive on shale boom’s cheap gas, FT, June 14 '15 • Cheap gas fuels push for pipeline mergers, WSJ, June 23 '15 • Itochu sells billion-$ stake in US shale company Samson Resources for $1, June 24 ’ 15 • Victory Silica: "FS particularly hard hit right now…a lot of drilled wells not being completed…plus more re-fracking that increases returns on a pre-fracked well by revisiting a site to extract remaining hydrocarbons, June ‘ 15 • All this will change if / when US lifts ban on oil/gas exports: America’s Self-Punishing Oil Export Ban, Harold Hamm, Continental Resources, WSJ, June 21 ’ 15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 13

Natural Resources GP … 2. Proppants in an environment of low energy prices… • Jan ’ 15: Shell, Chevron, BP, Conoco. Phillips need to cut billions of dollars from capital spending … But June 19 ’ 15, eight S&P 500 energy stocks score as ‘oil prices soar’. Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 14

Natural Resources GP … 2. Proppants in an environment of low energy prices… Canada Crucial contributor to glut that halved oil prices Victory Nickel shuts FS plant just as full production reached, Apr 14 '15 Heemskirk secure $40 mi to advance FS project, Mar 10 ’ 15 New oil sands projects need avg Brent > $100/bbl to break even [Rystad Energy, June 16 ‘ 15] Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 15

Natural Resources GP … 2. Proppants in an environment of low energy prices… FT, June 16 ‘ 15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 16

Natural Resources GP … 2. Proppants in an environment of low energy prices… Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 17

Natural Resources GP … 2. Proppants in an environment of low energy prices FT June 24 ’ 15 Shale revolution caused US to overtake Saudi Arabia & Russia to become world’s leading producer of oil - first time since 1975. US output also passed its previous peak [1970] Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 18

Natural Resources GP 3. Hydraulic fracturing prospects outside US and Canada… ROW total proppant production ~ 20% of global. 5. 2 m mt in ’ 12, expected 10. 9 m mt by ‘ 17. World ceramic proppant capacity, primary producers 2013: Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 19

Natural Resources GP … 3. Hydraulic fracturing prospects outside US and Canada… China • Largest CP producer with numerous companies and plants • Approx 100 CP plants in operation, production capacity 400 -500, 000 tpm • Invested $3. 7 bn in SG exploration, development during ’ 09 -’ 14, June 10 '15 • SG production in ’ 14: 1. 3 bn cm 3 • Saudi turns to China as oil exports to US drop, May 17 '15 • Opens new SG pipelines, May 14 '15 • SG output to top 5 bcm in ’ 15, May 12 '15, new SG regulation in Sichuan Province, May 11 '15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 20

Natural Resources GP … 3. Hydraulic fracturing prospects outside US and Canada… Australia: Ceramic proppant pilot plant May 3, '15 MENA: M. East a growing proppant consumer, as region looks to develop its SG resources Egypt: Apache to begin SG production early ’ 16, May 25 '15, Egypt sets price for shale gas at $5. 45/mm. Btu S. Arabia: est. production of 920 k mt of silica sand in ’ 11, FS producers: Chemical Industries & Delmon. Pumps at 3 -decade high as shale buckles, June 10 '15. New regulations opening to foreigners, June 14 '15 Mexico: shale resources among the world’s 10 largest, in ’ 14 opened to foreign investment, shale potential lies in arid areas, Preferred Sands of US in new partnership with E Proppants, a leader in high-performing non-phenolic proppant manufacturing in Lat. Am [Monterrey, Mex] Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 21

Natural Resources GP … 3. Hydraulic fracturing prospects outside US and Canada… Mexico: shale “integral to energy reform”, U. of Texas report, May 29 '15 Argentina: largest NG producer in S. America, world’s 2 nd largest SG and 4 th largest SO reserves, Vaca Muerta: Patagonian shale raises hopes and fears, FT, June 7 '15 - Drilling costs, not global prices, inhibiting Argentine shale development, May 19 '15 S. Africa: S. Africa considers regulations, May 28 '15, South Africa to publish final SG rules by June, May 7 '15, Karoo group slams publication of fracking legislation, June 10 '15 Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 22

Natural Resources GP … 3. Hydraulic fracturing prospects outside US and Canada… EU Supporters: UK, Poland, Hungary, Romania, Spanish central govt International Gas Union President: ‘There will be no US-style SG revolution in Europe’, BBC June 3 '15 Statoil, Exxon. Mobil chiefs attack European fracking laws, June 4 '15, UK: Ineos completes purchase of SG licences fm UK's IGas, May 6 '15, Re-elected govt pledges support for domestic energy production May 28 '15, Cuadrilla Resources: UK fracking could begin in summer ’ 16, June 10 '15; The Economist throws political weight behind UK shale ahead of Lancashire vote on Cuadrilla Plans, June 22 '15 Denmark: Total abandons one of its Denmark shale projects, May 22 '15, Poland: Conoco last global oil firm to quit Polish shale gas, June 5 '15, Baltic Ceramics’ proppant factory in Lubsko Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 23

Natural Resources GP … 3. Hydraulic fracturing prospects outside US and Canada… Estonia sees bright future for oil shale - Jun. 5 '15 Ukraine: Shell to withdraw fm SG exploration in E. Ukraine, citing low energy prices, conflict, June 14 '15 Russia The (partly-) European country w/ largest SG resources (285 tcf), & 75 bn bbls SO US/EU sanctions of Sept ‘ 14…fail to dent oil deals, June 14 '15 Proppant producers: Fores LLC, JSC Borovichi Refractories Plant, Carbo Ceramics (Eurasia) Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 24

Natural Resources GP Take aways • Shale has given the US a huge strategic advantage • OPEC companies can sustain low prices but there countries cannot • For HF, these are difficult, but not dramatic, times • US [& Canada] are the pioneers – for good reasons • HF future elsewhere: UK, China, Russia, Argentina, … • All this will change if/when US lifts ban on oil/gas exports • Meantime, proppants per well are going up • Buy the IMR Report! • Talk to Natural Resources GP! Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 25

Natural Resources GP Selected References 1. 2. 3. 4. 5. 6. 7. US Proppants Market Raw material, Supply & Consumption, IMR Report by V. Nicoletopoulos, Emma Hughes editor, 2015 ‘Hydraulic Fracturing and the Growth of Shale Oil & Shale Gas Internationally’, Study by Natural Resources GP, 2015 V. Nicoletopoulos articles on shale/fracturing, esp. in Ind. Min-2015 VN/NR Euromines position paper on HF in Europe, 2014 ‘China’s Proppants Market Raw Material, Supply – Consumption’ IMR Report, 2015 ‘Climate Change, Emissions Trading System and Carbon Leakage’, Weekly Report by Natural Resources GP, ongoing ‘News from PR China’, Weekly Report by Natural Resources GP, ongoing Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 26

Thank you very much! Vasili Nicoletopoulos www. naturalresources. gr Oilfield Minerals Outlook 2015, Houston, TX, June 22 - 24 27