It’s amazing to consider that two signif¬icant U.S. industries are largely built upon a foundation of sand, the most ubiquitous and elementary of minerals. Sand, as silicon dioxide, is the quartz res¬idue that remains from the geologic pro¬cess of continental destruction. You see it in every stream and on every beach around the globe.

Sand is the basis for the chips that serve as the brains for Silicon Valley comput¬ers. And bulk sand is the main solid in a watery cocktail that sustains the micro¬scopic passageways through which hydro¬carbons flow to the wellbore in fracture stimulation.

Who ever imagined the oil and gas industry would rely upon the nuanced dynamics of White Northern versus regional browns, grades that range from talcum-like 100 mesh up to 16/30 chip-seal equivalent, and jargon such as crush resistance, conductivity and permeability?

The domestic oil and gas industry con¬sumed about 16 million tons of sand quar¬terly at the peak in 2014 before demand fell to half that volume in first-quarter 2016. Sand pricing reflects the downturn decrease and has dropped 30% from the high point posted in 2016, according to the U.S. Bureau of Labor Statistics.

Despite this, a composite index of equities for four publicly held frack sand mining companies is up 150% in 2016, outperforming all other oil and gas sec¬tors. Hardly a conference call or operator presentation goes by without a reference to a stunning increase in the volume of sand pumped downhole. Overall sand use may be down, but the average per well is up, with average sand use in the neighborhood of 1,200 pounds per lateral foot a year ago ballooning above 2,000 pounds per foot in today’s leading-edge completions.

In fact, sand per lateral of 8- to 10 mil¬lion pounds is exponentially higher than the original slickwater completions in the 1990s, when operators used as little sand as possible to keep costs down in East Texas vertical gas wells and, later, in Barnett Shale horizontals. Today, in Lou¬isiana’s Haynesville Shale, Chesapeake Energy Corp. has already used 30 million pounds for a 10,000-foot lateral and is designing leading-edge laterals that will absorb 40 million. For perspective, it takes 200 railcars to transport 40 million pounds of sand.

What’s piqued Wall Street’s interest?

First, the industry moved after 2012 from low proppant concentration to high proppant density in fracture stimulating tight forma¬tion plays. More recently, low commodity prices prompted operators to adopt slickwa¬ter stimulation to reduce completion costs. Slickwater uses more pounds per foot of proppant.

The methodology today is to thread a hor¬izontal wellbore through the most prospec¬tive part of the reservoir and create complex fracture networks via slickwater fracks and large sand volumes to prop passageways open. Higher proppant loading generates higher IPs in the best rock, and those IPs become a factor in projecting greater esti-mated ultimate recovery.

As a result, industry headlines are domi¬nated by Lake Wobegon laterals that result in above-average type curves in every play. The way Wall Street sees it, more wells with longer laterals and greater sand volume per lateral foot mean a return to 2014 demand for sand in a couple of years at half the rig count. That implies higher pricing is on the way.

Sand use in the current environment has become the least expensive way to boost IPs, which increase net present value by accelerating production. But questions remain. Will operators increase sand use per lateral foot if sand prices rise, or will oper¬ators focus on proppant loading levels that work best in a world of diminishing returns? Is higher sand use per stage apropos for every well, including those the industry drills outside a play’s core? The industry won’t know until operators move beyond drilling only the very best wells as a way to cope with low commodity prices.

A recent Alliance Bernstein LLP anal¬ysis finds that today’s higher IP headlines mostly reflect the move to longer laterals. Hydrocarbon productivity per 1,000 feet of lateral has only risen incrementally over the past two years, despite the increase in sand use per well. Apparently, higher IPs become greater decline rates.

Time will tell whether the philosophy of accelerating net present value translates into greater recovery. For now, Wall Street appears happy to bet on a concept built atop a foundation of sand.

Hey, Mr. Sandman, bring me a dream.