James West – Barclays Capital, Inc.
Okay. Good morning again, everyone, and welcome again once again today to the 27th Annual Barclays CEO Energy Conference. Up next this morning is Gary Kolstad, the CEO of CARBO Ceramics. Gary joined CARBO in 2006 after a 21-year career with Schlumberger. Under his leadership at CARBO, the company has developed and introduced several new technologies, including one that will be unveiled and named really soon. Our push in the resin-coated sand business has navigated a fairly moderate downturn. Now, it seems to be abating for the business. Prior to joining CARBO, as I mentioned, Gary was with Schlumberger, and he was previously Vice President of Schlumberger’s U.S. Onshore Business and Vice President of Global Accounts.
Please welcome back to the CEO Energy Conference, Gary Kolstad.
Thank you, James, and thank you for inviting us. This is actually my seventh year here. On the left top, okay, sorry, okay, for those of you that don’t know CARBO, we’re a global oilfield services technology company. We provide products and services to design, build and optimize fracs. We have a business strategy and a technology strategy focused on being the leader in increasing production and recovery in fracture stimulated wells. So we are extremely focused on our technology. We also have an environmental business called Falcon, which I’ll talk about later in the presentation.
So let’s look at the technology portfolio of services we have. So on the design side, we brand that under FracPro, and under one of these, you can see the capabilities under them. On the build side, we brand that under CARBO Ceramics; and on the optimize side, we brand that under StrataGen. We have added a lot of intellectual capital, meaning people; and intellectual property, meaning protected technology in last few years. And I have to say that we’re number one in the industry on the design side with FracPro and we are obviously number one on the build side, in particular in the ceramics. And under that side is where we’re really developing a lot of products and technology, and we’ll go through that a little bit later.
In the last couple of years, we’ve been growing a consulting business, because we like how this all fits together in a process. We will sell either discrete services or products or combine as many of these offerings as the client needs. And we like to talk about differentiating through technology through the life of the well. We absolutely believe and do integrate the first time. It’s interesting for me, I like coming to this conference, wanted to see James and the wonderful Barclays’ people, but also I get to listen to a lot E&P. And one of the things we see is when people are talking about down spacing and all these other things is that, we’re not gaining effective fracs out there, and so we can offer solutions to maybe improve all of that.
So let’s start on the design side first. We have FracPro. It’s the industry’s most widely used hydraulic fracturing design software. Our clients are E&P operators, service companies and we also provide it to universities. You can see what it does there; provides frac design, economics, reservoir performance and post job analysis. So it’s used both before, during and after the fracturing process, and it really ties all the information together on that.
On the build side, now here is where we have a lot of products as I said before, so I’m going to talk about our technology platforms there. So the one that a lot of people know is our ceramic platform, and we’ve been the industry leader there now for 34 years. We started off with a couple of products, which are made out of bauxite. We then invented the lightweight ceramics, and then in 2008, we came out with a product we designed for the slick-water fluids in the shale reservoirs called HYDROPROP, and I’m very pleased to say, and James made reference to it, we’re coming out with a new product. We’ll name it next week at our Investor Day, and we’ll talk a lot about it at the SP Convention [ph] at the end of the month, and it’s a real high ultra strength proppant, and on the next couple of slides, I’ll talk a little bit more about that.
The other thing we have been doing the last few years is taking physics and chemistry and building some more technology platforms. So the three of them are and you happen to note that they all say proppant delivered. And what we are doing is delivering technology applications to the frac via the proppant, and we have IP protection around that delivery, the porous proppant that we have patent on, but if you can liken it to the medical industry, how they’ve tried to find better ways to get chemo into attack cancer cells, let’s say, we are finding a better way to deliver products and technology into the frac rather than, let’s say, pump them into fracturing fluids or something like that or squeeze them in later. Okay.
So the three platforms are production assurance, flow enhancement and production intelligence. And we’ve introduced one product job to the market in each one of those already and some of them have a lot of products behind them. Production assurance basically means that we’re trying to make sure the wells keep producing for the life of the well. Oftentimes, we’ll see precipitates or solids formed over the life of a well, such as scale, asphaltenes, paraffin, stuff like that. So we are trying to prevent that from happening.
On flow enhancement that really gets into the fine details where we’re trying to make sure we maximize production by looking at relative permeability, capillary pressures, interfacial tensions and stuff like that. And then on production intelligence, which may and could have the biggest bang for the buck. What we’re doing there is using proppant to determine frac geometry and ultimately we hope to show how we can determine where the production is coming from either by frac or by zone, and some of these, we’ve been working on for many, many years. We’re just now finally bringing them out.
We also got in the resin-coating business a few years ago. Couple of reasons for that; one, we had to start resin-coating our ceramics. When I joined the company, I found that we were selling our great ceramics, which nobody in the world can match. Selling it to resin coaters, they were branding it as their product and selling it, and that doesn’t work, right. So we got into resin-coating of ceramics. Then we decided to get into resin coated sand, because we wanted more entry points with clients. So if we can get in the door and sell resin coated sand, we always want to sell up and tell them about all these great technologies on this page.
All of these fit with our strategy of delivering higher recovery or EURs production and better IRR. All these technologies bring faster payout too, right. We enhance both initial production as well as long-term production. Staying on and build the frac and getting ready for the new product. The thing about fracturing, if you don’t want to listen to all that stuff, I said on the previous slide, all the complicated things, permeability, porosity, conductivity, all those things, the thing we are trying to get done in fracturing is maintain space to flow, okay. So in a perfect world, in this case, we got three pellets there let’s say.
In a perfect world, you’d have three spheres that are the same size, very smooth surface and you – and geometrically that’s the most space you can have. And today on the industry, we are very challenged, because we’ve developed some bad habits as we moved from fracturing vertical wells into really source rock and the low permeability shales and we cut back on proppant concentrations and a few other things, but today your frac jobs are about tenth of an inch wide. Okay, we’d put about a pound per square foot in there. We used to put two pounds per square foot or two tenths or a quarter of an inch wide. So the need to have space to flow is even more critical today in the resource plays, okay. So that’s perfect. The closest thing to perfect is our new product.
And like I said, we’ll say the name next week, we’ll announce it. It’s an ultra-high strength. It is the strongest, most conductive proppant ever made by far. The request came from a super major back in 2008, and they were planning way ahead.
They said we need a product that is twice the conductivity of bauxite, we sell bauxite proppant at 20,000 psi closure stress, and they said they needed that to do their completions on their lower tertiary wells in the Gulf of Mexico, which will have depths of 30,000 feet plus. And we’ve managed to do that. And in fact, there is really only two of us that supply bauxite proppant, and we’ve recently done tests on our new proppant versus our proppant and our competitors' proppant. And even though our old proppant is better than the competitors, this new stuff is two to three times better than our HSP. So we’ve really had a breakthrough there.
What it means for E&P, and if those of you listened to Core Labs, I listened to them at intercom in Denver the other day, and Demshur said the recovery rates in the lower tertiary is up around 10%. If you imagine the benefit that this will have for E&P if they can book more reserves or if the recovery percent comes up, so this product is really going to have a lot of value.
I want to talk a little bit about just giving example of a platform, so here is our production assurance platform. You might just know, again once, I said it’s to maintain long-term production for dent precipitates and other things from forming , whether be in the frac, the well bore or the surface equipment. If you look up in the upper right there, you can see a picture of production to being what happens as things scale up overtime. So it effectively creates a choke on the well.
And what we’re doing here, our first product out is called SCALEGUARD, and so we’re preventing scale from building up in the frac, near well bore or even through the surface. This generally happens when you see pressures in – or changes in pressure or temperature is what causes these things to precipitate out. We put that in the frac job, we place it throughout the frac job, it’s usually around 3% of the total proppant, and you might imagine the benefits of a lot of these technologies we’re doing adds to our base business. Okay
So if you want SCALEGUARD in your wells, you’re going to have to buy all of our ceramic proppant, and about 3% of it will be SCALEGUARD and 97% are normal ceramic. So also all this technology we’re putting on there, builds on our base business. The thing about the efficiency, it’s released over time. In this case, if it’s SCALEGUARD, it’s water driven, so as water goes by here, it’s – the chemical is released over time, which is much better than putting it in the frac load, where it comes back all at once or it goes some place where the actual frac – proppant frac isn’t.
Finally, on optimize the frac, we have StrataGen and what we’ve done there is, built a consulting group that is sitting on wells, we love that, because we’re at the cold phase. We get to see the best practices and conversely, the worst practices of completing wells, and we’re able to help our clients and help them with what they probably should be doing in completion practices and our StrataGen folks have to know the whole circle of design build and optimize.
So, it’s a great information source for us, and it’s a great way for to get our technology out in the field. We also have office consulting in which we go and help clients with designs, production analysis, things like that. and then we have DANA, which is Data and Neural Analysis in which we take 100,000 foot view of fields. We put in all the data production, geology completion reservoir, et cetera, put it into a neural analysis model and build something that tells operators what’s causing the biggest production change in their field, other way to optimize it, it’s really the intersection with the client, so all these three things really worked together.
Now, I’m going to talk and switch gears a little bit, talk about industry frac trends, here is kind of what’s happened in the industry, we’re drilling deeper wells that requires more conductivity due to higher stress. we have more liquids-rich or oil wells, which requires more conductivity due to multi-phase below.
We’re drilling more transfer or we’re having more transfer as fraction and we’re drilling horizontally and fracing transversely and that requires a lot more conductivity, because of the unbelievable velocities as we bring fracs that are hundreds of thousands of square feet, we bring all that into a wellbore, it’s about 1.5 foot in diameter. Unlike vertical wells that we perforate 100, 200 feet all around the pipe and produce through, we’re bringing these fracs each one of those into a diameter like this.
So the velocities are thousands and thousands of times in normal vertical well. so you have tremendous drawdown, you have tremendous pressure there. so your proppant has to hold up. This is why you’re seeing a lot of people that you’ll hear about tail-ends, right where we’re using ceramic as tail-ends. Literally, everybody should do that in transverse fracs.
And then finally, I think because of us, there’s more awareness of the low conductivity, low quality Chinese proppants out there and the damage that will due to production and recovery. All this supports our ceramic proppant franchise.
On this slide, you can read through all the details there, but at the end of the day, as we moved into resource plays, which is now we’re in source rock, right and it’s nano-darcy type stuff, you need to have two things, you need to have incredible reservoir contact area and you need to have a highly conductive fracs. so we have to touch a lot of reservoir, because it’s low-permeability and we have to have an extremely high conductive frac for a lot of reason that I said on the pervious slide.
And that’s a very common mistake in the industry, some people think they don’t need that high of a conductivity frac, because of the low-permeability reservoir, nothing could be further from the truth. We also see that most of the wells are understimulated, that’s why when you see your operators saying well, we went from 10 stages to 15 to 20 to 25 to 30 to 40. They always see better results. We’re exposing so much more reservoir phase, we have this low-permeability rock.
And we firmly believe and this comes about through refracs, well testing all that other things that because we’re not getting very effective fraclings that clients if they were able to make better fracs, they could probably reduce the amount of in-field drilling they do. And that gets proven up actually by them when they drill, they were drilled here and they drill over there and all of a sudden, there its virgin reservoir pressure or same production rate is here, but it’s telling you that your effective fracling is working, okay.
So it’s part of our education process we have to do for now to eternity and the industry. I build this slide a few years ago, because a lot of people didn’t actually know the different type of proppants in the industry, they obviously used to say perhaps made of sand and water, there’s really three tiers in the industry, tier one is ceramic, which is high conductivity, tier two, which is resin-coated sand, which is medium conductivity, and then sand, which is low conductivity. The higher the conductivity, the higher the production EURs and return on investments, the science behind that is that ceramics are man made, they’re engineered, okay.
So they’re very strong, they don’t crush, they’re very uniform size and shape, which maximizes the permeability and porosity of that frac pad or the conductivity and they’re thermally resistant, we fire met a few thousands degrees Fahrenheit’s so they don’t care about the reservoir temperature.
Sand on the other hand is naturally occurring product, it’s very regular in size and shape and weak, when the resin-coated sand, it doesn't make the sand any stronger, but it does reduce the point loading and capsulates the fine when the sand does actually crush, okay.
A little bit about our – just our base business there, this goes from 2000, I’m very proud of the fact that joined in 2006, very proud that we’ve been able to grow our manufacturing capacity from $750 million to $1.75 billion in that time. We did that all without incurring any debt and nor do we have any debt today and we’ll be at $2 billion somewhere around the middle of next year, when our first line at Millen, which is a suite we have started this the first line, we can at least put four lines there, so at least be a £1 billion facility. As mentioned, we got in resin-coating business too, we have £400 million of capacity in resin-coating.
I’d like to show on this slide to sometimes a visual will help people. On the y axis there, we have conductivity and non-darcy feet, once again, the higher the conductivity, the better the recovery and production.
On the bottom, we have the closure stress and psi, so that’s how much the earth is pushing on the proppant. and then we just have some fields up there, the Eagle Ford, the Bakken and the Haynesville with the stress ranges that they go through. And the reason I started 6,000 psi is that’s the pressure at which white sand, which is considerably better than brown or Brady sand, and then there is a third tier of sand called river sand, Nebraska sand, Arizona sand, which literally should never be put into well, but white sand starts to crush at 6,000 psi and by the time, you get to 10,000, basically it’s gone.
This slide we call it realistic conductivity. It’s sometimes for those who are either technically inclined if you see baseline conductivity, what we have done whole is never baseline conductivity, because of things that I mentioned on the one slide, multi-phase flow, non-darcy flow, gel damage et cetera. So all proppant baseline figures need to be, in this case, I downgraded them all by 60%. Sometimes, it’s 70%, 80%, maybe even 90%.
So when people say we’re using white sand and it just is good, chemistry or physics tells you no, and here’s just a pictorial that here is white sand at 6,000 psi. You can see the grains are just starting to crush, if you get to 12,000 psi, and it’s mush basically. Remember what I said about fracs, they are – most of the ones are at the concentration pump, they are either about a tenth of an inch wide. So we have submits, a couple of 100 feet high, 500 to a 1,000 feet on half link pathway and that way in a tenth of an inch wide. So as you imagine that, you can see why you have to have a lot of conductivity, and then when it’s all got to converge on a well bore that’s a foot and a half.
I’m going to switch over now and just talk about ceramic proppant and the industry a little bit. We often get questions about that. I think all the stakeholders are getting much better educated and by stakeholders I mean, E&P service companies and royalty owners on the damage that the poor quality Chinese can do, Chinese ceramic proppant.
So we ask the question as an E&P operator investing $4 million to $12 million on a well, how much EUR in production are you giving up by using it and we like to show visuals. So here you have three different suppliers of Chinese proppant. These field samples came from the Bakken.
The top photos are actual pellet grains, the bottom are whole pellet cross-sections. So you can see our regular size and shape they are and how rough the surface is, that means that these proppants pack in more, compared to that, perfect proppant I showed you, you lose space to flow.
If you look at the cross-sections, you see the open void space in it, that means it crushes. It has poor internal structure. There it is compared to our CARBOLITE, our lightweight product. And that really is a cross-section on the bottom there. That’s how good our internal structure is.
Here is another example of three other suppliers in the Bakken. It’s pretty bad stuff. We have catalogued about 40 suppliers and the pictures we show to our clients, its people really need to know how bad they’re hurting their wells and what are they paying for.
The Brazilians are in the first two there, if anything worse and there is one example of the Russian group that imports in the U.S. These are the things that make me feel good about our long-term future. While everybody is trying to catch up and maybe, someday they can produce something of the quality of CARBOLITE, we’re already going to be off with our new product, because our new product may impact everything we do.
There’s an example of a Bakken operator in the Bakken, he didn’t want to have his name listed here for some obvious reasons, but we did the test, six wells with ECONOPROP and four with Chinese intermediate density ceramics. What we saw 30 days was 20% more fume oil and he projected a 120,000 barrels higher EURs, just comparing our lightweight versus Chinese intermediate density.
Here are some case histories. They’re probably all in your book. I’ll go through these fairly quickly. One of the pioneers and that really helps set the stage on a number of stages was Brigham and of course, they were bought by Statoil, so we call it Statoil there and SPE Paper is still at the bottom there. But they did a test with seven wells with our lightweights and 12 wells with white sand, and they basically saw a 100% increase in production, equating to about a 125,000 barrels, $8.7 million additional revenue based on $70 oil.
The other thing [indiscernible] that eliminates flowback problems, because sand tends to crush in the Bakken and flowback, which creates a lot of problems, and if you look at those little squares there, that’s when they had to put the wells on pumps. So the wells flow better, it delays the time before you have to put them on pump. But they really, they set the stage out there, getting out to the 30 stages, 35 places like that.
Here’s SM Energy, when we did this paper, it’s a while ago, is actually Nance Petroleum, which was bought by SM Energy. That was a pretty large trial, 23 wells ceramic, 91 on sand, IPs were 40% higher on ceramic overtime and you expect this too, for the distance to grow, it’s be up 90% different on production.
Quick payout, at that time, they paid a $150,000 extra investment for conductivity and using $40 barrel oil, it only took 10 barrels a day to pay it out in one year, which of course, you’re always going to see greater than 10 barrels a day. The Bakken, I think, literally, everybody gets it or most people get it.
You need to have ceramics up there. That one has had a large adoption rate. WPX from the conference here last year, I stole their slide. They were talking about how they were the best producer on the reservation in North Dakota and they are using 65% ceramic, 35% sand and you should see your 180-day fumes there, they were number one, you see your EURs and you see the drop-off there when they list theirs, the people that only use sand.
Here is another set of guys, Liberty Resources; these assets were recently bought by Kodiak. Liberty team really did a great job, there you slick water and find mesh ceramics, but they really did a good job that showing people make gross produce up there. In this case and this is in Williams County, you can see the 90-day fumes they’re shown by bubbles. They had 49,000 barrels offset operator 29 and other offset operator 19, not surprising Kodiak bought it.
Here is an example, the Eagle Ford that rose at our resources, one of the bigger operators. What they did is made it on a Mcf equivalent, but they compared their stage as 12-month comparison on frac stages, what do they produce on sand versus ceramic.
They did a fume frequency plot there. So the right is ceramics in blue and the left is green is sand, and they saw roughly a 15 million equivalent in cumulative production per stage in 12 months. $1.5 million revenue increase per well at $75 oil and $375 gas and a quick payoff in eight to nine months. They are one of the largest users of ceramic proppant in the Eagle Ford.
Switch note on environmental business. Bakken, we provide containments, water impoundments, tank lining, tank bases and location liners. We bought the business in 2009. Firmly, believe that they had technology, which is what CARBO is all about. They would separate them for a long time also thought it had an incremental tailwinds behind the business from the environmental standpoint and the business has been drawn about 15%, 20% a year and we would expect that to continue for as long as Ernesto and I are around.
The value proposition is environmental stewardship and a risk mitigation, operating cost reduction or LOE eliminates product loss, if you spill here, you don’t really spill right. So you can put your product back into the tanks. You don’t have to report a spill, because it’s all contained, and we use proprietary polyurea technology and we always design that for the life of the well site, very similar to our ceramic proppant and life of the well.
This is for the life of the well site, and we think it’s a pretty good value, the EPA estimates; the average spill is 1,300 gallons and costs the E&P operator $180,000 to clean it up. So we see clients changing from the old days of this type of picture where you have unlined tanks, which corrode on the inside and outside.
We have tank bases that they’re sitting on pea gravel, which corrodes the base and you have you have [indiscernible] which of course, is permeable and you get to remediate all of that. We see them shifting to this. so here is a picture of containment in Colorado for one of our E&P clients.
We put Falcon, the permeable, the impermeable poly-realigner in there. And we’ve done about 6,000 of these with 100% success so far across the U.S. It minimizes risk and lowers your LOE costs. so aligned tanks prevent from erosion, tank bases prevent from erosion and then the containment is impermeable.
We’ve had cases actually where clients’ tanks have failed and we come up there next morning and the containments full of oil. We’ve also had unfortunately, E&P clients also experience vandalism sometimes and we’ve had them show up on locations, see these things, follow up with somebody opened the wells.
So we’re seeing a lot of traction in that business. We’ve also recently moved into water impoundments too. So here is a picture of a fairly large water impoundment with belt and that’s for water treatment produce water storage and fresh water. So we see a lot of avenues of growth for the business at Falcon.
Financial results, we’ve been very fortunate. We’ve kind of tripled the revenues since 2005 and tripled the cash from operations. Once again, we’re debt free and yet we’ve been able to really more than double the company’s capacity and remain that way.
So we generate a lot of cash, what we like to do with that cash is, first of all, organic investment and it’s quite interesting. We’re 34-years-old. and today, I’m more excited about our organic investments and have been in our life, and also from the technology side. So we have a lot of money we can spend on that. We believe and there is per share numbers.
We believe in dividends. We’ve also tripled the dividends since 2005, basically, and then third would be share buybacks. When the market went to heck in 2009, we bought back 7.5% of the shares and since then what we’ve tried to do is we buyback any shares of issues. So we don’t let share take place.
Summary, we are going to differentiate through technology, not allow our sales to be commoditized. We have to grow our clients’ knowledge of us being a production enhancement company and that we focus technology on improving frac performance. We want to stress the investment benefits to our E&P clients about when you use design build, optimize, you can really balance out. The question always comes up AFE and EUR. Now we’re buyers towards EUR of course, right. We want to improve production recovery and make the denominator bigger. So you’re finding development costs are lower. But we have technologies here that could make that happen.
And on Falcon, we’ll grow that to geographical expansion plus product development that we developed products at the industry need such as the recent 1 was water impalement and then continue to grow cash flow and build an enduring company.
And with that, we’re open for questions.
James West – Barclays Capital, Inc.
Questions for Gary.
Could you talk a little bit about the new profit in terms of which applications does it make the most sense for? I presume it’s going to have a higher price point. How far is the application set, where is it working, would you tend to stick with traditional preference? Thanks.
I’m going to talk two facets of that. One, the product we’re introducing this next week really targets deep wells anywhere in the world, okay. So we have the best product up to this point and we know its limitations. This one and once again the E&P operator in Super Major, they’ve requested the development wanted for lower treasury. But you should just think that is deep wells, okay. The 25,000 – in fact I think we’re going to have a well next year approaching 40,000 feet, but 25,000 to 35,000 foot deep wells with high closure stress, this product will be used around the world, okay.
The second part is what we’ve learned from that. We have learned something. So basically proppant has processes, equipment, people and raw material. And we’ve learned in creating this new proppant will now benefit the rest of our proppant. I wouldn’t be surprised. We don’t obsolete all of our products. That’s my dream, right, is that we are going to create something here and obsolete everything we’ve ever made up to this time. And in fact, we’re in little bit of a journey right now to figure out the capital cost to do conversions on plants to that. So if we do that and we hope we can maintain a similar cost structure, the other proppant, let’s just call the first one, a, since we’re not going to name, the next one, b, meaning a mass of implementation that could be used anywhere. And we certainly will obsolete a lot of these poor proppants like the Chinese.
On Falcon, two questions. Could you talk about competitors there and stuff that you’re seeing – any of the big service provider is trying to integrate environmental containment and what their other services are? And then secondly, if and when that starts getting regulated, I assume that would be a state level and do you think people would have to have their containment systems certified, it becomes a regulation area today? Thank you.
The first part is, I don’t think they’ll bother with it. I mean those guys are pretty focused, the big service companies. I don’t see them doing that and I grew up in one of those guys, the big guys, right, for a lot of years. I don’t see them doing that. On the second part, yes, it’s exciting part and what CARBO has brought to Falcon is R&D testing early right. So we verify all these with stress testing everything. So you might imagine part of our job now is to actually go to those agencies and explain to them what we offer, so that they can provide a solution for the industry. So that’s certainly part of our thinking process. So I would not be surprised. We built this cool little tractor trailer that will run around the country now and showing people about what we can do and I think it’s next around the U.S. We’ll probably be stopping at the BLM offices and things like that. So we see a lot of possibilities there.
If you’re not seeing the majors are you seeing any sort of competitors or is it all Mom and Pop?
The Mom and Pop, we have one competitor kind of like us who uses a version of polyurea and other things. So it’s not a pure play let’s say. Most of the Mom and Pops are using HDPE or the equivalent of the trash bags you have in your kitchen and stuff like that. So that doesn’t live well with UVA and things like that. So we don’t really worry about them.
In CARBO, we’d like to spend much more time developing than worrying about what’s behind us, but I think we got a good mousetrap there and I think it should grow for long periods. That doesn’t mean that we dismiss competition by any means. It’s just that technically we have better product.
I have another competition question, but in the ceramic side. You spend some time discussing the Chinese and their inferiority. What about some of the domestic players that have been adding capacity? My question would be, where are we in that capacity add and what’s the quality and pricing like that you see?
I’ll try to be gentle here. They’ve had some challenges producing a saleable product, let’s call it that. I think their strategy would be a subset of our strategy and that’s to push the Chinese out because I think they will eventually make product better than the Chinese. I believe that. I believe they will. I think they’ll eventually get there. And, but I don’t think they are going to catch us. So I think for them they’re going to pick that spot and there is – we don’t give out these numbers, but we clearly know the demand in North America, which is 80% of the frac world and we completely understand why there is a demand for lightweight ceramics.
The industry for some silly reason buys proppant by the pound. If you use our lightweight ceramics you get 20% more volume than buying intermediate and our conductivity is higher on our lightweights than the Chinese intermediate. So we have this cost and education process going out. You’re going to get 20% bigger frac downhole if you buy lightweight. So that and a lot other technical reasons plus our new technology, I know North America needs lightweight. So we are going to keep on building capacity and we are going to push out the Chinese plus the market, we’ll just keep growing, right. That’s just the way the industry works, more and more fracs, more and more reservoir face exposed. But the domestic guys, the new players will eventually get it. That’s the way we always think. They’re having some challenges now. Our old competitor, Saint-Gobain, it will open up a new plant sometime. Fortunately he is producing intermediates because we located his plants in intermediate country.
James West – Barclays Capital, Inc.
So we’re out of time. So we’ll be available on the break-out session in the [indiscernible]. Thanks, Gary.
Thanks all of you.
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