SafeBlend Fracturing

Case Brief #1: SafeBlend Fracturing
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Abstract
There is a need for the Chief Executive Officer at SafeBlend to set the price in the company’s fracturing additive as well as offer alternatives to clients to differentiate itself from competitors. SafeBlend is negotiating a contract with their largest customer which is Bristol Natural Gas. Due to the limited competition and heated negotiations in the last two years, SafeBlend has remained the only supplier of additives to Bristol Natural Gas. However, there has been a new entry of competitors some of who offer Bristol Natural Gas additives that are not only chemical-free but also cheaper by 50% for every gallon compared to SafeBlend. The CEO at SafeBlend anticipates the lower bids from SafeBlend’s competitors. As a result, he considers reducing the price offered to Bristol Natural Gas by SafeBlend as well as maintain a relationship with Bristol, the impact on the revenue notwithstanding. Nevertheless, SafeBlend is at an advantage since they can supply enough additive to meet all the needs by Bristol Natural Gas in comparison to the competitor. As such, SafeBlend considers setting a profitable and competitive price that will assume the loss of only a small portion of the business to Bristol Natural Gas.
Problem Statement
The case on SafeBlend Fracturing states that there has been a significant growth in the gas sector involving hydraulic fracturing with the period between 2000 and 2006 recording an annual growth rate of 17 percent.

By 2035, Shale Gas and Hydraulic Fracturing are expected to contribute to 47% of the United States total natural gas supply. SafeBlend has competitors offering cheap and chemical free fracturing fluids to clients threatening their market position. As such, SafeBlend needs to reposition as well as restructure its competition strategy in terms of pricing as well as offering a better product to match that of the competitors. As such, the company will not only overcome competition but also penetrate deeper in the fracturing industry.
Situation Analysis
Company
The company has experienced a decline in revenues.
The company produces its fracturing fluids internally and at times requests for supply from third party suppliers when tasked with a broad drilling contract.
The company has not had any amendments to their fracturing fluid composition over time.
The company relies on the fracturing fluid additives for short-term growth potential.
Collaborators
The primary partner of SafeBlend is Bristol Natural Gas.
Bristol Natural Gas collaborates with SafeBlend through platforms where their chemical engineers interact in finding different ways to come up with various modifications and productions that will help in offering customers better quality products.
Adley Oil and Gas are also a collaborator with SafeBlend in most of the financial and contractual commitments as shown in Exhibit 2.
Collaborators help SafeBlend in assessing the cost based ingredient rates to aid in the final value assignment for the product.
Customers
Customers help SafeBlend in negotiating for prices making them remain relevant in the industry.
The customers help in sourcing for agents that establish the standard production rates for the fracturing fluid.
Customers determine the company’s estimated profits margins as well as the overall administrative and general expenses.
Competitors
Competition shakeup SafeBlend by affecting the total number of opportunities as well as customers available for the company as seen in Exhibit 1 below.
The product quality among competitors as well as their market price influences the company’s revenue due to the pricing factor.
The competition also challenges the company to adjust their commitments to the supplying goals (EIA, 2016).
Competitors influence the need for SafeBlend to research more manufacturing approaches that will help them keep up the stiff market competitions that directly affect revenue returns (See Exhibit 1).
Context
The fracturing industry requires efficient as well as competitive suppliers of the fracturing fluid.
Commitment to have a long-term strategy in supplying the fracturing fluid is necessary to stabilize the revenue returns for both the supplier and consumer.
Research is not only necessary in coming up with the best fracturing fluid composition, but also in the management approaches that will have the best pricing control in the competitive market.
Alternatives
Option One: Change in the Fracturing Fluid
SafeBlend has an option of remaining in the market and keep up with the market competition forces. The company can choose to change the fracturing liquid that they offer their clients totally.
Pros Cons
Changing the fracturing liquid will not only help the company adopt new and friendlier fracturing fluids to the environment but also acquire more efficient fracturing fluid. Alternative fluids are more compressible compared to what SafeBlend is currently using making them less efficient.
In the case where SafeBlend changes the viscosity of their fracturing fluid, the clients will prefer their product since it will easily penetrate through the existing crack networks applying enough pressure needed in their reactivation. The use of carbon dioxide can lead to the formation of corrosive acids that will, in turn, the carbonate rocks in the surrounding.
Having the fluid adhering to the rock will be an advantage to SafeBlend since clients will prefer it for its adherence to the rock surfaces since that aspect improves the extraction of the gas that is at the bottom of the rock in any of the secondary network (Whitmarsh et al., 2015). Use of carbon dioxide can lead to rock swelling and subsequent decrease in the permeability.
SafeBlend would have to incur a loss of revenue when implementing the changes in the product to match the market expectations.
When the fracturing fluid is evacuated, the secondary networks that were opened as a result of the change in the fracturing fluid are retained raising an unresolved issue.
Conclusion: SafeBlend needs to establish the right alternative fluid to the one that they are currently using. For instance, they can opt for carbon dioxide, nitrogen, or propane. Carbon dioxide is right for their use since its viscosity is ten times lower than that of water when used in its liquid state. SafeBlend can further differentiate their product and use carbon dioxide in its supercritical state which has a much lower viscosity than when used in its liquid state. The efficiency of a fracturing fluid is dependent on its penetration, which in turn is dependent on the fracturing fluid’s viscosity. Unless SafeBlend changes the fracturing fluid, the competition will remain stiff and might be phased out of the market.
Option Two: Electric Fracturing
SafeBlend can also use the alternative of using electric fracturing which involves dynamic loading. Electrical pulses last for fewer than 100 microseconds and results in a wave (Whitmarsh et al., 2015). The wave of pressure created is transmitted throughout the rock by the fluid in the wellbores. The result is many micro-cracks that continually decrease in density depending on the distance from the well.
Pros Cons
Dynamic loading can be induced using a variety of sources such as the use of electrical impulses or through placing explosives at the good bottoms as was used in the methods of tunnel drilling. The use of electrical fracturing results in associated risks such as electrocution of microorganism during the fracturing processes.
The method is effective since it uses an amplitude that reaches over 200MPa (EIA, 2016). The rock permeability increases for only some meters from the wellbore.
Electric pulse fracturing enables the reactivation of existing cracks Conclusion: In electric fracturing, a crack is made on the surface of a material that is proportional to the transferred energy of the material volume intended to be broken thereby creating alternatives for the use of expensive additives in the fracturing fluid. Dynamic loading results in a huge energy amount to a little volume of ground material. In a small volume, the large energy amount results in cracks being created in a large area. As the loading wave creates inside the material spreads creating fragmentations that in turn connect the initially and newly established crack networks (EIA, 2016). With the excellent performance of electrical fracturing, SafeBlend could adjust its pricing and offer equally desirable operations for clients. If SafeBlend takes the alternative of using electric fracturing, it must incorporate the operational issues that will require the detailing of the phasing out of the fracturing fluid as well as the effects of having the small volumes covered by the electric loading.
Recommendation
After reviewing the different alternatives that can help adjust SafeBlend’s pricing, I recommend the following strategies.
SafeBlend should consider changing the fracturing fluid since it is limited due to the availability of cheaper environmentally friendly fracturing fluids by competitors.
SafeBlend should consider including dynamic fracturing in the list of services it offers clients to help in retaining more clients for the purpose of increasing its revenue sources and stabilize its pricing as shown in Exhibit 2.
Offer clients options of using equipment that heat the rock mass or offering equipment that introduces bacterial flora at the good bottoms.
SafeBlend Company should design a mechanism that will control the implementation conditions such as using good quality casings as well as sealing for the wellbore.
SafeBlend should also set up a team that looks into the achievement of a production process that is acceptable as well as financially viable to keep up with the competitors who look into scientific literature every day to come up with new results all over the globe.
SafeBlend should have control process designed to cater for the conventional resources such as non-fractured wells and the entire extraction processes.
Pros Cons
Chemistry has provided additives for the water used in the fracturing process providing SafeBlend with the most convenient substitutes such as the gelling agent Guar gum used in fracturing fluids. Electric fracturing used in dynamic fracturing gets limited when there is a need to explore large volumes of rocks.
Electric fracturing used in dynamic fracturing confines the area and volume of rock to be cracked for safety measures. There is no prevention of the probable gas leaks and subsurface aquifer contamination that is related to the wellbore leaks.
Electrical fracturing reduces the risk of the connections between the surrounding areas and the crack networks that could happen accidentally (EIA, 2016). Conclusion: The use of alternative fluids, as well as fracturing methods as suggested in the alternatives, has been used as a reality among SafeBlend’s competitors with many pilot projects adopting the technology. As such, SafeBlend should not be confined to the perspective that they are inflexible in the change of their fracturing fluid. In any case, they should consider coming up with management strategies that will help insulate the economic pressure due to revenue changes at the start of the shift in product manufacturing. For instance, electrical fracturing can be offered to new clients and once adopted, the operation costs for SafeBlend will reduce considerably helping the company stabilize its price regulation in relation to the competition. The use of electrical pulse fragmentation should be adopted after subjecting proposals to international patents. While the requirement whets the possibility of SafeBlend adopting it, the company should evaluate the forgone advantages into investing in the dynamic fracturing alternative (Whitmarsh et al., 2015). If SafeBlend adopts the above recommendations, it will be in a position to aim at optimizing as well as understanding the opportunities they get with different types of clients some of who may prefer hydraulic fracturing with a reduced environmental impact such as reprocessing and water consumption.
Implementation Plan
The implementation plan for the two alternatives offered for SafeBlend in the recommendations will best be realized after the company pilot studies. Moreover, SafeBlend will be required to implement the validation process done on site. The facilities should have a capacity that goes beyond the abilities of their current laboratories. SafeBlend will need to incorporate the operational issues required in giving details on how to phase out the fluid used for fracturing. The company will also consider the alternative of electrical fracturing that is limited by the small volume of rocks explored (Whitmarsh et al., 2015). SafeBlend will also monitor and structure a way to integrate the production and operation processes with the strategies to overcome competition. For instance, it would be vital if they differentiate their products as well as monitor their prices to remain at the top of the market and retain their revenue stability. They should also prepare industrial pilot programs that define the different stages of industrial evaluation as well as evaluations that will determine the results that are not achievable using digital simulations. Further, SafeBlend should collaborate with national initiative programs that incorporate private actors in the creation of infrastructure.
Target Audience/Goal Strategy Elements Budget Timeline Metrics
Bristol Natural Gas
Fracturing fluid Supply and Electric Fracturing Services. Increased supply of fracturing fluid (see Exhibit 2)
The introduction of electric fracturing. $53,600
$20,000 One year period. Agreement to retain the price for the fracturing fluid and half priced electrical fracturing services in pilot projects.
Adley Oil and Gas
New Fracturing Fluid Supply and Electric Fracturing Services. Introduce the supply if a new fracturing fluid.
Provide electric fracturing services. $25,000
$30,000 6 Months 90% constant supply of a new fracturing fluid and electric fracturing in one pilot project.
Kettle
Fracturing fluid Supply Increased supply of fracturing fluid (see Exhibit 2)
$93,000 One year period. 13% increase in the supply of the fracturing fluid.
The goal is to increase the supply of the current fracturing fluid to the existent consumers as well as introducing cheaper alternatives that have not been offered by competitors. In a period of half a year, SafeBlend will be in a position to evaluate the effectiveness of the implementation plan for overcoming the effect of competition. If the plan is effective in helping SafeBlend remain at the top of the market, it can be extended to new clients.
Extras
List of Extras
Exhibit 1: SWOT Analysis Tool
Exhibit 2: Total Projected Cost after Competition (Spreadsheet)
Exhibit 1: SWOT Analysis Tool
SafeBlend should use the SWOT analysis as a tool for proper management of their competitions strategies as well as ensure they remain at the top of the fracturing industry.
Strengths
Weaknesses
Some of the strengths that SafeBlend should integrate and utilize in its management of competition will propel it forward in the industry by giving the company competitive advantages. They include:
SafeBlend has had a long as well as a successful history in the development of the fracturing industry. As such, they are at a potential of maintaining their status and reputation in the production and leasehold among many of the clients.
SafeBlend is also in a position, as a leader in the industry, to utilize new and developing technologies that help in creating new compositions of fracture fluids used in exploration (EIA, 2016).
Moreover, the company can take pride in their inventions such as producing the first fracturing fluid. Moreover, with the large clientele base, SafeBlend is in a position to acquire undeveloped positions for acreage in their clients’ future exploration operations. The SafeBlend Company has to be aware of the weaknesses that would derail their implementation plans if they remained unchecked. They include:
Cause and effect of the continually escalating costs as well as completion.
The company should understand the large and rapid changes that affect their product prices and feedstock such as complaints on environmentally unfriendly products from the clients. Otherwise, the company would suffer huge losses in revenue and their inventory.
Opportunities Threats
SafeBlend Company should focus on the viable opportunities that are necessary for helping them make progress against the industrial competition. They include:
The opportunity to utilize their clients and prevent them from moving over to the competitors by ensuring that they observe the commitment required in conducting business and operations in healthy environments, cater for the welfare of the employees, vendors, visitors, as well as ensure that they observe the health regulations.
The opportunity to retain their existing clientele base giving the clients no reason to opt for other services.
They can accelerate the production growth by utilizing the emerging and cutting edge technologies.
They can improve their quality of products reaching the markets by changing the fracturing fluid. As a result, the company will attract the premier clients in the industry and retain their existing clients (Whitmarsh et al., 2015) SafeBlend should consider the threats they face as well as research on the difference ways to address the concerns. They include:
Threats by the operation hazards as well as the uninsured risks that result from the use of the electrical equipment that could result from the adoption of electric fracturing.
The stability and productivity of the company due to unchanged equipment that has high-risk hazards as well as ensures all stakeholders that could act as company liabilities after giving in to the threats such as injury.
Exhibit 2: Total Projected Cost after Competition (Spreadsheet)
FRACTURING FLUID REQUIREMENTS (Gallons) Total Variable Cost Per Gallon before Competition (2010) Total Variable Cost Per Gallon after Competition (2012) Total Projected Income after Overcoming Competition
AOG 5,360,000 $0.73 $0.33 $ 1,768,800
BNG 8,400,000 $1.79 $0.40 $ 3,360,000

References
EIA. (2016). U.S. Energy Information Administration. Retrieved from http://www.eia.gov
Whitmarsh, L., Nash, N., Upham, P., Lloyd, A., Verdon, J. P., & Kendall, J. M. (2015). UK public perceptions of shale gas hydraulic fracturing: The role of the audience, message and contextual factors on risk perceptions and policy support. Applied Energy, 160, 419-430.
Appendix
2010 Variable Costs Per Customer
  Projected gallons required Material Cost per Gallon Labor Cost Per Gallon Manufacturing Overhead Per Gallon Total Variable Cost Per Gallon
AOG 880,000 $ 0.53 $ 0.09 $ 0.11 $ 0.73
BNG 1,600,000 $1.59 $ 0.09 $ 0.11 $1.79
Fracturing Fluid Requirements by Customer (Gallons)
2010 2011 2012 2013 2014 2015 2016
AOG 880,000 2,240,000 2,560,000 2,800,000 3,520,000 4,080,000 5,360,000
BNG 1,600,000 3,840,000 4,640,000 5,200,000 6,960,000 8,000,000 8,400,000
Kettle 6,000,000 6,000,000 8,000,000
2012 Internal Cost Estimates
  Material Per Gallon Direct Labor Per Gallon Manufacturing Overhead Per Gallon Total Variable Cost Per Gallon
AOG $ 0.17 $ 0.08 $ 0.08 $ 0.33
BNG $ 0.24 $ 0.08 $ 0.08 $ 0.40