Mining sand, clay and other industrial minerals for use by industrial concerns was a solid business for over 100 years, but the explosion of unconventional drilling that has helped boost US petroleum output to levels not seen in decades opened a new and lucrative market.
US Silica is a 112-year old company that got its start supplying sand to Pennsylvania’s glass industry, but around 2008 the firm began to supply proppants to companies that were hydraulic fracturing wells in order to tap liquid and gas hydrocarbons trapped in low-porosity geologic structures like shale.
“The non-oil and gas piece of our business accounts for about 60% of our revenue, but 40% of earnings,” US Silica President and CEO Bryan Shinn recently told AOL Energy.
The non-oil and gas part of the business – Industrial Specialties – supplies sand, clay and various grades of silica to industrial operations that produce a wide range of everyday products like paint, glass, shingles, granite counter tops and even toothpaste. Some of US Silica’s major clients include Owens Illinois, Owens Corning, Sherwin Williams, Dow Corning and foundries that manufacture custom metal parts using molds (which are largely made of sand).
It takes 80 semi-trucks [of sand] to frack one well,”- Shinn
On the oil and gas side, US Silica’s biggest clients are service companies like Halliburton and Schlumberger, said Shinn. The company has nine major take-or-pay contracts with oil service companies that run fracking operations. These contracts run from two to five years and currently account for about 80% of US Silica’s oil and gas revenue, he said.
Approximately 60% – 65% of the non-metallic minerals industry by volume in the US is dominated by four companies, with US Silica being the second largest. The other industry leaders include Belgian-based Unimin, Fairmount Minerals and Badger Mining, both based in Wisconsin, which is the location of a high-quality US industrial-grade sand deposit.
‘Unprecedented Growth’ Expected to Continue
US unconventional oil and gas drilling has been growing so quickly that it can be difficult for proppant suppliers to keep pace. “Companies will use lower quality sand if needed, but it’s not as productive as the ‘Ottawa White’ (aka Northern White),” that US Silica typically provides, said Shinn.
However, Pioneer Natural Resources recently acquired Belgian-based Carmeuse‘s US industrial sand business citing its demand for high-quality brown sand. “When Carmeuse recently announced plans to sell its U.S. sand business, we viewed this as a strategic opportunity to secure high-quality, low-cost and logistically advantaged brown sand supply to support our growing fracture stimulation requirements in three of our four core Texas growth assets – the Spraberry vertical, horizontal Wolfcamp Shale and Barnett Shale Combo plays,” Pioneer Chairman and CEO Scott Sheffield said in a statement.
Regardless of which grade of sand works best in a given shale play, the demand for proppants on behalf of oil and gas companies is clear. “It takes 80 semi-trucks [of sand] to frack one well,” Shinn said.
When asked if US Silica would be open to acquisition by a large oil company, Shinn said he is not actively soliciting offers, but would listen if someone came knocking. Generally, oil and gas companies don’t want to get into the industrial sand mining business, he explained. EOG Resources opened its own sand mine, but it took three to four years, said Shinn.
US Silica is seeing lots of activity in some of the largest US conventional and unconventional petroleum deposits including the Marcellus Shale, Bakken, Eagle Ford Shale and the Permian Basin. And Shinn anticipates the output trend to continue, “we are in the early innings of unprecedented oil and gas growth,” he said.