Hydraulic Fracking Techniques Creating Unprecedented Demand for Silica Sands
VANCOUVER, BC / ACCESSWIRE / October 14, 2015 / The demand for frac sand has exploded in
the past several years as thousands of oil and natural gas wells are
being stimulated using the hydraulic fracturing process. A hydraulic
fracturing job on one well can require a few thousand tons of sand. This
surge of specialized drilling has created a billion dollar frac sand
industry in a very short time. Frac sand (proppant) use has nearly
doubled since Q3 2012.
Recently, one of the largest Silica Sands producers, U.S. Silica Holdings, Inc. (NYSE: SLCA)
announced the delivery of a record-breaking 150-car unit train carrying
over 16,500 tons of U.S. Silica White(R) frac sand from Ottawa, IL to a
transload facility serving the Permian Basin.
Although the U.S. land rig count has
declined during 2015 as a result of lower oil prices, large volumes of
sand continue to be required as current completion designs for wells
demand increased volumes of sand per stage and more stages per well. It is estimated that sand usage per well has increased by 26% from the 3rd quarter of 2014 to the 2nd quarter of 2015, according to a recent report from PacWest Consulting Partners and that trend appears to be continuing.
The reason for this stunning surge in sand
usage is that sand and ceramic (known as proppants) keep shale fractures
open, thereby allowing more crude oil to flow. Fracking wells reach
peak production quickly and then enter a rapid rate of decline, by
achieving increased production during the first year the well is more
likely to return a higher total recovery over the lifetime of the well.
The trend is undeniably strong and the
future looks bright for commercial silica sands producers. Especially
those producers who have high velocity logistics networks that are able
to meet customers' needs at the necessary scale and speed.
The silica sands space has been devastated
during 2015 as rig counts have been in sharp decline. However, there is a
good chance that the bad news has been sufficiently, or excessively,
discounted. The fact remains that strong producers are continuing to
utilize proppants in record quantities in order to optimize well
production. There is one major player in silica oil & gas proppant
space, US Silica Holdings (NYSE: SLCA) and many mid-tier players such as
Fairmont Santrol Holdings Inc (FMSA: NYSE), Hi-Crush Partners (HCLP:NYSE), and Emerge Energy Services LP (EMES:NYSE).
As the mid-tier and major players look to
optimize costs through scale and geographic diversity there is only one
small cap on our radar: Select Sands Corp (TSX-V: SNS / OTC: CLICF). Select Sands Arkansas asset is 650 miles closer than Wisconsin mines to
major Texas and Louisiana shale-plays offering savings in
transportation costs to oil producers, which of course are trying to
squeeze costs right now.
The Preliminary Economic Assessment (PEA)
on the Sandtown project suggests total mine revenue of US$767M, with
strong potential to become larger. Currently the market cap is $13M US.
SNS has exhibited substantial relative
strength during a challenging year for the silica explorer/producer
space suggesting strong corporate developments are taking place and
investors are taking interest to their valuation.
SOURCE: Resource Reports
Source: Accesswire IA
(October 14, 2015 - 3:03 PM EDT)
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