Anyone who’s driven along the sere semi-arid state line between Winkler County, Texas, and Lea County, N.M., during a West Texas windstorm is familiar with the powdery sand that veils the highway paint stripes and turns the air a yellowish brown.

Indeed, the Kermit sand dunes have been a popular recreational destination for four wheelers that drive hundreds of miles to frolic in the sandy hillocks.

Those dunes may now become a lever to expand oil production in the Delaware Basin. In February 2017, Houston-based Hi-Crush Partners LP purchased Permian Basin Sand Co.’s 1,226-acre reserve and access to more than 55 million tons of sand for $275 million. The deal signaled the rising role regional sand mines are playing in a rapidly tightening proppant market.

When Hi-Crush competitor U.S. Silica Holdings Inc. simultaneously announced a near doubling of sand productive capacity to 20 million tons annually, the bloom quickly vanished from the quartz on Wall Street, and both companies were part of a Wall Street sell-off that saw equity values for frack sand providers plunge 20% for Hi-Crush, and 14% for U.S. Silica. Nor did it help when Continental Resources Inc., one of the more technically savvy U.S. operators, concurrently announced a reduction in sand volumes on a per-lateral-foot basis.

It was an odd hiccup in a sector that led the recovery upward in terms of equity valuations—and for good reason. Sand use per well has skyrocketed, essentially doubling from fourth-quarter 2015 to first-quarter 2016.

Massive proppant loading, up to 2.5 tons per lateral foot in extreme cases, sits at the top of innovations in completion practices (along with longer laterals, closer stage spacing, and slickwater plug and perf) that have boosted IPs to impressive levels. That has engendered an upward revision in type curves and theoretical well economics and revitalized operator plans to sally forth under a commodity price deck that is still about 10% below what operators say they really need for sustainable expansion in field activity.

Frack sand demand has been spectacular. U.S. Silica saw shipping volumes for frack sand rise 34% to 2.1 million tons year-over-year and dispatched 64 unit trains of sand during fourth-quarter 2016. Hi-Crush Partners saw a 25% increase to 1.36 million tons quarterly. It sold 4.3 million tons of frack sand in 2016 and has now hit a weather-hampered full capacity utilization on its three Wisconsin mines. Similarly, Emerge Energy Services LP reported a 68% sequential increase in sand volumes to 825,699 tons for the quarter.

The Permian Basin remains the hottest drilling market in the U.S. Finer grades of sand, such as 100 mesh or 40-70 mesh, are popular for the big frack jobs in West Texas, but supply tightened in 2016 as unexpected demand depleted existing inventories. The solution was adoption of lower grade regional sands, close by West Texas.

Meanwhile, the rapid recovery in oilfield activity has caused the return of small- and medium-sized well stimulation firms, some with new private equity backing or the financial tailwinds of recent IPOs, as sand market customers. It underscores the reality that well stimulation is less about technology these days and more about the logistics of providing large quantities of bulk sand to the well site in a just-in-time scenario. Similarly, nervous E&Ps are thinking strategically about access to predictable proppant supplies in a tightening market in the face of pricing that rose 25% in a matter of weeks as 2017 got underway.

Frack sand consumption, consequently, is projected to grow from 40 to 45 million tons in 2016 to 75 million tons by year-end 2018. As the recent equity debacle for publicly held sand suppliers intimates, Wall Street is wondering whether such growth is too much of a good thing.

That anxiety is increasing because several of the publicly held frack sand providers, encouraged by industry pricing signals, talked about quickly bolting on expanded production from existing facilities during the commentary on fourth-quarter 2016 earnings calls.

Then there are the issues of getting sand down the last mile between storage and the well site. The interplay between coarser regionals, last mile logistics and a potential wave of new supply will make dull-as-dirt, prosaic sand one of the most significant stories as 2017 plays out.

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