Three years ago, companies selling frac sand to oil producers were booming, opening multi-million dollar mines, buying rivals and selling shares in what was the hottest niche in oilfield services.
But the shale bust in early March has turned the frac sand mining business into the new coal. As U.S. oil prices plunged, sand suppliers have shut mines, dismissed workers and slashed operations as customers stop drilling and fracking new shale oil wells.
"You can drive by plants and see which ones have already been walked away from," said Peter Allen, a director at closely held Black Mountain Sand, which operates mines in Texas and Oklahoma.
"It will remove a substantial amount of supply and will leave the healthy companies in place," he said, adding Black Mountain sits on enough cash to weather the downturn.
Frac sand, water and chemicals are pumped into wells at high pressure to help release trapped oil and gas. Demand for those services crashed when U.S. oil tumbled in March to $20/bbl, below what shale firms need to cover costs, amid coronavirus-related shut-ins and a Russia-Saudi price war that cut fuel demand by 30%.
Some mining facilities have shut and other miners are posting losses. Signal Peak Silica in March said it would close its Oakwood, Okla., location and lay off workers, according to state filings. Rival U.S. Silica Holdings Inc. cut its workforce and cut executive pay.
On May 5, Smart Sand Inc. reported an $84,000 loss on sales of $47.5 million. The miner went public in 2016 at $11 a share, and now trades at under $1. The company reported earnings per ton of sand sold—excluding some overhead costs—fell to $15.20 last quarter, from $26.35 a year ago.
Covia Holdings Corp. has idled operations in Illinois and Texas and warned last month its shares could be delisted from the New York Stock Exchange if they remain under $1 a share through mid-December.
"Some of them really need to go away," said Mark Chapman, a vice president at market researcher Enverus that tracks oilfield services.
Tough times have also prompted legal battles. Sand Revolution II this week sued Covia in a Texas court alleging non-payment of an undisclosed fee, according to a petition filed in Harris County district court in Houston.
Covia said the lawsuit was "legally and factually baseless."
In a letter to Sand Revolution obtained by Reuters, Covia called the lawsuit a "misguided attempt to dishonor its contractual obligations."
Analysts say the way out for the sand industry is for mines to shut down and firms to merge.
"The obvious answer," said Blake Gendron, an oilfield analyst with Wolfe Research, "is rapid consolidation."
Recommended Reading
Berry Closes Debt Refinancing to Uphold Growth Commitments
2024-12-26 - Berry Corp. closed a debt refinancing agreement to continue its corporate strategy of promoting scale and diversification.
Venture Global LNG Files Paperwork for IPO
2024-12-20 - Venture Global LNG filed initial paperwork for an IPO on Dec. 20, about a week after the company’s Plaquemines LNG facility started production.
Dividends Declared Week of Dec. 16
2024-12-20 - As fourth-quarter 2024 nears its end, here is a compilation of dividends declared from select upstream, midstream and service and supply companies.
Rising Phoenix Names Executive as New Director of Capital
2024-12-19 - Rising Phoenix Capital appointed Ben Fujihara, a tenured financial executive, to oversee the company’s capital strategy, investor relations and business development.
Natron Energy Appoints New CEO
2024-12-17 - Sodium ion battery technology company Natron Energy has appointed Wendell Brooks as the company’s new CEO to lead growth initiatives in 2025.