Sand in the Permian Basin becomes a valuable commodity

Bloomberg/Fuel Fix:
Standing high on top of a windswept dune in the West Texas plains, Greg Edwards stares out into a vast ocean of sand. It stretches in every direction, interrupted only by an occasional strip of asphalt or clusters of silos that rise high into the sky.

Edwards runs a frack-sand mine. And those silos mark the presence of his rivals, who suddenly seem to be popping up everywhere. As he turns 360 degrees under the blistering midday sun, he calls out their names one by one: “Badger ... Atlas ... High Roller ... Alpine ... Black Mountain ... Covia.”

Twelve months ago, none of them existed -- not even the mine owned by Edwards’s employer, Hi-Crush Partners. It was the first of its kind here in West Texas. Day one was July 31, 2017. Ten others immediately followed. And another 10 or so are now hustling to get started.

Together, they will mine and ship some 22 million tons of sand this year to shale drillers all around them in the Permian Basin, the hottest oil patch on Earth. It is a staggering sum of sand, equal to almost a quarter of total U.S. supply. And within a couple years, industry experts say, the figure could climb to over 50 million tons.

David Cutbirth, the long-time mayor of the nearby town of Monahans, is dumbfounded by it all. Until the miners arrived, these dunes were a quasi-barren wasteland -- good only for weekend adventurers zipping around on buggies. And the price of sand was, well, zero. Today, it fetches $80 a ton, making this year’s haul alone worth about $2 billion.

"I’m in awe everyday," Cutbirth says. "This stuff is worth something?"

There is perhaps no industry that better captures the money-multiplying effect of the Permian boom than the out-of-nowhere emergence of West Texas as a rival to the original capital of U.S. frack-sand mining in northwestern Wisconsin. With such explosive growth, of course, comes the risk of over-expansion. The local miners are unmoved by such talk -- Hi-Crush CFO Laura Fulton actually laughed at the notion -- but to the more dispassionate set of analysts and investors who watch the industry from afar, it is a major risk even if the oil market continues to go strong.

“The fear on Wall Street today is, ‘Oh my gosh, things look great today, but we can’t assume this is gonna last,”’ said Joseph Triepke, a former Jefferies Group analyst who now runs an industry research firm called Infill Thinking. “Look at all this capacity.”
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Before the West Texas sand was mined, drillers were importing sand from Wisconsin and the saving on just the rail expense is substantial and that became important during the downturn of oil prices.  It was one of the ways drillers cut cost.  At the time, I was often curious why they would ship sand in when they had so much at their doorstep.  The sand has different characteristics, but the drillers seem to be making the local sand work for them.  It has become a billion-dollar business in addition to the oil being pumped out of the ground.

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