Despite Demand, Stocks Slide For Some Frac Sand Companies

Stock prices of frac sand companies doing business in Wisconsin are falling despite high demand for the sand used in hydraulic fracture drilling for oil and natural gas.

Wisconsin has been the nation’s leading producer of frac sand used in hydraulic fracturing for oil and gas for the last five years. But this year companies have focused their energy on developing sand mines in Texas, near the busy oilfields in what’s called the Permian Basin. So far, 11 new mines are in development in Texas that some analysts say could produce up to 50 million tons of sand by 2019.

While hundreds of millions of dollars is being funneled into Texas, the stock price of companies that have focused their resources on developing Wisconsin mines have dropped.

For example, Texas-based Smart Sand has one mine in Oakdale, Wisconsin. Its stock has dropped 71 percent since February.

Jim Wicklund tracks financial performance of sand companies for Credit Suisse. He claims investors are nervous about the new Texas mines flooding the sand market. He also companies focusing on Wisconsin will suffer if they don’t get into the Texas sand game.

“It may not be the death knell of Wisconsin, (but) the likelihood that you see any new sand permits anytime soon out of Wisconsin is pretty close to zero,” Wicklund said.

A number of companies with multiple mines in Wisconsin, —including Fairmount Santrol, Hi-Crush Proppants, Emerge Energy, U.S. Silica and Badger Mining — have announced plans to build out new Texas mines and sand processing facilities. Badger Mining Team Leader Marty Lehman said they’re following the curve.

“We’re looking to supply our customers just like everybody else. So, there are opportunities out there for different qualities of sand and, again, we need to meet our customers’ needs,” Lehman said.

Wisconsin sand, known as northern white, is still considered among the highest quality sand for oil companies due to its high-crush strength. This makes it ideal for reaching oil deposits deeper underground. But Wicklund said more companies have found finer grain Texas sand is an acceptable alternative and it costs around $50 a ton less to ship to oil wells.

“So the dramatic difference in economics and the amount of Texas sand that we have found, that’s good enough has caused this seismic shift,” Wicklund said.