Alliant Energy (LNT) is uniquely positioned to service frack sand miners like Hi-Crush Partners LLC (HCLP), Emerge Energy Services (EMES), and US Silica (SLCA) located in rural Wisconsin. If demand for industrial gas distribution to these miners can be formally established, regulatory approval is almost certain as Alliant Energy is required accommodate the demand of its service area. I believe LNT's potential gas distribution, when viewed as a call option, is not currently priced into consensus valuation; consensus price targets appear $5.00 to $10.00 too low.
Wisconsin has stellar geology when it comes to sand quality. Wisconsin's white quartz sand is rounded compared to the common brown sand mined around regions like Texas' Eagle Ford & Permian shale deposits (where about 2/3 of all US oil output stems from). Oil and gas E&Ps have discovered that by blasting more quartz sand through the porous shale, output per well can increase by over 30%. These superior results imply low double digit demand growth for quartz sand through 2020 (Wall St. Journal, Aug. '14) and miners cannot keep up with demand. The supply-demand disparity is so great that SCLA, the largest of the three aforementioned miners, has secured sold out production through mid-2018 and HCLP has signed several material long-term take-or-pay contracts with major players like Halliburton (HAL). To combat the sand shortage, significant capital toward boosting Wisconsin production has been devoted by each of the frack sand majors. HCLP is on pace to triple production by the end of 2016; EMES plans to increase production by about two-thirds over the same time frame; and SLCA expects to double production by the end of 2017.
With 80 year record high oil inventories in Kushing, Oklahoma, the rapid adaptation of using more frack sand has undoubtedly exacerbated US overproduction. In just four years, the US has gone from supplying 4% to over 8% of global oil supply. As the US has reduced oil imports and foreign countries have ushered in quantitative easing, the US economy has strengthened along with the US trade-weighted dollar (up roughly 20% since Q4 '14). Commodities denominated in US dollars have become more expensive to foreign countries on a relative basis. Oil's oversupply coupled with weakened global demand have significantly contributed to the …
