In U.S. shale bust, frack-sand miners are the new coal companies

Smart Sand

07/05/2020 11:00

By Liz Hampton
    May 7 (Reuters) - Three years ago, companies selling frack
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 frack 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.
    Frack 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 a
barrel, 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, Oklahoma, location and lay off workers, according
to state filings. Rival U.S. Silica cut its workforce and cut
executive pay.
    On Tuesday, Smart Sand Inc  SND.O  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  CVIA.N  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." 

 (Reporting by Liz Hampton; editing by Diane Craft and Richard
Pullin)
 ((Liz.Hampton@thomsonreuters.com; +1 713 210 8522; Reuters
Messaging: Reuters Messaging: liz.hampton.reuters@reuters.net))