Sand firms hit by falling oil prices

Sand firms hit by falling oil prices

The plunge in oil prices has exposed sand producers to the boom and bust nature of the global energy business.

That combination of surging supply coupled with weak demand globally for fuel is the main reason behind the near halving of crude oil prices since June.

The drop in oil prices also has the frac sand industry bracing for a slowdown as drillers cut back on production.

“We certainly expect things will be softer in 2015 than they were last year,” says Rick Shearer, chief executive, Emerge Energy Services of Fort Worth, Texas, which employs about 350 people in Wisconsin and has invested over $100 million in major facilities in Barron County in the northwestern part of the state.

Shearer, who proclaimed Wisconsin the “global epicenter” of the frac sand industry at a 2013 conference in Madison, says sales were up 30% last year but admits that kind of growth might be tough to repeat as many oil producers retrench in light of the lower prices.

“The good news is that those who are still drilling are using more sand per well,” he says.

The growth of sand mining has been a controversial issue in Wisconsin, with many communities concerned about the noise, dust and impact on local roads. Frac sand shipments have also tied up rail lines and sparked complaints from other businesses who say they can’t get their products shipped because of the heavy demand.

The Wall Street Journal reported this week that the plunge in oil prices has also sent shares of publicly traded industrial sand companies into free fall. It mentioned three companies with significant operations in Wisconsin including US Silica, Fairmount Santrol and Emerge Energy, which operates here as Superior Silica Sands.

Emerge Energy was a Wall Street darling at one point. It debuted on the stock market in May 2013 at $17 a share and rose to $145 in August 2014 before tanking. Shares were trading at $52 late Thursday morning.

Fairmount Santrol has seen its shares fall by more than half since the company went public in October. US Silica shares are also down significantly over the past six months.

Despite the challenges, US Silica Holdings chief executive Bryan Shinn is quoted by the Journal saying his company still expects to grow in 2015 and is not planning any job cuts. He says even if oil companies drill fewer wells next year, they are using more frac sand per well.

“This is providing us with a backstop,” he says. “If anything, we might be looking to add jobs as opportunities arise.”

But Doug Sheridan, an analyst at EnergyPoint Research, tells the Journal that sand companies should be following the lead of other oil-field-service companies like Halliburton and Schlumberger that have announced cutbacks and workforce reductions.

“Sitting on your hands and waiting isn’t what the veterans do,” he warns. “There are a lot of wide-eyed people out there right now in the industry.”

Marty Lehman, president of Badger Mining Corporation in Berlin in Green County, admits the sand industry in Wisconsin isn’t used to the ups and downs of the energy business.

But he notes that industrial sand isn’t used only for fracking purposes and says his family-owned business has been around since 1949. Silica sand is also used in glassmaking, chemical production and paints.

“The sand business is going to be around for a long time and we can do it an environmentally responsible manner,” says Lehman, a board member of the Wisconsin Industrial Sand Association.

For his part, Shearer of Emerge Energy thinks the falling share prices for sand mining companies might prove an opportunity for savvy investors to get in at a lower cost.

“I think there has been an overreaction that sent things falling off the charts,” he says. “But the customers are still out there for us and we are sold out right now.”

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