Permian Basin 2017

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PERMIAN BASIN: TECHNOLOGY | November 2017 | 45 can't just drop off the trailer and leave. If there's any kind of issue, you have sand trucks lined up 50 or more on a lease road. They have a certain window to sit before they start charging nonproductive time. If the well is down, say, running wireline, those trucks will start racking up demurrage bills. "With our PropStream logistics system we have a fully enclosed PropX container that holds 12.5 tons with two containers on each flatbed," Scardino said. "So you have equivalent tonnage, but because it is a movable container, it can unload in 3 minutes with a standard forklift. "As much as we are a frack sand company, we are just as much a logistics company," he said. Hi-Crush also has sand storage and handling terminals online or under construction in Pecos, Odessa and Big Spring. "Those terminals are used to deliver sand from our Wisconsin mines," Scardino said. "We also have terminals in the Northeast and in Appalachia. Pecos is the newest and largest. It is a critical component of our supply chain capability. Some customers still pump only Northern White, and formations they are completing demand the higher crush strength of that premium sand." Like any commodity, sand is subject to intense competition and price variability. Badger announced it will open a 5 million tons/year Permian Basin mine. U.S. Silica Holdings in July announced a 4 million tons/year mine. Vista and Preferred are in the mix. Unimin is planning a 5 million tons/year mine. Is there enough potential use? "The investor community has been struggling with this," Scardino said. "There's a disconnect with what people fear of the supply that may come online, versus what is realistic. "The in-basin 100 mesh fine sand is in very high demand, and is not being produced in high enough volumes. There's an actual shortage. There is enough demand to soak that product up. There will be a limited pool of companies actually able to get the mines up and running anywhere near the nameplate capacity they have announced. Some of our larger-scale competitors have a high degree of confidence they'll get those projects done. I think the timing is up for debate. One can argue the amount brought on line might not be as much. It will be measured, particularly over 2018, while demand is increasing. The environment is competitive, but not cut-throat. Logistics are critical." Some U.S. market analysts estimate total frack sand sales for 2017 at 75 to 85 million tons, surging to 100 million tons in 2018. Major sand producer U.S. Silica says the total could go as high as 147 million tons for 2018. Sand prices vary, with quality and transportation playing a role. "The landed price in the Permian of sand delivered from a Northern White location can range widely to cover the rail transportation costs," Scardino said. "Delivery to the well site will be higher to cover the cost of the last mile. Over the last cycle, prices varied from the low $60s to high $150s. We're the only mine actually selling in-basin sand in the Permian, and pricing is strong given the demand we see today." The Hi-Crush Kermit facility is getting up to speed quickly. "We're ramping up to full capacity," Scardino said. "By the end of this quarter [third-quarter 2017] we expect to be up to our full run rate. We have capacity for 13.4 million tons per year from all five of our mines." Much of that is destined for the Permian. "We sell about 40% to 50% into Permian," Scardino said. "We sell about one-third to the Northeast." n —B. Robert Partain Sand silos fill special containers for distribution to hydraulic fracturing sites. (Photo courtesy of Hi-Crush)

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