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Frac is back: Sand industry returning in big way in western Wisconsin

By Eric Lindquist

EAU CLAIRE (AP) — Like the ghost towns left behind after the California gold rush fizzled, many of the frac sand mines dotting western Wisconsin sat dormant a year ago.

Piles of golden sand sat untouched next to stationary rail cars, with skeleton crews stopping by only occasionally to check on the idle facilities, the Leader-Telegram ( ) reported.

It was a far cry from the boom times of a few years ago, when sand mines and processing facilities popped up constantly across the landscape.

But even faster than the industry rose from the ground up because of the region’s high-quality sand, it ground to a near halt, with hundreds of workers getting laid off, as a result of plummeting oil prices. For western Wisconsin residents, it was a crash course on the volatility of the gas and oil industry.

Through the slump, company officials insisted the frac sand industry would bounce back.

“The big question is when,” industry consultant Kent Syverson, chairman of UW-Eau Claire’s geology department, said last May.

He now has the answer: 2017.

American Rock Salt Co. worker Don Handy operates a roof scaler at a sand mine in Hampton Corners, N.Y., on Jan. 27. Sand mines in western Wisconsin are experiencing a resurgence as oil prices increase. (AP Photo/Jeffrey T. Barnes)

American Rock Salt Co. worker Don Handy operates a roof scaler at a sand mine in Hampton Corners, N.Y., on Jan. 27. Sand mines in western Wisconsin are experiencing a resurgence as oil prices increase. (AP Photo/Jeffrey T. Barnes)

“The industry was fairly dormant for a while, but now it has reawakened,” Syverson said last week. “These mines are going full out again.”

Representatives of several companies with regional frac sand mining operations confirmed Syverson’s assessment.

“We are running pretty much full time, back to 24 hours a day,” said Sharon Masek, manager of mine planning and industrial relations for Superior Silica Sands in Wisconsin. “We’re pretty much back to our peak levels of employment.”

That means employment at Superior Silica’s five mines in Barron and Chippewa counties has reached close to 200, up from about 70 last year when two of the facilities operated part time and two were completely shut down, Masek said. The company, based in Fort Worth, Texas, is seeking to further boost its western Wisconsin workforce in the coming weeks.

The buzz of activity is refreshing after a tough 2016.

“It’s great,” Masek said. “I love coming to work in the morning when there are trucks all over the place and it’s tough to find a place to park.”

For Hi-Crush, which operates frac sand mines in Augusta, Blair, Whitehall and Wyeville, the rebound also is well under way.

Chief financial officer Laura Fulton said the mines are ramping up and should all be operating at full capacity — producing a combined 10.4 million tons of sand per year — by late June or shortly thereafter. The Houston-based company temporarily shut down the Whitehall plant when the Blair operation started in March 2016. The Wyeville facility, near Tomah, is the only one of the four mines that operated throughout the downturn.

Hi-Crush has hired 91 workers so far this year, roughly doubling its 2016 employment level, and is seeking an additional 20 to 25, Fulton said.

“We think it’s the beginning of a rally,” she said. “Everything seems to be really positive.”

The story is similar for Fairmount Santrol, which operates industrial sand mines in Menomonie, Bay City and Maiden Rock and owns a processing facility in Hager City.

“We are operating at full capacity and looking for additional staffing at some of our plants,” said Aaron Scott, the Sugar Land, Texas-based company’s mining director.

While depressed oil prices also led to cutbacks for Fairmount Santrol, Scott emphasized that diversification helps it weather the ups and downs of the oil and gas market. The company also supplies sand for the glass, foundry, roofing, construction and water filtration markets.

“We think the long-term market outlook remains bright,” Scott said.

Apparently, so do industry observers, as Masek cited a report showing the consensus of analysts is that demand for frac sand will exceed its 2014 peak of 53 million tons this year. After dipping to 37 million tons in 2016, projections call for demand to climb to 79 million tons in 2017 and 107 million tons in 2018.

Samir Nangia, who follows the frac sand industry as director of consulting for IHS Energy Insight, said all indications are that the sector is mounting a strong comeback after the doldrums of last year.

“Really strong demand is driving the change,” Nangia said, adding that IHS projects demand for frac sand will increase by more than 60 percent this year in the U.S.

“It’s a boom-bust cycle, and it looks like the boom has just started,” he said.

Wisconsin is the nation’s leading producer of sand used in hydraulic fracturing — the drilling technique commonly known as fracking that involves injecting a mixture of sand, water and chemicals deep into underground wells to force oil and natural gas to the surface. Wisconsin sand, prized by frackers for its ideal size, shape and durability, is shipped to drilling sites in several states, including Texas, North Dakota, Pennsylvania and Ohio, as well as Canada.

Rising demand for sand is a result of more wells being fracked and more sand being used per well, Nangia said. The analyst indicated the number of wells being fracked in the U.S. now totals 10,600, up 28 percent from last year but still well below the 19,790 wells in 2014.

Rich Budinger, spokesman for the Wisconsin Industrial Sand Association and vice president of mining operations for Fairmount Santrol, said oil prices are probably the No. 1 indicator of the health of the oil and gas industry. He tied the industry’s slump directly to oil prices plunging below $30 a barrel after the Organization of Petroleum Exporting Countries announced late in 2015 that it was not planning to limit production. The price of West Texas Intermediate Crude finally surpassed $50 a barrel again late in 2016 and closed last week at $47.84.

“When the price got up to around $50, it was kind of a green light for the oil companies that they could make money again,” Syverson said.

Syverson believes the frac sand industry, which has attracted criticism from environmentalists for its destruction of the region’s sandstone hills and potential impact on air and water quality, can play a key role in diversifying the regional economy.

“This resurrection of the sand boom is important because it’s happening at a time when some communities are suffering because agricultural prices are low,” Syverson said.

One factor still weighing heavily on the share prices of frac sand companies involves renewed interest in lower quality, but cheaper, sand from Texas, where the most fracking is occurring.

While the northern white sand found in the Midwest remains the highest quality and generates the highest yields for fracking, it costs $60 to $70 per ton to ship it to Texas, and more companies are exploring the possibility of using Texas sand instead to save on transportation costs, Nangia said.

“In the past, most companies were unwilling to use this lower quality sand, but now it seems more of them are open to the possibility,” he said.

It may not matter much in the short term if analysts are right about the impending surge in demand for frac sand.

“If the projections hold true and they’re going to need so terribly much sand, then they will need the Texas sand and all of the other sand as well, or they won’t be able to meet demand,” Syverson said.

Another new development is that some frac sand companies are beginning to use finer grain sand they once rejected — and allowed to sit in settling ponds at mine sites — because frackers have learned they can inject those fine grains into smaller fractures and thus extract more oil and natural gas by stimulating a higher percentage of shale formations, he said.

Despite the fresh lesson on the volatility of the oil and gas market, many laid-off frac sand workers have returned to the industry.

“Not as many are skittish as you might think,” Superior Silica Sands’ Masek said. “Many of them loved their jobs and were happy to come back, although some said they were worried about supporting their families and needed something more secure.”

Fulton said Hi-Crush has had a similar experience, with most workers willing to give the industry another chance.

“The pay is good, and the hours are steady,” Fulton said.

While Fairmount Santrol’s Budinger acknowledged there is risk that goes along with being involved in a global market, he pointed out that a positive aspect of the latest slowdown is it pushed sand companies to become more efficient.

“There’s nothing like an industry downturn to bring focus to cost control,” Budinger said. “Because of that, maybe our industry can withstand a little more volatility than it could two years ago.”

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