The frac-sand company Emerge Energy Services says it owes at least $13 million to Wisconsin contractors in a bankruptcy case filed this week, on the heels of falling demand for the company’s products.
Emerge, which owns eight sand pits and processing plants in Wisconsin through its subsidiary Superior Silica Sands, has been under pressure in recent years from falling oil prices and increased frac-sand production in Texas. The company, which processes sand for use primarily in oil production and in building products and foundries, filed for Chapter 11 bankruptcy protection on Monday.
Jerry Shea, president of the Eau Claire-based contractor Market & Johnson—the second-largest creditor listed in the court documents, said his company recently began seeing signs that Emerge was planning to file for bankruptcy. The market for Wisconsin sand has been “under stress,” he said.
“A Chapter 11 bankruptcy is a hard thing to hide,” Shea said.
The company’s filing is a sign that the boom years that Wisconsin frac-sand producers, and their suppliers, enjoyed between 2011 and 2014 are at an end. Although Wisconsin frac sand, called “Wisconsin white,” is still considered a high-quality product, it has been losing out to lower-grade alternatives mined in Texas and other places where sand tends to be more plentiful and cheaper to ship to production plants. According to court documents, shipping costs can make up some 50% of the cost of the sand produced in Wisconsin.
Rick Shearer, Emerge Energy CEO, said in October that his company was laying off 20 employees in Wisconsin largely because of competition from Texas sand. In court documents, the company says employment had fallen from 319 workers in September 2018 to 240 in July.
In court documents, Emerge said one mine and two processing plants it owns in Wisconsin are still in operation. Richard Crusing, controller at Bloomer-based A-1 Excavating, said his company has continued to work steadily for Emerge in recent months and didn’t see a slowdown coming.
“You never know because we don’t see their side of it,” he said.
The frac-sand producer says it owes A-1 $1.1 million.
Emerge entered into a debt-restructuring agreement in May allowing it to negotiate with its creditors—a step entailing the risk of bankruptcy. On Monday, the company officially filed for Chapter 11 protection in a Maryland federal bankruptcy court, saying it owes creditors across the country some $338 million. A list of the company’s 30 largest creditors in court documents includes seven companies that have their headquarters in Wisconsin. Emerge says it owes these firms more than $13 million in total.
According to court filings, Emerge says it owes Market & Johnson $6.2 million—making the company the largest Wisconsin-based debtor of the frac-sand producer. Court documents stipulate that Market & Johnson’s claim is “disputed,” although Shea said a more detailed picture of the company’s debts is likely to emerge during the bankruptcy.
Shea said Market & Johnson has provided various construction services at Emerge’s Wisconsin operations. Most recently, it worked on a now-completed plant in San Antonio, Texas and a nearly finished operation in Dover, Oklahoma.
Emerge blames the San Antonio plant in part for its financial troubles. According to court filings, the San Antonio operation has been under-performing ever since Emerge Energy bought it in April 2017 and spent a good deal of money to convert what was once a small sand mine into a “premier” operation. Production at the site was partially shut down in late
June after the collapse of a 15-foot section of a wall in the mine’s retention pond.
Shea said Market & Johnson is consulting lawyers about the bankruptcy, which he expects could give rise to a drawn-out case.
“This is the first time that I’ve ever had to deal with anything like this, and I hope it’s the last,” Shea said.Follow @natebeck9