Shale Daily / NGI All News Access

KKR Kicks in Equity to Expand Preferred Sands Services

Preferred Sands, one of North America's big sand and resin-coated proppant (RCP) producers, is getting an equity boost from KKR & Co. LP to refinance the entire capital structure and expand its offerings.

The transaction, set to close this week, would provide Preferred Sands debt and equity of more than $680 million. The deal is KKR's first significant investment primarily from the global Special Situations fund. KKR Capital Markets and an affiliate of Jefferies LLC jointly underwrote the first lien credit facility.

"This is a long-term plan that enables us to further grow our industry-leading platform of products and services," said Preferred Sands CEO Michael O'Neill." The equity helps "to create a tailored solution to meet our immediate needs, with the flexibility to focus on our future growth plans and other opportunities."

The Radnor, PA-based supplier, which started up in 2007, offers proppant services across North America, with fracturing (fracking) sand and proppants that help producers stimulate vertical and horizontal oil and gas wells.

Proppant consumption is increasing in the U.S. onshore as operators work to lift reserves in well completions, PacWest Consulting Partners reported in February (see Shale DailyFeb. 5). The consultant is forecasting the U.S. land proppant market to increase overall by 10% from 2013 through 2015. Anecdotal reports by producers and oilfield service operators also have noted an uptick in proppants.

"We believe Preferred Sands has an enviable position in the marketplace, and this is an investment in the team, the technology, and the future of a growing platform," said KKR's Special Situations team member Harlan Cherniak. The financing offers "a long-term, flexible capital structure ,which will allow them to meet the needs of their customers."

In the last seven years, Preferred Sands has built a network of sand mines and processing locations in Arizona, Minnesota, Nebraska and Wisconsin, with capacity to produce more than 9 billion pounds of sand per year.

Another Northern White sand plant begun this month, designed to have 7 billion pounds/year of capacity when completed in 2015, would more than double sand production capacity to about 7 billion.

"The energy industry in North America has undergone immense change, and we believe Preferred Sands is poised to benefit from the current positively trending fundamentals," said KKR's Jamison Ely, also a member of the special situations team. "We have followed Preferred Sands for a long time and we think it is well positioned to capitalize on growing demand for frack sand."

Affiliate Preferred Technology recently completed a series of proppant pilot well tests in Colorado using DustPro, a silica dust control solution introduced in April. The tests, which surpassed U.S. Occupational Safety and Health Administration standards, were co-designed with The Dow Chemical Co. The project is designed to offer a preventative solution to help control respirable silica and fugitive dust during sand transfer points. The proppant is based on Dow's Preferred DC technology, said to be compatible with frack fluids but it does not appear to alter proppant characteristics.

Preferred Sands also partnered with Dow on the specialized RCS line, which includes the Garnet and Pearl proppants. RCS Garnet, launched in 2013, is produced without phenolics, offering what the companies say is a sustainable alternative for operators. Phenolics generally include carbolic acid, hydroxybenzene, oxybenzene and phenylic acid.

RCS Garnet initially was expected to be a strong offering because of its specifications for flowback control in low temperatures, and because of a minimal environmental impact, O'Neill said when the product was introduced in late 2013. However, a "terrific increase in material demand since its launch illustrates the industry's movement toward more sustainable operational strategies."

Recent Articles by Carolyn Davis

Comments powered by Disqus