A state-of-the-art sand mine and plant in West Texas, envisioned for months to serve the voluminous growth in the Permian Basin, is underway, U.S. Silica Holdings Inc. said Tuesday.
The $225 million project on a 3,200-acre site is designed to produce 4 million tons/year of sand, part of the Frederick, MD-based company's near-term strategy. U.S. Silica plans to add 8-10 million tons of brownfield and greenfield capacity to meet surging proppant demand as operators drill longer wells using more complex fractures (frack).
"We believe we've selected one of the most advantaged sites in West Texas with good availability of water, easy access to Interstate 20 and a location that is equidistant to the hearts of both the Delaware and Midland basins,'' said CEO Bryan Shinn.
The site has an estimated 30 years-plus of reserves of fine grade 40/70 and 100 mesh sand, according to U.S. Silica. The project is to be funded from cash on hand and cash flow from operations, supported by long-term supply contracts that include cash pre-payments. Initial production is scheduled for late this year.
"Our focus is serving our customers," Shinn said. "Those customers told us clearly that they want more local sand supply in the Permian to support future well completions. Their willingness to negotiate long-term supply agreements for this new capacity and to potentially commit their own capital to the project demonstrates the confidence they have in U.S. Silica and the tightness of the frack sand market now and in the future."
The company expects to enter into similar agreements for other capacity expansion projects currently underway, Shinn said.
One of its customers, Halliburton Co., is the largest fracture operator in the Lower 48. Last year U.S. Silica moved with Halliburton the largest sand unit train of its kind up to that point, traversing a route from Illinois to south of San Antonio.
As it lays plans for a proppant surge, U.S. Silica has increasingly directed its efforts to Texas. Last July U.S. Silica paid $210 million for New Birmingham Inc. affiliate NBR Sands in East Texas and launched plans to more than double operations to 2 million tons/year. Also last year it agreed to pay $218.3 million to buy Sandbox Enterprises LLC, a fracture sand logistics company, to help manage the proppant supply chain.
During a first quarter conference call earlier this year, Shinn said in the next 12-18 months, U.S. Silica planned to invest "in the mix of expansions at existing sites, new greenfield sites and acquisitions that will collectively approximately double our...capacity to more than 20 million tons per year." Also planned are more investments in Sandbox this year, with an expectation to have more than 80 total Sandbox fleets online by the end of 2017.