Emerge Energy Services LP subsidiary Superior Silica Sands LLC expects to start up a fracture sand mining and processing operation by the end of the year in the heart of Oklahoma’s myriad reservoirs with nameplate capacity of 1.5 million tons/year.
Superior signed a 25-year lease for mining rights on 600 acres about 60 miles northwest of Oklahoma City in Kingfisher County that has an estimated 20 million tons of reserves. It also is purchasing 40 adjoining acres to construct wet and dry processing plants.
The mine would be sited in the STACK, i.e., the Sooner Trend of the Anadarko Basin, mostly in Kingfisher and Canadian counties, and it would provide services for operators working various formations, including in the South Central Oklahoma Oil Province, aka STACK.
The facility would be Emerge’s third in-basin fracture sand operation, according to Emerge’s Rick Shearer, who is CEO of the general partner.
"Once the plant begins production, we will have approximately 6.1 million tons/year of in-basin production capacity, or 49% of our new 12.4 million tons per year total capacity,” he said.
Emerge has been on a tear to expand its sand operations in key onshore regions, including an expansion last year south of San Antonio, TX, to serve customers in the Eagle Ford Shale and Permian Basin.
"Demand for in-basin fine mesh product is strong, and we have validated the appetite for local Oklahoma sand with several key customers operating in the Midcontinent basin. We are in the process of signing up customers under contract for the new plant's capacity, and we expect to fully contract the plant's capacity by year end.”
Shearer was optimistic during a first quarter conference call, noting that Emerge was raising prices for contracted and spot sand customers by 3-5% beginning in the second quarter on record market demand for proppant in the U.S. onshore.
The total project in Oklahoma is expected to cost $15 million. Superior would use existing equipment for a portion of the dry plant. Air and water permits are set to be filed with the state in the coming weeks, with site construction slated to begin by the middle of this month.
“The Oklahoma market represents an under-served basin for us currently, so there is little risk of displacing our existing volume,” Shearer said. “In fact, potential new customers are interested in bundling northern white 30/50 with the finer mesh local sand. This works to our advantaged model as we are a leading producer of both high quality northern white product and lower-cost in-basin sand."
The Midcontinent, he said, “continues to show impressive growth during the current upswing in drilling and completion activity. Third party research firms estimate that fracture sand demand for the basin will total over 8 million tons in 2018 and over 10 million tons in 2019.”
Superior’s planned site is less than two miles from U.S. Highway 81, and rail service would be less than three miles away. Superior is evaluating nearby transload opportunities to bundle northern white with local sand.
The project is to be funded with cash on hand and Emerge’s revolver availability. Emerge is maintaining its full-year capital expenditure guidance of $70-90 million.