Emerge Energy Services LP unit Superior Silica has contracted to supply sand from its in-basin mine in San Antonio for Chesapeake Energy Corp.’s growing fracture/completions program in the Eagle Ford Shale under a new agreement, the company said Monday.
“Chesapeake is committed long term to growing its position in the Eagle Ford basin, and as a leading producer of frac sand in South Texas, we are the perfect fit to supply Chesapeake with a large portion of its frac sand needs,” Emerge general partner CEO Rick Shearer said.
In addition to its South Texas Eagle Ford assets, Chesapeake this past fall acquired East Texas-focused WildHorse Resource Development Corp., which substantially expanded its position in the Upper Eagle Ford Shale and Austin Chalk formations.
Chesapeake, formerly one of the leading natural gas producers in the U.S. onshore, shifted to an oilier production mix several years ago to strengthen its balance sheet. In Texas, the company’s big focus of late has been on the Eagle Ford, where it was the most active last year. The WildHorse assets are hundreds of miles to the northeast of the core Eagle Ford assets in South Texas, but Chesapeake’s management views them as a third oil growth engine that would also complement its properties in the resurgent Powder River Basin.
Meanwhile, Superior Silica’s San Antonio plant is ramping up to full capacity as the new wet plant began production in December. The plant was was more than 60% contracted in early November, and the new contract likely puts contract coverage closer toward the company’s 80% target, according to Evercore ISI.
“San Antonio is currently ramping toward full capacity with wet plant production commencing in December, which, combined with new permanent natgas supply, should lower overall production costs and boost margins,” Evercore analyst Samantha Hoh said.
Reducing costs and associated logistics for customers in the Permian Basin of Texas drove the buildout of Preferred Proppants LLC’s new resin-coated sand (RCS) facility, which began operations Tuesday in Monahans, between the Midland and Delaware sub-basins. The company’s coating technology is a nonphenolic RCS that claims to offer an alternative to the conventional resin coatings that require an additional activator in some conditions.
Preferred plans to produce 40/70 and 100 mesh RCS using in-basin supply. The Radnor, PA-based company recently opened other in-basin sand mines in South Texas, West Texas and Oklahoma.
The fracture sand sector has been volatile over the past year, as completions have declined with more efficient operations, and Emerge and other sand producers are working to increase their penetration with exploration and production customers and secure contracts.
Also on Monday, Houston-based Hi-Crush Partners LP said it expected business to improve in the coming months following a sharp downturn in sales during the fourth quarter and subsequent suspension of quarterly distributions because of current market conditions.
Hi-Crush delivered its first sand volumes from the newly completed second Kermit production facility in West Texas, which serves Permian Basin producers. As pricing for Permian local sand has begun to deteriorate, however, Hi-Crush now expects to generate an implied $31/ton contribution margin (CM), which is below Kermit 1’s initial $35 CM/ton range, but excludes $5-10/ton of potential upside from last-mile and other logistics services, according to Evercore.
The recent slowdown in U.S. sand demand is reflected in new research by Rystad Energy, which also this week noted that U.S. fracturing activity peaked from April to August then slid into November. Preliminary data indicated that fracturing activity “likely dropped to 44 jobs/day” during November.
Interestingly, the Rystad data also shows evidence that only the Eagle Ford was immune to the seasonal activity deceleration that likely started in all the major plays.