In the West Texas plains, the booming frack sand business is surprising residents of the vast, windswept area. Within 12 months, 11 frack sand mines opened up and about another 10 are in a rush to get started.
West Texas plains frack sand operations will mine and ship about 22 million tons of sand in 2018
The windswept and desolate desert dunes in the West Texas plains have given new life to a number of frack sand operations which will ship about 22 million tons of sand to Permian Basin shale drillers this year.
Industry experts tell Bloomberg that within a couple years, the miners could ship over 50 million tons.
David Cutbirth is the mayor of the nearby city of Monahans. He says he is astonished by the notion that the quasi-barren wasteland, which until now had only been used by dune buggy enthusiasts, is home to mining operations that bring in billions.
At $80 a ton, this year miners have earned about $2 billion.
“I’m in awe everyday,” Cutbirth told Bloomberg. “This stuff is worth something?”
The boom has left skeptics wondering if the industry will over expand. West Texas frack sand miners, like Hi-Crush CFO Laura Fulton scoff at the idea, but analysts and investors are concerned about supply outpacing demand.
“The fear on Wall Street today is, ‘Oh my gosh, things look great today, but we can’t assume this is gonna last,”’ Joseph Triepke, head of an industry research firm called Infill Thinking told Bloomberg. “Look at all this capacity.”
Shares in Hi-Crush are down by over 10 per cent since mid-May. US Silica Holdings and Emerge Energy Services have seen their shares drop in value as well. And shares in Covia Holdings, which is a new company began after the merger of two frack sand kingpins, have dropped in value by 27 per cent since it began trading last month.
Because of these factors, sand from West Texas had been left to blow in the wind, however, when oil prices slumped in 2014, companies were desperate to cut their costs wherever they could.
Drillers questioned if they needed to ship their sand about 1,300 miles from Wisconsin for about $90 per ton when they could use sand from West Texas instead. Trucking costs for West Texas sand are about $25 per ton.
“The business plan is simple,” Peter Allen, senior project manager at Black Mountain Sand told Bloomberg. “We cut out the cost of railing it here.”
Running two mines, Black Mountain is the biggest sand mining operation in the area which runs from unincorporated parts of Texas along the New Mexico border.
Despite the West Texas frack sands’ imperfections, the boom is on. Unskilled workers can earn $19 per hour, almost triple the $7.25 minimum wage in the Lone Star state. Six months into his job, Sergio Pando, a load-out operator, is now making $28 an hour.
“You have this flood of people and resources and capital going into this small, condensed area,” says Allen. “It’s like a gold rush.”