Buying Sand For Use In Fracking Is The New West Texas Gold Rush

There is a new land grab going on in the oil-rich fields of West Texas. This time it is over sand.

Big oilfield sand suppliers, Wall Street firms and other investors have been buying up swaths of the West Texas desert. These ­investors aim to mine and sell the sand to drillers in the booming Permian Basin, who need large quantities of sand to ­extract oil and gas from shale ­formations.

Texas energy producers have typically bought the millions of kilos of sand that each well ­requires from mines located far from their drilling fields. After oil prices collapsed in late 2014, though, cost-conscious drillers ­reconsidered their well designs and recipes for the slurries they blast underground to unleash fuel from shale formations.

Many West Texas drillers discovered that they could replace sand they had been shipping from mines 2000km away in Wisconsin with finer grades found in dunes nearby. Doing so elimi­nates rail costs that sometimes are equal to or more than the sand itself. Now investors are lining up to supply local sand to West Texas drillers.

“Local sand is a huge disrupter that is beneficial to the shale producers,” said Ben “Bud” Brigham, an Austin geophysicist who built and sold two oil companies and now is ploughing some of his ­profits into sand pits.

Mr Brigham is using proceeds from his recent $US2.55 billion ($3.2bn) sale of Brigham Resources to finance a Permian mining operation called Atlas Sand Co. The Atlas mine is one of at least 18 under way or proposed for the desert outside Midland, Texas, ­according to Jefferies analyst Brad Handler.

The first, Hi-Crush Partners’ three-million-tonne-a-year facility, began operations in July. More than a dozen plan to open over the next year.

The prospect of tens of millions of tonnes of Permian sand coming to market could drive down sand prices that have been rising ­nationally, Mr Handler said. Analysts say that prices rose to as much as $US45 a tonne earlier in the year, from as little as $US15 a tonne last year.

With competition heating up in West Texas, analysts say it is unlikely that all the planned mines will be get built.

“There’ll likely be many losers who jumped into the game a bit late,” said George O’Leary, an analyst at energy investment bank Tudor, Pickering, Holt & Co.

He says newcomers may not have the industry knowledge or contacts. Many wells might also require coarser grades of sand than can be found in West Texas.

And though the long train ride is eliminated with local sand, ­logistic hurdles remain. Those include a tight labour market in the sparsely populated region and the potential for sand miners to end up competing with their customers for the huge quantities of water both require.

In shale drilling, sand is mixed with water and chemicals and blasted underground to crack open energy-bearing rock. In this process known as hydraulic fracturing, it is the water pressure that cracks open the shale and the sand that props open the fissures to allow oil and gas molecules to seep out.

Many drillers prefer coarser grades of sand that are better able to withstand the intense pressures kilometres deep beneath the surface and can hold cracks open wider than finer grains. A variety of sand called Northern White found mostly in Wisconsin and other Midwestern states has been prized for its uniformity, crush strength and grain size.

In response to low oil prices, however, producers such as Mr Brigham were able to increase well output by using larger quan­tities of finer sand, which propped open additional small fissures and reduced the chemicals needed to keep larger grains afloat in the water.

“People started looking around saying, where can we find this smaller mesh sand? And it was in the Permian Basin,” said Hi-Crush finance chief Laura Fulton.

Source: The Weekend Australian