HCLP - Please be warned that the fracking sand companies are extremely volatile. The price collapse over the past several months is due to the expectations of significantly increasing supply from in-basin sand producers that is threatening to make Wisconsin mines less profitable and possibly drive sand frac pricing lower. Demand for frac sand is expected to hit 100 million tons in 2018. In the past, the majority of frac sand was provided by Wisconsin mines and mines outside of the basin. With the majority of drilling and completion activity occurring in the Permian in West Texas, there has been a significant push to mine local sand. There has been over 60 million tons of new frac sand mine announcements so far in West Texas, with mines expected to open in 2018. If all of this supply hits the market, I don't believe the EPS estimates are valid as sand pricing for both Wisconsin sand and Permian sand will come under pressure.
There are roadblocks to being able to bring 60 million tons of in-basin sand to market, those include constraints on new equipment, new labor to run the mines, and trucks and truckers to move the incredible amounts of sand. The biggest risk to the new supply is a small lizard that inhabits the sand dunes in West Texas where these new mines are being announced, the dune sagebrush lizard. The recent rebound in price of frac sand stocks is due to increasing noise from environmentalists looking to protect the lizard. There was an announcement yesterday from a leading environmental group looking to add the lizard to the endangered species list, which could impact the new supply of mines entering the market. Each of the companies building new mines in West Texas believe their mines will not impact the habitat of the lizard. Needless to say, this will be a long-drawn out process to see if the new mines will be impacted.
It is my belief that the new mine openings will continue, as the returns implied by current pricing are too strong for in-basin mines to ignore. The administration in office today is anti-regulation and will not halt the exploitation of this resource that drives oil independence/"dominance" and economic activity/new jobs.
