Frac sand - Wisconsin sandstorm: Projects in the Pipeline

By Mike O'Driscoll
Published: Monday, 01 October 2012

According to the latest US Geological Survey data, Wisconsin ranked third in total US industrial silica sand production at 3.39m tonnes in 2010, accounting for 11.3%, after Illinois and Texas. But within the silica sand sector, the state is leading in frac sand production.

The state of Wisconsin has become the US’s top frac sand hub of activity. Sure, there are good frac sand deposits near Brady in Texas (Hickory Sandstone), and most recently North Dakota has come on the radar with both silica sand and kaolin resources as potential proppant material.

But Wisconsin is where it’s at right now. In just five years, frac sand activity in Wisconsin has boomed, including a 100% increase from 2011 to 2012, from just a handful of facilities to >100 frac sand sites.

These sites include mines, processing plants, and trans-loading stations concentrated in the Maiden rock area, near Chippewa Falls, and in Trempealeau and Monroe counties.

According to the latest US Geological Survey (USGS) data, Wisconsin ranked third in total US industrial silica sand production at 3.39m tonnes in 2010, accounting for 11.3%, after Illinois (4.37m tonnes, 15%) and Texas (3.61m tonnes, 12.5%). But within the silica sand sector, the state is leading in frac sand production.

Some good analytical work has been conducted recently by the Wisconsin Center for Investigative Journalism (WCIJ). In 2011, the WCIJ identified 41 facilities operating or proposed in the state. As of July 2012, this had increased to 87 permitted sites (51 operational, 36 in development) and 20 sites at proposal stage (see map and table).

The sites, both operational and proposed, differ in their sophistication and by the type of operating company.

Preferred Sands LLC in Blair, for example, is a relatively recently established (2007) private company which has grown quickly with frac sand assets across North America.

Preferred operates an integrated facility where the sand is mined, processed and loaded into rail cars at a single site. Each week, some 7,500 tonnes of sand is moved by rail to oil and gas fields in Texas, North Dakota and Pennsylvania.

EOG Resources in Chippewa Falls, is an oil and gas explorer with its captive supply of frac sand, and has a network of several mine sites that serve one processing plant and rail-loading facility.

Smaller, often family-owned, mine operators without their own processing capabilities haul raw sand to processing and transportation.

The Preferred Sands Blair operation is one of 20 such frac sand operations that have sprung up in the past two years in Trempealeau county, Wisconsin. More are planned.



An outcrop of the Jordan sandstone formation
in Wisconsin, a primary target for frac sand
developers in the state. (courtesy Mark Zdunczyk)


Why Wisconsin?

Wisconsin has some of the best resources for frac sand in the US, also known as “Northern White”, and has a reputation as the industry standard in the proppant market.

Frac sand specifications are not complex, but they are reasonably strict and not all silica sand deposits can make the API RP 56 specification.

Aside from strict control of preferred grain size distributions (eg. 20/40, 30/50, 40/70 mesh), frac sand needs to be a pure quartz (99+% SiO2), with a high degree of roundness and sphericity.

These properties impart high crush resistance under pressure (generally between 6,000 psi and 14,000 psi) and conductivity, or flow, of oil or gas through a pack of these grains hydraulically blasted into the target formation.

In the US, silica sands that meet these specifications tend to be from older sandstone formations, such as Cambrian and Ordovician sandstones, and more specifically, from the Jordan, Wonewoc, Mt Simon, and St Peter Formations.

Wisconsin has a large zone of Cambrian sandstone (see map) which hosts these frac sand bearing formations. Primary areas of interest in frac sand development have been in the west of the state, stretching from Burnett county in the north to Trempealeau, Jackson, and Monroe counties in the south.

The Jordan Formation forms a narrow outcrop band on the upper slopes of the ridges, and is exposed in the valleys of southern Pierce county, and along the western side of the Chippewa Valley. The Wonewoc forms a wider outcrop area on the lower slopes.

In the north, primarily in Barron and Chippewa counties, Jordan sandstone is mined on hilltops, and Wonewoc sandstone on lower hillsides.

Most new mines under development or proposed in Trempealeau, Dunn, Buffalo, Jackson, and Monroe counties are in the Wonewoc.

In Pierce county, Jordan sandstone (the upper, coarser-grained Van Oser member) has been mined underground for many years from tunnels driven into the bluffs beneath the Prairie du Chien dolomite.

According to Bruce Brown, senior geologist, Wisconsin Geological and Natural History Survey, the fact that the Van Oser Member is near the top of the Jordan has created interest in mining it from the floor of depleted Prairie du Chien dolomite quarries on ridge tops in Dunn, St. Croix, and Buffalo counties.

Although the Wonewoc has more material not suited for frac sand (ie. finer grain sizes can be used for glass) it is easier to mine in the southern region because of the much greater surface exposure, which eliminates the need to mine underground.

Mt Simon sandstone is found to the north-east in Clark, Wood, northern Jackson, and Monroe counties. There is increasing interest in the Mt Simon sandstone and the alluvial sand that is locally derived from Mt Simon sandstone, a large portion of which is mined as a by-product of cranberry bog construction.



Separated silica sand grains and drill core of the Jordan Formation,
Wisconsin, showing good roundness and sphericity, which, along
with high crush resistance (imparted by high SiO2 content, 99+%),
are key parameters for frac sand specifications (pictures courtesy
of Mark Zdunczyk, consulting geologist, US).


Storm impact

A frac sand storm, whipped up by the demand from shale gas drilling in North America, has therefore hit Wisconsin, clearly catching some districts and communities by surprise.

While the technique of hydraulic fracking may be under protest in certain shale gas plays, such as the Marcellus Shale in Pennsylvania, it is the further upstream development of frac sand mines and plants that is causing some consternation in this state.

It is an emotive subject, often dividing communities with debate raging against the increased traffic and environmental impact but also for the employment and revenue earning potential of a local growth industry.

A number of counties, such as Buffalo, Dunn, Eau Claire and Pepin have initiated temporary moratoriums to review the situation as well as to update land-use regulations.

Certainly, the various permitting authorities are overwhelmed with applications for the frac sand sites.

The WCIJ found that about one-third of Wisconsin’s frac sand operations were in towns with no zoning regulations. In the US, zoning is used as a permitting system to prevent new development from harming existing residents or businesses.

In areas with no zoning, the only controlling tool by the local authority is the reclamation permit, ie. rehabilitating the land after mining. Thus certain districts are feeling more vulnerable than others.

Certainly, the frac sand pond spill into the state’s St Croix river in May resulting in the state suing Interstate Energy Partners and Tiller Corp. has not helped the mining sector’s cause.

But a number of Wisconsin counties and towns are evaluating others measures to bring into play.

Wood county is charging frac sand companies operating within its boundaries with non-negotiable haulage charges effective from August 2012, ranging 13-40 cents/tonne for each mile driven on county roads.

The potential sums involved demonstrate the economic benefits that frac mining can bring: Completion Industrial Minerals, $2.9m; Carbo Ceramics and Panther Creek collectively $5.84m; Northern Frac, $1.39m.

Outlook

Despite any setbacks in permitting or otherwise, demand for Wisconsin frac sand looks set to continue for the foreseeable future and projects are waiting in line.

The accompanying table outlines company projects in development and at proposal stage during July 2012.

A financial analyst has estimated that at least 14.1m tonnes of new frac sand capacity (49% of total current production) is under construction, with another 11.5m tonnes (an additional 40% of current production) permitted and/or proposed in the state.

Robert Rasmus, CEO of Hi-Crush Proppants LLC, which floated on the stock exchange for $191m in August, told IM at the time: “We believe that demand for proppant, and specifically Northern White frac sand, will increase over time and outstrip supply,”.

Hi-Crush produces 1.6m tpa frac sand from its mine and plant in Wyeville, Monroe county, Wisconsin. The company expects to expand to 1.22m tonnes in 2012 and a further 1.46m tonnes in 2013.

Also in August, Superior Silica Sands LLC announced the building of another frac sand mine and dry processing plant near Barron, to produce 2.4m tpa before the end of the year. The company is also expanding the mine life of its Chippewa county mine.

But is such a fever of project development sustainable? The answer is surely no.

Two years ago uncoated frac sand prices were $40-45/tonne, and then soared to >$100/tonne in early 2012 owing to a sudden tightness in supply. This attracted a lot of interest in frac sand development. Prices have since come down to between $20-$30/tonne ex-works.

US Silica reported that frac sand spot prices, which might be in the region of $80-100/tonne grade depending, fell by 18% in Q2 2012.

Miguel Pena, vice president sales at Preferred Sands told IM: “We’re in it for the long term, and are very bullish, but the short term will be a bumpy ride.”

The US is set to become a major natural gas producer, Pena observed, and prices are at rock bottom and cannot go much lower.

“Therefore there is not much room left for inefficiencies that many newcomers [to the frac sand supply sector] are experiencing. The market is hurting newcomers.” Pena added.

Although frac sand prices were at a high of around $120/tonne, some long term contracts have now been fixed at prices ranging $40-50/tonne.

As the market stabilises, more mergers and acquisitions among the frac sand miners, and vertical integration from the oil and gas exploration companies is to be expected.

Also logistics is becoming even more of a fundamental factor in the supply chain which is impacting companies without the optimum facilities or deals in place, such as by being caught out by long truck haulage routes or lack of rail proximity.

Preferred Sands now has 4,500 rail cars. “Logistics is everything” said Pena. “The whole business is moving to shifting high volumes of sand in single shipments, therefore unit trains and bulk storage is the way.”

On the part of the mining sector, some companies have already taken steps to assist with co-operation and compliance with local districts in order to alleviate potential problems in development.

Badger Mining Corp., Fairmount Minerals, Unimin Corp., and US Silica recently formed a state-wide association with a strict code of conduct to promote sound environmental practices across the industry Ð the Wisconsin Industrial Sand Association, based in Eau Claire.

Nevertheless, it is going to be a far from easy ride. Buffalo county, which has seven projects in development and another three proposed, looks likely to extend its seven month mining moratorium ending 31 October 2012.

A public hearing was set for 5 October, and if approved, the moratorium on frac sand mining will be extended to 30 April 2013 in order for the county to review the impact of mine development.

Meanwhile, with the US election campaigns getting underway, mid-September saw the democratic candidate for the 30th Assembly district of Western Wisconsin, Diane Odeen, state her opposition to frac sand mining in the area claiming that the short-term benefits the industry would bring to the area do not outweigh the long-term income brought in by tourists.

So it might be that whatever the outcome of local opposition or delay to mining development, and that certainly remains a factor, natural selection by market forces could well weed out and reduce the number of frac sand players in the near to medium future.

The frac sand storm that has engulfed this Midwestern state maybe heading eventually for a lull, but some fierce squalls remain on the radar for the time being.



References:

“Hydrofrac sand in Wisconsin”, 2011, Bruce Brown, senior geologist, Wisconsin Geological and Natural History Survey.

www.wisconsinwatch.org/2012/07/22/map-frac-sand-july-2012, Kate Prengaman, reporter, Wisconsin Center for Investigative Journalism.