In the coming months and years, sand mining and production facilities are poised to become a booming business in the Permian Basin. There are currently at least 14 companies looking to establish mining operations in the Permian. But since July, Houston's Hi-Crush partners has already been mining sand in West Texas.
Earlier this year, acres of rolling dunes in Kermit, Texas were transformed into a sand mining and production facility.
Previously, the sandy hills were the site of a dune buggy recreation park. Now, Houston's Hi-Crush Partners are mining the sand and selling it to oil producers who need the granular sand for their hydraulic fracturing operations. Mining and selling sand is poised to become a growing business in the Permian.
"The west Texas area has been very important to Hi-Crush," says Laura Fulton, chief financial officer of Hi-Crush Partners. "The communities in which we're operating have been supportive and we intend to be a long term community participant out there."
For oil companies in West Texas, the attraction of operations like Hi-Crush's facility is it provides a cost-effective alternative to hauling in sand on rail lines from the midwest.
"Any of the sand that’s being produced anywhere else in the nation is going to be transported by rail into a basin," says Fulton. "Transportation costs really becomes a big piece of the cost structure for any sort of sourcing of sand."
These rail costs can typically add an additional $35 to $55 per ton. And when it takes tens of thousands of tons to frac just one well - the costs can quickly rise.
That's where Fulton says, companies like Hi-Crush come in.
The Houston-based company has been developing frac sand since 2010, and today they maintain 5 operations -- 4 in the Midwest and now one in the Permian Basin. The company is also expanding their operations with receiving stations. There already are locations in Odessa and Big Spring (the newest one will be built in Pecos). These sites will receive sand that's mined in Wisconsin, which is a coarser sand than what's mined in Kermit.
"Thats an interesting aspect of the demand for sand, is it's not just for one product," Fulton says.
Oil producers, she adds, will use a combination of different sand meshes, or different types of sand that range in their fineness. In the Permian Basin, the product that's most in demand is the 40-70 mesh, the variety of sand mined in the Midwest. What you will find in the rolling dunes of Kermit is called 100-mesh sand.
This year alone, 14 new frac sand companies have been permitted in the Permian. Estimates say this is roughly equivalent to half of the current U.S. capacity.
The move into the Permian Basin comes at a time when the company expects frac sand demand to reach well over 100 million tons in 2018. At the Kermit site, the company estimates they can mine some 3 million tons of sand each year. But as industry is moving into the Permian's sand dunes, there's been some concern from environmental agencies about the dunes sagebrush lizard, which calls areas of these dunes home.
Hi-Crush says they exercised "due diligence" when searching their nearly 1,200 acres and found no lizards or lizard habitats on their site. Fulton says even although there aren't lizards on the facility's grounds, the company will join efforts to determine the best practices that ensure the lizard's protection.
Fulton says the Kermit site will reach its full production capacity in the next month. The sand at their facility, she adds, is estimated to maintain their annual production rate for 35 years.
