Hi-Crush suspends dry plant operations at sand mine

02 October 2018, Week 39, Issue 426

Hi-Crush Partners has temporarily idled dry plant operations at its Whitehall facility in Wisconsin. The mine produces sand used as a proppant in hydraulic fracturing. 

The move has been partially attributed to takeaway capacity bottlenecks in the Permian Basin in Texas and New Mexico, where much of the US’ domestically produced proppant is used. As a result, demand for frack sand in the basin is declining as completion activity stalls. 

The Upper Midwest, including Wisconsin, produces the highest quality sand for use in fracking, known as Northern White. Hi-Crush is a leading producer of this sand. More and more proppant is being used in today’s shale wells. Drillers may use up to 50 million pounds (22,680 tonnes) of sand per fracked well, compared with an average of 3 million pounds (1,361 tonnes) in 2014.

Wet plant operations at Whitehall remain open, and Hi-Crush continues to sell inventory from on-site storage to meet ongoing customer demand for Northern White sand. Wet and dry plants remain operational at Hi-Crush’s other Wisconsin mines, including Wyeville, Augusta and Blair.

“Our strategic decision to temporarily idle Whitehall’s dry plant was driven by recent, temporary softness in completions activity and frack sand demand,” said Hi-Crush’s chief financial officer, Laura Fulton. “This reduced level of expected activity is reflected in our updated guidance for sales volumes of 2.8-3.0 million tons [2.5-2.7 million tonnes] for the third quarter [that] we previously communicated.”

Fulton noted that Hi-Crush’s Kermit facility continued to run above its nameplate capacity, and that demand for both Northern White and in-basin sand in the Permian would remain “strong” in 2019 and beyond. New pipeline projects are expected to start coming online from mid-2019, boosting takeaway capacity and allowing producers to ramp up drilling and completions.

Hi-Crush’s CEO, Robert Rasmus, said: “Despite temporary market dislocations, we continue to expect strong demand for Northern White frack sand and are continuing with the expansion of rail capacity at Whitehall, as well as our customer-driven expansion of our Wyeville plant and the construction of the second Kermit facility.”

Sand transported from the Upper Midwest to Texas is significantly more expensive than sand produced locally in the Permian. In Texas, the delivered price of local sand may be US$45-50 per ton, compared with prices in the mid-US$20s to low US$30s per ton for minegate frack sand in the Midwest. And transporting the Midwest proppant to Texas can cost US$60 per ton.

Hi-Crush is not the only sand miner to have been hit by weakening demand in the Permian. Last week, Ohio-based Covia said it was idling four mining sites in the Midwest, also citing slowing demand brought on by pipeline constraints. The company said it was still moving forward with its planned sand mining expansion in the Permian.

Covia was created in June through the merger of sand mining firms Fairmount Santrol and Unimin.

 

Edited by

Anna Kachkova

Editor

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