Hi-Crush Partners L.P., a Wisconsin producer of frac sand, kicked off an Initial Public Offering (IPO) on August 16. The company, in its prospectus released prior to the IPO, documented some of the supply-line challenges the company and others like it face in the future.
The company concluded, “As demand for raw frac sand has increased dramatically in recent years, the supply of raw frac sand has failed to keep pace, resulting in a supply-demand disparity. While a number of existing and new competitors have announced supply expansions and greenfield projects, we do not expect the magnitude of these expansions to meet expected demand.”
The company noted that there are several key constraints to increasing raw frac sand production on an industry-wide basis, including:
- The difficulty of finding frac sand reserves that meet API specifications.
- The difficulty of securing contiguous frac sand reserves large enough to justify the capital investment required to develop a processing facility.
- The challenges of identifying reserves with the above characteristics that either are located in close proximity to oil and natural gas reservoirs or have rail access needed for low-cost transportation to major shale basins.
- The hurdles to securing mining, production, water, air, refuse and other federal, state and local operating permits from the proper authorities.
- Local opposition to development of facilities, especially those that require the use of on-road transportation, including moratoria on raw frac sand facilities in multiple counties in Wisconsin that hold potential sand reserves.
- The long lead time required to design and construct sand processing facilities that can efficiently process large quantities of high quality frac sand.