A Texas based frac sand mining company is backing out of plans to develop a 1,600 acre mine and processing plant in Trempealeau County, Wis. Over the last year, Superior Silica Sands has been in the process of developing a plant between the cities of Independence and Arcadia. As part of the project, Independence annexed the property, but controversy about the plant ensued when two local cities filed a lawsuit. The company said it is stopping plans to develop the mine and processing plant due in large part to the low price of oil and low demand for frac sand, claiming the surrounding controversy did not play a role in its decision.
Low oil prices and reduced drilling in shale regions like North Dakota are hurting the once fast-growing frac sand industry, slashing demand and forcing price cuts that have led some players to reduce jobs, according to the Milwaukee-Sentinel. U.S. sand mines, including 63 in Wisconsin and six in Minnesota, are projected to ship significantly less sand to oil drillers in 2015, compared with last year, when companies like Fairmount Santrol, U.S. Silica and Superior Silica Sands set production records, industry officials say.
In the short-term no one can predict share price movements of frac sand producers such as US Silica Holdings, Hi-Crush Partners and Emerge Energy Services – especially because their share prices are so strongly affected by short-term oil prices swings. However, now that these companies' share prices have come back down to earth, I think investors should consider two potential factors that might lead to these stocks rebounding later this year: an enormous supply of non-completed wells, and the epic potential of refracking to greatly increase the demand for frac sand, said Adam Galas, writing for stock analysis website The Motley Fool.