The New Frac Sand Industry Boom and What it Means to You

Etienne Moshevich |

I am not sure if many of you are aware of this or not, but there is a boom happening in the frac sand market. As the need for oil companies to drill deeper and extract more oil from existing wells becomes a growing issue, the demand for frac sand is increasing at an even faster pace.

But what is Frac Sand? Frac sand is a key ingredient in hydraulic fracturing. It essentially keeps the fractures open after the rock has been shattered so that the oil and natural gas can keep flowing. The demand for this is huge. On Monday, December 9th, Claude Mongeau, CN Rail president and chief executive officer, said: "Over the past five years, CN's frac sand market has grown by nearly 300 per cent, rising to more than 50,000 carloads in 2013. Our end-to-end service focus has supported that growth, and we expect to achieve C$300 million in frac sand revenue by 2015." The demand for this is exploding and I want readers to be aware of it.

According to a news release issued by Victory Nickel (NI:CA) on Dec. 11, “Vast quantities of frac sand are consumed, and more is needed all the time, as shale plays in Canada and the US rise to prominence.” Ken Murdock, CEO of Victory Silica Ltd was a guest speaker on the Business News Network ("BNN") program that day and I encourage everyone to take a look at the clip which can be found here. Victory Silica is a subsidiary of Victory Nickel which saw its stock price double, jumping from $0.02 to $0.04 on 17.8 million shares in just three days. The market is reacting positively to frac sand because they can see the value that it brings to the marketplace. Victory Nickel is trying to establish itself as the only company in Canada able to produce viable, good quality frac sand to oil companies but there could be another one that could potentially provide the oil path with another economic, high quality alternative to what they already use.  

Athabasca Minerals (ABM) just announced a $5 million bought deal financing to explore the frac sand potential on their project, as well as explore resource development for their granite/dolomite property. The company says the proceeds will be used for “upcoming capital expenditures on the corporation's Firebag frac sand project and associated transloading facility; drilling and resource development of the corporation's Richardson granite/dolomite project; new and existing aggregate assets, including gravel inventory and equipment; and general working capital purposes.”

The demand for frac sand is expected to grow by 12% a year over the next five years. So far, facilities in Wisconsin and Minnesota are supplying almost all the oil patch in Alberta with frac sand- high transportation costs are in issue. Canadian oil companies are left no choice but to pay the high cost of transportation because there is no other alternative in the marketplace with the same quality frac sand as the Wisconsin market supplies. Now imagine the opportunity if a company were able to make a high quality frac sand discovery in Alberta… The potential of this play would be massive.

Declan Resources (LAN) just put out a news release last week that I wanted to share with you on their potential frac sand discovery on their Firebag Project which sits on the border between Alberta and Saskatchewan. According to Declan’s release, samples collected in Cretaceous sandstones during an initial review of the company’s Firebag River Project show encouraging values for high-quality frack sand.

There are four major companies listed on the NYSE that specialize in the frac sand market:

US Silica (SLCA)

Over the last year, the stock has gone from a low of $15.51/share to a high of $37.14/share.

Currently Trading at: $31.98/share (as of market close on Dec 18, 2013)

Market Cap: $1.7 Billion

Carbo Ceramics (CRR)

Over the last year, the stock has gone from a low of $62.11/share to a high of $127.59/share.

Currently Trading at: $115.95/share (as of market close on Dec 18, 2013)

Market Cap: $2.6 Billion

Emerge Energy Services (EMES)

Over the last year the stock has gone from a low of $16.44/share to a high of $44.0/share.

Currently Trading at: $40.17/share (as of close on Dec 18, 2013)

Market Cap: $932 Million

Hi Crush Partners (HCLP)

Over the last year the stock has gone from a low of $14.01/share to a high of $35.19/share.

Currently Trading at: $34.74/share (as of close on Dec 18, 2013)

Market Cap: $528 Million

Declan has the opportunity to become one of the very few companies on the TSX Venture exploring a very hot frac sand industry. The market is definitely paying attention to frac sand discoveries and I am excited to see how the project progresses from here.

As always, if you have any questions, please do not hesitate to get in touch with me anytime, I look forward to hearing from you.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
EMES Emerge Energy Services LP representing Limited Par 12.96 0.62 5.02 732,930
ABM ABM Industries Incorporated 44.22 0.65 1.49 275,214
SLCA U.S. Silica Holdings Inc. 54.17 1.74 3.32 2,550,292
CRR Carbo Ceramics Inc. 8.81 0.63 7.70 877,456
HCLP Hi-Crush Partners LP representing limited partner 19.50 1.10 5.98 890,376
ANGGF Angang Steel Co Ltd Ord 0.42 0.00 0.00 0

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