By LeAnn R. Ralph
COLFAX — The frac sand industry in Wisconsin has been experiencing a downturn for the past several years that is expected to continue this year.
Rich Kremer, a Wisconsin Public Radio reporter in Eau Claire, spoke to Rob Ferrett, host of the WPR show Central Time, about frac sand in a segment titled “A bleak forecast for Wisconsin’s frac sand mining industry” that aired January 6.
Kremer has been covering the frac sand industry for Wisconsin Public Radio for the past eight years.
When the frac sand industry first started booming in West Central Wisconsin, the white silica sand was in high demand that was mined in Wisconsin and used to prop open cracks in the rocks in the oil fields in West Texas to make the oil wells more productive.
Kremer said he had talked to a representative of a company that tracks the frac sand market and looks at drilling for oil and natural gas across the country and analyzes how many oil and natural gas wells there are and how many have been started but not completed.
Drilling for oil is expected to be decreasing by 5 to 8 percent this year, so the demand for sand also will be affected, Kremer said.
But what seems to have changed more for Wisconsin frac sand mining companies is that the preference for what works for the oil wells in Texas has changed, he noted.
Starting in 2017 and continuing on into 2018, the companies drilling for oil in West Texas realized they could just scoop up sand from the sand dunes in Texas and use it as a prop pant to prop open the cracks in the rock and get much of the same impact as they would get from the white sand from Wisconsin, thereby saving $50 to $60 per ton on shipping it from Wisconsin to Texas, Kremer said.
“That’s been the main shift, and that’s the issue, I think, for many of the companies in Wisconsin,” he said.
Wisconsin sand
When the frac sand mines began operating in West Central Wisconsin nearly a decade ago, the white sand mined here was considered the very best to use in the oil wells.
“What’s been really remarkable in my eight years of covering this industry — hydraulic fracturing and the proppant market — is that Wisconsin sand was ‘it’ leading up to 2018 — 2014 was the high point. But it was all about Wisconsin sand, because it had the highest crush strength. It was very uniform. It was the ‘bees knees’ for these oil companies. But they’ve learned if you use more of the cheaper, finer sand, it’s just not as necessary,” Kremer said.
Even though the demand for Wisconsin sand has decreased, the sand is still used in the Texas oil wells.
“Wisconsin sand is still valued in Texas. They use a percentage of it. Generally when the oil companies are drilling very deep, they will rely on it or they will mix some Wisconsin sand with other (kinds of sand),” Kremer said, adding that Wisconsin also is still serving markets in other places, such as North Dakota and Pennsylvania.
Wisconsin sand “does still have markets, but it’s a fraction of what it used to be. Everybody used Wisconsin sand and now it’s really been marginalized by sand in the Texas and Oklahoma area,” he said.
Shrinking market
The contraction of the Wisconsin frac sand market has been happening since 2015-2016, which is when oil prices started to decline. In 2014, oil was up around $100 per barrel, but since then, oil prices have been hovering around $50 to $70 per barrel, Kremer said.
“When that happened, basically, everybody had to cut costs… that’s when the transportation costs became an issue for these companies,” he said.
One of the companies operating in Chippewa County, Superior Silica Sands, declared bankruptcy in July of 2019.
Superior Silica Sands would mine the sand, and then the company would haul it by truck to a place where they washed it, and then they would haul it by truck to where it would be loaded on rail cars to be shipped. That kind of business model only works when oil prices are high, Kremer said.
“What I have been told is that the companies that will do best in this new reality are companies built right on a rail line (where) they have a wash plant right there and everything connected by a conveyor belt or slurry pipes so you don’t have to pay a trucking company to move (the sand). It’s all about cutting costs,” Kremer said.
The larger producers that have everything located on a rail line “are probably the ones that will survive,” he said.
Reclamation
Central Time host Rob Ferrett wondered what happens to the land in the frac sand mines when the mines shut down.
“That’s a good question. We are kind of learning as we go. In theory, in Wisconsin, before a company even gets a permit to mine, there is … the mine reclamation law. In Wisconsin, if you want to dig a pit and be a frac sand producer, you have to prove, you have to show how you’re going to fill it in and reclaim the land,” Kremer said.
In addition to having a reclamation plan, the companies also must provide funds for completing the reclamation.
“You have to set money aside, whatever the county determines is the correct amount, generally it’s in the millions, and you have to set this money aside in bonds. That money is there, so if you go bankrupt, the county will take that money and reclaim the site,” Kremer said.
“In Chippewa County, the interesting development is that the county asked for additional money from Superior Silica Sands, but then they declared bankruptcy. They never put up the additional $1.6 million. They already have some money set aside, but the county said it wasn’t enough, and now they are fighting in court during this bankruptcy proceeding to try and get that money,” he said.
“The other thing that is a big question mark is there is an insurance company that is holding the bonds for Chippewa County for all of the mine reclamation. That company says the frac sand producer is in default. What I’m not sure about yet is if that means the entire bond amount may not be paid. That’s a big question … it’s too soon to say what will happen,” Kremer said.
“In theory, there should be money for all of these mines to be reclaimed, but in reality, it’s a big question,” he concluded.
Chippewa County currently has 12 frac sand mines with permits to mine covering a little over 3,700 acres.
