Energy

Mining Sand to Get More Oil


Since Texas oil producer EOG Resources (EOG) arrived in Ken Schmitt’s Wisconsin farming community last year, the cattle breeder has marveled each time he drives by the company’s work site on his way into town. It’s not oil rigs that capture his attention. “They got one hellacious pile of sand out there,” he says.

The rolling hills surrounding Chippewa County (pop. 60,000) in the northwest part of the state sit atop a deep deposit of a type of pure quartz sand coveted by the oil industry. The sand is used as part of the water and chemical mixture injected under high pressure into wells to crack oil-infused shale rock in a process known as hydraulic fracturing, or fracking. The tiny grains of sand serve as wedges to prop the cracks open so oil and natural gas can flow up the well. With prices for frack sand soaring, oil companies such as EOG have begun mining their own in places such as rural Wisconsin.

Fracking’s popularity has fueled demand for the sand. An average well in Pennsylvania’s Marcellus Shale region uses about 5 million pounds of sand—enough to cover a football field a foot deep. Sales of frack sand, also called proppant, shot up 81 percent from 2009 to 2010 and are expected to grow an additional 30 percent this year, say oil analysts. Frack sand use has increased tenfold since 2000, according to Halliburton (HAL), the world’s largest provider of hydraulic fracturing services. Brian Uhlmer, an analyst at Global Hunter Securities in Houston, estimates the industry used as much as 59 billion pounds in 2010; he says it’ll hit 75 billion this year.

Prices for fracking sand almost doubled in 2010, and now go for 4¢ to 10¢ a pound, depending on the type of sand. Some oil-services companies, which actually do the purchasing of well supplies, add a markup of up to 100 percent on top of that when they sell the sand to oil producers, which sometimes must wait months for deliveries. That’s one reason some oil and gas companies, including EOG and Southwestern Energy (SWN), both Houston-based, have decided they’re better off getting into the sand mining business themselves. EOG Chief Executive Officer Mark G. Papa said in June that mining its own sand is one of the ways the company is shaving $1 million off the cost of a typical $5 million onshore well.

Critics of fracking for years have complained about possible air pollution and water-table contamination at well sites. Now they’re raising objections to the truck traffic and clouds of dust that accompany the frack sand mines proliferating in such places as Arkansas, Wisconsin, and Texas. In Wisconsin, some landowners worry that mining will flatten their scenic hills and expose them to chemicals used to process the sand.

“Sand mines have taken over Chippewa County, along with the processing plants,” says Patricia Popple, a retired school principal who fears the mining will transform her quiet farming community of Chippewa Falls into a noisy, polluted industrial town. “There will be impacts to the air quality, water quality, to the road system, and all of the rest of things that we currently hold pretty dear.” An EOG spokeswoman says the company is committed to being a good neighbor and follows state and federal rules in operating its sand mines.

Southwestern Energy spent $30 million in 2008 to start its own sand business, including a processing plant and a mine in Arkansas, says J. Alan Stubblefield, its senior vice-president. The company expects the mine to yield about 1.3 billion pounds a year, or about 70 percent of the sand the company consumes in Arkansas’s Fayetteville Shale drilling region.

Various proppants are used in fracking. The highest-grade, and most expensive, are made of ceramic material to add strength. Cheaper raw sand is most common. White sand, found in Midwestern states, is nearly pure quartz and desired for its durability under high pressure, says Andrew R. Barron, a materials science professor at Rice University. He says brown sand, found in Texas and Arkansas, contains minerals that reduce its strength.

Most oil companies aren’t interested in starting their own sand mines. “It’s a completely different business,” says Timothy L. Dove, president of Pioneer Natural Resources (PXD) in Irving, Tex. Instead, some producers are skirting service-company markups by signing multiyear contracts with sand miners to lock in supplies and prices. Regardless of who operates the mines, protests from local residents will likely grow. In Howard, Wis., Schmitt expects EOG to eventually be mining sand less than a mile from his house. “The rubber’s going to meet the road here quickly,” he says. “When EOG starts trucking, I think that’s going to be an eye-opener for everybody involved.”

The bottom line: Frack sand prices have soared 100 percent in the past year. Oil producers are opening their own sand mines to hold down costs.

Wethe is a reporter for Bloomberg News.
Klump is a reporter for Bloomberg News in Houston.

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Companies Mentioned

  • EOG
    (EOG Resources Inc)
    • $95.06 USD
    • 0.04
    • 0.04%
  • HAL
    (Halliburton Co)
    • $39.68 USD
    • -0.81
    • -2.04%
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