As operators continue to upsize their well completions to improve productivity, the need for frac sand has increased. In response, Smart Sand has filed for its IPO in a bid to ultimately expand its capabilities and pay off outstanding debts. In a new report, our US Lower 48 experts discuss the growing demand for sand as operators seek to improve efficiency from their most economic acreage.
Smart Sand, based in The Woodlands, Texas, just filed for a US$100 million IPO, capitalising on demand trends for the sand commonly referred to as Northern White. Using the proceeds from the IPO, the company would be able to expand its processing capabilities to meet increased demand for less expensive natural sand, citing projections that the demand for frac sand will grow 23% per year through 2020. Currently, the company's primary facility can process and deliver up to approximately 3.3 million tons of raw frac sand per year, but Smart Sand believes an expansion could result in production levels of up to 9 million tons of raw frac sand per year.
In addition, Smart Sand estimates that the proceeds from the offering will be able to redeem all of the company's outstanding preferred shares and repay any outstanding debts. In 2015, the company's revenue was nearly US$47.7 million with a net income of approximately US$4.5 million. However, SmartSand has generated a US$2.2 million net loss on just US$19 million of revenue for H1 2016.
During the downturn, operators have sought to increase production from their most economic acreage, foregoing drilling new wells in favour of more efficiently exploiting a few larger wells.
As a result, proppant volumes pumped downhole have actually increased in some of the leading shale plays despite lower activity levels overall. An example of this usage trend is Chesapeake's recent well in the Haynesville, which used a total of 50 million pounds of proppant across a 10,000-foot lateral — representing an estimated 625 truckloads of sand.
As rig count slowly builds, our analysts believe completions will continue to call for more sand, so producers with vertically integrated sand operations may be interested to see how Smart Sand fares in the public markets. Many operators have successfully spun off or dropped down their tangential midstream operations over the past 24 months. Could sand businesses could follow suit? We'll be examining which companies might benefit in a future instalment of our US Upstream Week in Brief.
Read more: pervasive IPOs and progressing developments
You can purchase our full US Upstream Week In Brief on demand to read this week's top stories in the North America Upstream sector, including a sand player and Marcellus-focused operator rolling out IPOs, Encana conducting a public offering to accelerate Permian development, and Magellan Midstream commissioning a condensate splitter at Corpus Christi.
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