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Etienne Moshevich is the editor of Alphastox.com, the world's premier junior market newsletter featuring companies with the very best in management teams, projects and capital structures. Moshevich is also the president of Transcend Resource Group, an investor relations company based in... More
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  • How Investors Can Profit From The Frac Sand Boom 0 comments
    Jan 6, 2014 11:02 AM

    Oil companies' current practice of deep drilling into existing oil wells has caused a spike in the demand for frac sand, used critically in hydraulic fracturing to maintain oil and natural gas flow out of fractured rock. The demand for this product is huge: energy companies are projected to use 56.3 Billion pounds of frac sand this year alone. Moreover, to the extent that few companies are able to effectively supply the market today - and that most of these supplier companies are US-based - the stage is set for a local boom in the frac-sand market.

    Accordingly, the frac sand market has attracted a great deal of media attention:

    As Claude Mongeau, CN Rail president and chief executive officer, recently (December 9) observed, "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" (source article can be found here);

    Victory Nickel's December 11th news release similarly informs that "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;"

    Also on December 11th, Ken Murdock, CEO of Victory Silica Ltd, spoke to a similar effect on the Business News Network ("BNN") program (linked here). There, a demand increase of 12% per annum over the next five years was projected; and

    Athabasca Minerals recently (December 17) announced a $5 million bought deal financing to explore the frac sand potential (as well as their granite/dolomite resource development) on their Firebag project.

    So far, high-end facilities in Wisconsin and Minnesota are supplying almost all the oil patch in Alberta with frac sand. This has lead to high transportation cost. To date, Canadian oil companies have been left with no choice but to pay this cost because of lack of quality Canadian suppliers. The market is ready for a domestic producer of frac sand:

    Declan Resources issued a news release on December 18th, 2013 suggesting a tentative large-scale frac sand discovery on their Firebag Project. The asset 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 frac sand. We all need to be aware that Declan is strictly exploring for frac sand on their Firebag Property and is not producing it.

    Companies in the Frac Sand Industry

    For the sake of reference and comparison only, find below four major companies listed on the NYSE that specialize in the frac sand market. These are not recommendations. I have only included them below to show you how the market has reacted positively to frac sand producers and suppliers over the last year.

    US Silica (NYSE:SLCA): US Silica is a leading silica sand supplier with a focus on performance materials that are essential to modern living. 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 December 18, 2013)
    Market Cap: $1.7 Billion

    (click to enlarge)

    Carbo Ceramics (NYSE:CRR): Carbo is an industry-leading production enhancement company that integrates technologies and intellectual capital to design, build and optimize fractures. Our products and services enable customers to increase production and recovery while lowering total finding and development costs. 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

    (click to enlarge)

    Emerge Energy Services (NYSE:EMES): Emerge Energy Services is a diversified energy services company that operates in two key segments of the energy industry: Sand Production and Fuel Processing and Distribution.Through their direct access to multiple rail lines and pipelines, they are uniquely positioned to service customers across North America. 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 December 18, 2013)
    Market Cap: $932 Million

    (click to enlarge)

    Hi Crush Partners (NYSE:HCLP): Hi-Crush Partners is a pure play, low-cost, domestic producer and supplier of premium monocrystalline sand, a specialized mineral that is used as a proppant ("frac sand") to enhance the recovery rates of hydrocarbons from oil and natural gas wells 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 December 18, 2013)
    Market Cap: $528 Million

    (click to enlarge)

    Conclusion

    Declan is currently sitting around $0.12 with a $14.5 million market cap. The company 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. It is tough to value the potential of an asset but thats why this company is listed on the venture exchange. There's definitely a large risk associated with Declan being that it is an exploration company, but if they do in fact drill and discover a true frac sand deposit on their Firebag Property, we can be sure the market will reward shareholders.

    The stock has been trading a lot better lately, up another 9% today (December 27) on over 1.5 million shares. The rewards are great but so are the risks. This is a bet that should only be taken only by saavy investors that are aware that they could lose it all. Alphastox will keep investors updated with Declan's progress so stay tuned.

    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.

    Best,
    Etienne Moshevich

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Transcend Resource Group (an investor relations company owned and operated by the author, Etienne Moshevich) is long Declan Resources

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