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Thursday, April 17, 2014

Fracking Sand Spurs Grain-Like Silos For Rail Transport; What A Great Time To Be A Recent Harvard MBA Graduate; Big Story On Emerge, Based In Southlake, Texas

Bloomberg is reporting (go to the link to see entire article; only parts of it are seen below):
The U.S. shale oil boom is putting millions of tons of sand onto North American railroads, enabling carriers to pack trains full instead of hauling just a handful of cars at a time.
With help from Union Pacific Corp. (UNP) and Warren Buffett’s BNSF Railway Co., the sleepy silica sand industry that once mostly supplied glassmakers now ships more than 20 million tons of the material a year. Buyers including Halliburton Co. and Schlumberger Ltd. use the sand in hydraulic fracturing at oil fields in Texas and North Dakota.
Miners such as Emerge Energy Services LP, U.S. Silica Holdings Inc. and Hi-Crush Partners LP are taking a page from the grain industry’s playbook to deliver sand faster and cheaper. They’re building facilities at their mines to load unit trains, which move just one type of cargo, and near oil fields to empty them.
“The customers more and more are saying ‘We don’t want the headache of logistics. That’s on you,’” Rick Shearer, chief executive officer of Southlake, Texas-based Emerge, said in an April 14 phone interview. “We’ve scrambled to put in a network of storage and trans-load sites all over North America.”
100 cars:
For decades, sand-mining companies catered mostly to glassmakers that sent a few rail cars, said Shearer, whose company was created in 2012 by combining Superior Silica Sands with two energy-service firms.
Now, with fracking helping drive oil output, Emerge fills trains pulling 100 cars on newly laid track from shiny metal silos.
Unit trains will move about 25 percent of sand sent to oil and gas users this year, a fivefold surge from 2013, and the share could rise to 50 percent in the future, according to U.S. Silica. Union Pacific and BNSF, the two major carriers in the western U.S., are poised to benefit from shale-oil production in the region and sand mines in Wisconsin, Illinois and Minnesota.

Union Pacific, the largest publicly traded U.S. railroad, and U.S. Silica together are constructing a $12 million storage facility for the sand in Odessa, Texas, that will handle two unit trains at a time.
BNSF
BNSF built an off-loading operation near San Antonio with U.S. Silica that reached capacity of 15,000 tons sooner than expected and will be expanded, U.S. Silica CEO Bryan Shinn said in an April 11 phone interview.
Unit trains help railroads because the cargo is hauled quicker and doesn’t have to be switched at crowded yards. 
Trains loaded only with sand can reach their destination and return in four days instead of two or three weeks. The cost savings is as much as 20 percent, Emerge’s Shearer said.
The payoff for the mining companies is a higher price, Shinn said. A ton of sand that sells for $50 at the mine gate can fetch $130 near the drilling area, he said. The sand moves in covered hoppers also used for cement. They’re shorter than grain cars because the product is heavier, Shinn said.
The Sand
Drillers covet the hard, round sand grains that are produced in the U.S. Midwest. The sand comes in several varieties and sizes depending on the shale fractures’ width, making the shipping logistics even more complicated than grain.
Unlike crude-by-rail shipments that face pipeline competition, frac sand is railroads’ domain. The amount hauled is growing faster than drilling activity as oil producers find they can improve yields by packing in more sand per well.
The railroads
BNSF’s shipments of sand, with the large majority of it for fracking, rose 15 percent to 140,000 carloads, said Mike Trevino, a spokesman for the Fort Worth, Texas-based railroad.
Shale-related freight is helping pump up results at both carriers. Union Pacific’s 2013 net income rose 11 percent to $4.39 billion on a 5 percent gain in revenue to $21.96 billion. BNSF’s net income climbed 12 percent to $3.79 billion on a 5.7 percent gain in revenue to $22 billion.
The railroads will also benefit from having a few large mining companies that ship most of the sand. The drive toward unit trains and the investment it requires puts smaller miners at a disadvantage ...
Emerge is building toward 20 unit trains of sand a month from none two years ago, Shearer said. The company is adding two new mines that together will have annual capacity of 5 million tons and give it access to Canadian National Railway Co. (CNR) and Canadian Pacific Railway Ltd.  
 The company’s existing mines are served by Union Pacific and BNSF, he said.
“We will be on four Class I railroads when we finish these plants,” Shearer said. “That was a key focus for us to add this logistics flexibility.”
U.S. Silica is now selling 70 percent of frac sand from its storage facilities near drilling areas, up from 5 percent two years earlier, U.S. Silica’s Shinn said.