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WISCONSIN FREIGHT RAIL DAY 2013OCTOBER 9TH MADISON, WI
Capitalizing on a
“Once in a Lifetime Opportunity”
Richard J. ShearerPresident & CEOSuperior Silica Sands
THE EVOLUTION OF WELL STIMULATION
HORIZONTAL VERSUS VERTICAL DRILLING
• Hydraulic fracturing and horizontal drilling has driven “Hockey stick” propant demand• 85% of proppants are natural sand
U.S. BECOMES ENERGY SELF SUFFICIENT
• 89% of needs currently being met
• Global shift in energy “power players”
• Manufacturing returns to North America
• Lower energy costs
North America is an environmentally enhanced continent
• Conversion to natural gas is reducing our carbon emissions 45% per energy unit versus coal
LOCATION OF BEST FRAC SAND The Cambrian quartz sandstone deposits (marked in red on the attached map)
found in Wisconsin are a scarce resource
The Cambrian deposits in Wisconsin are unique in that the sand: Is of unusually high quality
Can be mined in a manner that is cost efficient and environmentally friendly
WHERE THE BEST FRAC SAND IS (RED)
Source: Where-the-best-sand-is – Brown Presentation
St. Peter’s
Jordan
Wonewoc
To date, no high quality frac sand deposits found on the globe better than Wisconsin and Eastern Minnesota
INDUSTRIAL SAND GEOLOGY
THE WISCONSIN PROPPANT MARKET HAS CHANGED
Barriers to entry continue to increase• Limited high quality frac sand reserves (Wisconsin)
• Fewer deposits near rail service
• NIMBY
• Permits – regulations – ordinances and moratoriums
Industry Consolidation• The leading frac sand suppliers get stronger
Logistics “arms race” continues• We are actually in the logistics business as much as sand
THE WISCONSIN PROPPANT MARKET HAS CHANGED
Frac sand supply growth slows as demand catches up • 31MM TPY demand in 2013; current capacity = 52MM TPY
• Projections show proppant supply demand in – balance by 2018
• Demand will escalate if natural gas prices get above $5/ MMBTU
High quality natural frac sand from USA could be in global demand
• Current geology suggests that USA (Wisconsin) has superior frac sand
• Unconventional drilling is lagging the USA but beginning to develop
• Argentina, China, Mexico, Australia, South Africa, and Eastern Europe all show strong proppant demand potential
THE SUCCESSFUL WISCONSIN FRAC SAND BUSINESS MODEL
• Must have high quality sand deposits
• Must have various efficient shipping options (rail, truck, barge, etc)
• Must have an infrastructure and organizational “culture” in place to exceed customer expectations
• Provide full service to the well-head: servicing the “last mile”
• Must be as expert in logistics as in industrial sand
• Must be flexible and nimble
• Must form strategic partnerships; customers, railroads, etc
US PROPPANT DEMAND: ANNUAL GROWTH *
* The Freedonia Group, Inc
2006 – 2011 2011 – 2016
Total Proppants Demand
28.2% 10.5%
Sand Proppants 32.8% 11.2%
Ceramic Proppants 21.9% 9.1%
Other Proppants 34.1% 11.3%
FRAC SAND ECONOMIC IMPACT IN WISCONSINSSS IS INVESTED IN WISCONSIN
Two “best in class” frac sand operations
• New Auburn, WI: Progressive Rail (WN)/ Union Pacific
• Clinton, WI: CN Railroad
SSS Wisconsin frac sand capacity = 3.8MM TPY
$100MM capital invested in both operations
Post opening capital improvements = $2MM
• Onsite storage track for 800 railcars ($6.5MM)
215 employees in the Badger state; all local hires
SSS annual operating budget of $70MM
• Local economic impact = $420MM/ year
WHAT IT ALL MEANS TO YOU …. THE RAILROADS
Shipping more sand to numerous new destinations
More railcars in the system
Unit train shipments more common
Managing bottlenecks and turnaround times becomes more crucial
With freight prices not dropping, service is king
Storage and Transload sites are over populated in some locales
Railroad Partnerships
CONCLUSIONS
The Frac Sand Boom is a “Once in a Lifetime” event.
Wisconsin is the proppant Global Epicenter
Efficiency and cost Effectiveness in shipping this important proppant is critical
Rail is a major focal point to complete market success
Any successful frac sand producer is actually in the Logistics Business!