With the Fayetteville Shale playing a smaller role in the nation's shale energy boom, companies mining for sand crucial to hydraulic fracturing are looking to larger markets outside of Arkansas to sell their product.
The surge in shale drilling has the United States producing record amounts of oil and natural gas, and the sand coveted by energy companies is being sent to other states where drilling for liquid resources is rapidly expanding, according to industry members.
"There are a couple of new markets that weren't as viable as in 2008," said Tony Giordano, president of Mississippi Sand LLC, a Missouri-based company that has provided sand to natural gas producers in the Fayetteville Shale. "Arkansas was a much stronger market for us several years ago than it is today."
Consumption of sand for drilling is projected to increase at least 18 percent per year through 2016 as drilling expands in U.S. shale formations rich with oil and natural gases, according to a report by PacWest Consulting Partners.
The market for silica sand is being driven by energy companies that have discovered that if they put more sand in a well they will recover more oil and gas, said Michael Lawson, spokesman for U.S. Silica.
In hydraulic fracturing, or fracking, sand is mixed with water and chemicals and injected into wells to break apart rock to release oil and natural gas.
In 2013, the amount of sand used for hydraulic fracturing in the Fayetteville Shale fell 18 percent to 1.1 million tons.It is expected to rebound slightly to 1.25 million tons this year, according to a report by PacWest Consulting Partners.
The decline in sand use in the Fayetteville Shale mirrors the drop in drilling in Arkansas.
The number of operating rigs in the Fayetteville Shale has declined in the past few years as the three main operators in the state relocated to formations rich with oil and natural gases.
"The Fayetteville Shale is a dry gas play," said Jim Kahler, senior energy analyst for Bentek Energy, an arm of Platts, referring to the quality of natural gas in the play. "There's a ton of gas there sitting in the ground but the current prices of natural gas does not justify drilling there."
In 2008, the Fayetteville Shale was a home for more than 60 drilling rigs. Now there are only 9, according to Baker Hughes.
Activity in the shale began to abate in 2012 when natural gas prices slid below $2 per million British thermal units for a while and remained below $4.
Moderate prices have made Arkansas' dry natural gas less valuable than the oil and natural gases being pumped from fields in North Dakota, Texas and Pennsylvania.
"[The Fayetteville Shale] has seen in the last year a 24 percent drop in activity," said Richard Mason, president of Gibraltar Energy Co. in El Dorado. "The big money is going to the oil plays."
Companies drilling in the other plays want sand sources close to the wellhead to keep transport costs low. That's also a hurdle for Arkansas' sand miners, Mason said.
Mississippi Sand stopped shipping sand to North Little Rock a few years ago, Giordano said, as a "function of the Arkansas market being a lot slower."
So far this year, the company has also held back on trucking sand to its distribution facility in Judsonia. The facility, which has capacity for 3,000 tons of storage, is only stocked when Mississippi Sand's clients have business, he said.
The company has been notified of possible drilling in September and October in the Fayetteville Shale, Giordano said. Mississippi Sand also ships sand to the Marcellus Shale in the northeast, the Eagle Ford in Texas, and locations in Louisiana, Oklahoma and Colorado.
As drilling activity picks up in neighboring states, the demand for Arkansas sand will rise, Mason said.
In June, Rainmaker Resources said it joined with Arkansas Silica LLC to purchase about 300 acres in Izard County that will be mined for sand.
The company will send the sand to Texas and Pennsylvania, said Rick Patmore, chief executive officer and president. The sand can also be used in the Fayetteville Shale, according to a news release from Rainmaker.
Southwestern Energy Co. is the main remaining natural gas producer in the Fayetteville Shale. BHP Billiton Ltd. and XTO Energy Inc., a subsidiary of Exxon Mobil Corp., have moved most or all of their drilling rigs out of state.
Southwestern Energy is also in the sand business.
"Arkansas is kind of a little unique because the bigger player is also in the sand market," Giordano said.
Southwestern Energy has its own sand plant in North Little Rock where it mines and processes silica sand to use in the Fayetteville Shale.
The company uses about 2,100 tons of sand per well, spokesman Christina Fowler said.
About 90 percent of the sand the company uses when fracking wells comes from the North Little Rock facility. For the rest, Southwestern Energy purchases the sand from other companies.
In the spring, Ozark Premium Sand provided Southwestern Energy with about 20,000 to 30,000 tons of sand per month. Last month, the number dropped 5,000 to 6,000 tons.
The company also sells about 10,000 tons of sand a month for XTO Energy wells in the Fayetteville Shale but has also started shipping to Oklahoma, Louisiana and Texas, said Steve Hackmann, minority owner of Ozark Premium Sand.
"There has been a little bit of a shift," he said. "It's not as busy as it was three years ago."
SundayMonday Business on 08/10/2014