Frack sand suppliers in the US are feeling the pinch from shale players reducing their spending and drilling activity in response to the Covid-19 pandemic and low oil prices as well completion activities dry up.

US sand giant Covia in late June filed for Chapter 11 bankruptcy protection, after negotiating a restructuring support agreement with the majority of its secured debtholders that would see more than $1 billion of debt and fixed costs wiped from its balance sheet.

Covia, like many other proppant players, tried to weather the dire market by cutting back on capacity.

The company idled a number of mines in the US and slashed capital spending in half year-over-year to about $44 million, as well as reducing staff and cutting overhead expenses by some $25 million.

The frack sand market before the downturn was already oversupplied and saturated with players and competition, as local in-basin sand producers worked to displace demand for higher quality Northern White sand by opening up mines in Texas across the prolific Permian basin, pushing prices to rock bottom, IHS Markit principal market analyst Brandon Savisky told Upstream.

Before the Covid-19 outbreak, suppliers were operating at or near unsustainable pricing levels, barely enough to cover production costs, he added.

“Once that took a dive, that was kind of the last domino to actually fall," Savisky said of the oil price crash. "It went from bad to horrible. Unfortunately, no one is faring well."

With the drastic drop in drilling activity came a further fall in demand for frack sand as producers kept shedding rigs, reducing or even halting their drilling activity, and sent their completion crews home for a “frack holiday” until oil prices recovered.

Analysts expected May and June to be the months with the least amount of activity, as producers shut in and curtailed crude production.

Savisky said estimates place demand for frack sand to bottom out at around 9 million tonnes around the third quarter of 2021. Demand was around 26.5 million tonnes during the same period in 2019.

He added that Covia might look into local in-basin sand operations, or it may look to take advantage of some of the Northern White asset sales when the company comes out of restructuring.

Another big name in the sector, Hi-Crush, has reportedly been in negotiations with unsecured noteholders and lenders for a pre-arranged bankruptcy filing.

The company recently had a forbearance agreement with its creditors extended, although it said it still anticipated filing for protection but did not specify when.

Hi-Crush in April cut its budget by about 40%, idled three production facilities and three terminal facilities, and reduced its workforce by 60%.

The company is currently working with a production capacity of 5.7 million tonnes per annum, out of a total nameplate capacity of 17.3 million tpa.

The larger sand players — such as like US Silica — over the last few quarters have idled seven production facilities and reduced shifts at six other mines, curtailing production capacity from 24 million tonnes to 6 million tonnes, as they expected a sharp contraction in well completions.

During the first quarter, the company booked a $10.3 million impairment charge primarily due to the idled Kosse, Texas facility.

"When the market does turn and pricing does improve, we kind of anticipate that there could be a pretty good ramp-up in activity for producers trying to recapture production loss and there will be less supply to support that activity,” US Silica chief executive Bryan Shinn said in a May conference call.

“That should position us well to take advantage of that when the market comes back."

Shinn had said he expected a "pretty dramatic" decrease in completions activity in May and June.

Shale

US frack sand suppliers hit hard by downturn