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schneyer robinson
.5th frac sand_conf_
Will Point-To-Point Distribution Drive Sand Industry Consolidation?Capstone Headwaters
This presentation was given by Joel Schneyer, Managing Director at Headwaters MB at The North American Frac Sand Exhibition & Conference in Houston, TX.
This presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the Petroleum Connection 5th Annual Frac Sand Supply & Logistics Conference in San Antonio, TX.
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Coping with the new paradigm: What might the industry look like when it all ...Capstone Headwaters
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Will Point-To-Point Distribution Drive Sand Industry Consolidation?Capstone Headwaters
This presentation was given by Joel Schneyer, Managing Director at Headwaters MB at The North American Frac Sand Exhibition & Conference in Houston, TX.
This presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the Petroleum Connection 5th Annual Frac Sand Supply & Logistics Conference in San Antonio, TX.
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the SME 4th Annual Current Trends in Mining Finance Conference in New York, NY.
Coping with the new paradigm: What might the industry look like when it all ...Capstone Headwaters
This presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the Industrial Minerals 4th Frac Sand Conference in Minneapolis, MN.
Explosive Growth in Frac Sand and Lithium- Lessons To Be Learned?Capstone Headwaters
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the SME Colorado MPD 67th Annual Conference in Colorado Springs, CO.
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the Frac Sand Insider 2016 Conference & Exhibition in La Crosse, WI.
This presentation was given by Joel Schneyer, Managing Director at Headwaters MB at The North American Frac Sand Exhibition & Conference in Minneapolis, MN.
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overviews of the North American oil & gas and petrochemical markets, as well as, key insights in the lower 48 shale plays and frac sand basins. The presentation included analysis of the supply and demand of U.S. NGL’s, and impact of the shale gas expansion on projected rail volumes. The topic of Mexican energy reform led the audience into look at specific opportunities south of the border, and ended with a big picture summary by commodity at the rail and railcar markets.
The New Industry Paradigm: Industry Specialist Private Equity Investors as Dr...Capstone Headwaters
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the SME's 3rd Annual Current Trends in Mining Finance Conference in New York, NY.
Highbank is a Canadian aggregate exploration and development company. Highbank has earned a 100% interest in, and has obtained a NI 43-101 Resources evaluation of a +70 million tonne tidewater aggregate gravel tenure in northwestern British Columbia, Canada. The Company also holds a NSR interest in two moly/copper properties in Ireland.
I mformed oilfield_minerals_conf_houston_20170522-schneyer_robinson_final. fo...Susan Humerian
PLG President, Taylor Robinson, spoke at the Oilfields Mineral & Markets Forum 2017 in Houston, Texas on May 23rd. Mr. Robinson presented The Frac Sand Industry New Normal Supply Chain Challenges and Opportunities which included:
Comprehensive look at the current frac sand market
Analysis on proppant demand drivers
Information on regional sand basins
Impacts on logistics and supply chain
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06082017 final
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Overview of the current energy market in North America
Information on the key impacts in the rail industry
Emerging opportunities for rail in Mexico
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the Frac Sand Insider 2016 Conference & Exhibition in La Crosse, WI.
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A Primer re Gold Valuations & Development Costs and Private Equity's Role in ...Capstone Headwaters
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the SME Annual Conference & Expo - CMA 117th National Western Mining Conference in Denver, CO.
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Analysis on proppant demand drivers
Information on regional sand basins
Impacts on logistics and supply chain
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Financing and Investment: Value Propositions and RefinancingCapstone Headwaters
The following presentation was given by Joel Schneyer, Managing Director at Headwaters MB at the Industrial Minerals 3rd Frac Sand Conference in Minneapolis, MN.
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This presentation was part of an online webinar targeted toward Oilfield Services (OFS) businesses. It gives a clear picture of the current state of the OFS industry as well as a forecast for the future, including strategies for taking advantage of forthcoming opportunities and potential challenges OFS operators may face. It also provides an overview of MNP LLP's Oilfield Services team and the assistance we can provide.
From Drilling to Downstream: Opportunities And Challenges For Rail Carriers |...PLG Consulting
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This report was presented by Joel Schneyer at the IM 3rd Frac Sand Conference in Minneapolis
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1. September 12 -14, 2017
Denver, Colorado
5TH FRAC SAND CONFERENCE
Sandonomics ’17
Regionalized Value, Distance
Matters to the DJ and Bakken
Joel Schneyer | Managing Director
Headwaters MB
Taylor Robinson | President
PLG Consulting
2. Headwaters MB is an independent, middle-market investment banking firm providing strategic merger and acquisitions
advice, capital raising and special situations advisory. Headwaters is headquartered in Denver, Colorado, with six
regional offices across the United States and partnerships with 18 firms covering 30 countries.
We have three distinct businesses:
Experience: Investment Banking
Mergers & Acquisitions
• Sell-side advisory
• Buy-side advisory
• Management buyouts
• Fairness opinions
Capital Raising
• Senior debt / Bank debt
• Mezzanine debt
• Equity
• Project finance / Infrastructure
Special Situations Advisory
• Refinancing / Restructuring
• Distressed / Bankruptcy
• Merchant Banking
Headwaters MB has closed
over $8.4 billion in transaction
value.
88%
Privately Owned
60%
M&A Advisory
INVESTMENT
BANK OF THE
YEAR
2015
INVESTMENT
BANK
OF THEYEAR
Page | 2
3. Partial Client List
PLG Team
Real-world, industry veterans
Delivering value to over 200 clients since 2001
Over 30 logistics, supply chain & engineering experts with
operational leadership experience
Core Expertise
Bulk commodities
Rail transportation & logistics
Energy & chemical markets
Private equity and corporate development
Services
Investment strategy, target identification, due diligence,
post-transactional support
Diagnostic assessments & optimization
Supply chain design & operational improvement
Logistics infrastructure design
Site selection
Independent logistics technology assessment &
implementation
Hazmat training, auditing & risk assessment
Experience: Logistics & Supply Chain Consulting
Page | 3
4. Agenda for DiscussionFour Themes That We Will Discuss Today
I. Intensity
II. Regionalization
III. Bundling
Marginalization
I
II
III
Page | 4
IV
6. Onshore Middle East
Offshore Shelf
Extra
Heavy
Oil
Deep
water
Onshore
Russia
Onshore rest of world
Oil
Sands
North
American
ShaleUltra
deepwater
Tight Oil Is Here To Stay: US Competitiveness Continues
Page | 6
Source: Rystad Energy research and analysis, cited in: IMF. World Economic Outlook - Gaining Momentum? April 2017
Slide created in conjunction with PLG Consulting for joint PLG – Headwaters MB webinar on June 8, 2017
Evolutionary technology adoption and
streamlining of the manufacturing process for
shale oil continues to lower breakeven pricing
Oil Production (million barrels / day)
OilPrice(USD)
7. Drilling Activity Is On The Upswing, Focused In Sweet Spots
Page | 7
0
500
1,000
1,500
2,000
2,500
1/1/2011
4/1/2011
7/1/2011
10/1/2011
1/1/2012
4/1/2012
7/1/2012
10/1/2012
1/1/2013
4/1/2013
7/1/2013
10/1/2013
1/1/2014
4/1/2014
7/1/2014
10/1/2014
1/1/2015
4/1/2015
7/1/2015
10/1/2015
1/1/2016
4/1/2016
7/1/2016
10/1/2016
1/1/2017
4/1/2017
7/1/2017
TotalNumberofRigs Weekly Rig Count by Basin
Others Fayetteville Granite Wash Haynesville Mississippian
Barnett Utica Cana Woodford Arkoma Woodford Ardmore Woodford
DJ-Niobrara Eagle Ford Marcellus Permian Williston
75% YOY
growth vs.
2016
Source: Baker Hughes, North America Rotary Rig Count Current Week Data, as of July 28, 2017
Slide created in conjunction with PLG Consulting for joint PLG – Headwaters MB webinar on June 8, 2017
OPEC initiated crude
price increase has re-
energized rig count
and drilling &
completions
Producers utilizing
improved completion
techniques and cost
structures from
downturn
DUC inventory still
available for quick
production bursts if oil
price surges
8. Horizontal Wells in Southern Plays Are Driving The Boom
Page | 8
Source: Baker Hughes, North America Rotary Rig Count Current Week Data, as of July 28, 2017
Texas,
NM, & OK
plays
have
~60% of
rig
activity
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2/4/2011
4/4/2011
6/4/2011
8/4/2011
10/4/2011
12/4/2011
2/4/2012
4/4/2012
6/4/2012
8/4/2012
10/4/2012
12/4/2012
2/4/2013
4/4/2013
6/4/2013
8/4/2013
10/4/2013
12/4/2013
2/4/2014
4/4/2014
6/4/2014
8/4/2014
10/4/2014
12/4/2014
2/4/2015
4/4/2015
6/4/2015
8/4/2015
10/4/2015
12/4/2015
2/4/2016
4/4/2016
6/4/2016
8/4/2016
10/4/2016
12/4/2016
2/4/2017
4/4/2017
6/4/2017
Proportion of Active Rigs by Trajectory
Horizontal Directional Vertical
> 90% Horizontal
& Directional
Wells
as of July 2017 ….
20% increase
since 2011
0
200
400
600
800
1,000
1,200
07/28/17
Horizontal &
Directional Wells
Permian
Eagle Ford
Haynesville
Woodford
DJ Niobrara
Williston
Barnett
Marcellus & Utica
Other
9. Has Productivity Plateaued Permanently?
Productivity increases have continued
beyond expectations due to:
• Exclusively drilling sweet spots (i.e. known
high-production areas)
• Utilizing pad drilling and high intensity
fracking in growing scale
• Learning-by-doing from horizontal drilling
with innovative horizontal drilling
techniques:
• Super fracks using up to 25,000 tons
of sand per well
• Super long laterals up to 18.000 feet
Producers will face headwinds to
further improve productivity because:
• Increased penetration of high efficiency
techniques leave fewer areas to improve
• Oil field services suppliers still are operating
at tight margins – opportunistic price
increases will continue to be requested
• Rising frac sand prices have a growing
impact on the bottom line of producers as
sand per well increases
Source: EIA Drilling Productivity Report, as of August 2017
Page | 9
-
20
40
60
80
100
120
140
-
200
400
600
800
1,000
1,200
1,400
Oct-06 Jul-09 Apr-12 Dec-14 Sep-17
RigCount
Barrels/Day
Niobrara New Well Oil Production per Rig
Production per rig Rig count
-
100
200
300
400
500
600
-
100
200
300
400
500
600
700
800
Oct-06 Jul-09 Apr-12 Dec-14 Sep-17
RigCount
Barrels/Day
Permian New Well Oil Production per Rig
Production per rig Rig count
10. Completion Trends Create New Proppant Demand Drivers
Longer
Laterals
MoreStages
Overpacking
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012 2013 2014 2015
Average Sand per Well
(Permian/ Bakken/ Eagle Ford)
CloserWell
Spacing
>2xincrease
2016to2018
0
5,000
10,000
15,000
20,000
25,000
2014 2016 2017 2018
# Horizontal Wells
0
200
400
600
800
1,000
1,200
1,400
2014 2016 2017 2018
# Active Horizontal
Rigs
• Increase in frac
sizes per stage
• Increased interest
in utilizing finer
mesh sand (40/70
& 100 mesh) & CRC
Source: Goldman Sachs Global Investment Research (July 2016),
Bloomberg Intelligence
0
500
1,000
1,500
2,000
Permian Williston Eagle Ford
Average Pounds Sand Per
Lateral Foot
2012 2016
Page | 10
11. 0
1,000
2,000
3,000
4,000
5,000
6,000
Industry Average Proppant per Job
Raw Resin Ceramic
No End in Sight to Growth In Proppant Intensity Per Well
Source: Energent Group as of July 2017
YTD: 4,293 tons/job
N = 9,780 jobs
Tons
High intensity fracking
trend will continue to
expand sand volumes
per well
• 20 to 25% YOY increase
between 2015 and
2016, and projected 15
to 20% YOY increase
during 2017
• Technology leaders
have been advancing
the next generation of
this technique for the
last 2-3 years in both
gas and oil well fracks
(e.g. 25,000 ton super
fracs)
• “Followers” are still
experimenting with
optimization and are 1-
3 years behind the
leaders in implementing
latest techniques
Page | 11
Technology leaders average ~6,400 tons of proppant/job
over the same time period
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
DJ - Niobrara Average Proppant per Job
Raw Resin Ceramic
Tons
YTD: 4,082 tons/job
N = 967 jobs
12. … With Significant Recent Growth Varying By Basin
Page | 12
Source: Energent Group, as of September 2017
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Marcellus- Utica Williston DJ Niobrara Eagle Ford Permian
AverageProppantConsumedPerFracJob(tons)
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
13. Page | 13
Source: IHS Markit, Energy Blog, May 3 2017
0
10
20
30
40
50
60
70
80
90
100
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
MillionTons
Eagle Ford Marcellus/Utica Permian Bakken Anadarko DJ Basin Other US Canada
... Generating Overall Bullish View On Sand Demand
Historical Forecast Oil price assumption remains
the largest underlying driver
14. DUCs Remain a Wildcard, Adding to Future Demand
Page | 14
Source: EIA May 2017
• High backlog of drilled but uncompleted wells (DUCs)
will demand proppant at a later date
• Timing independent of rig count – depends on market
inventory, oil prices and availability of pumpers
16. Raw Sand Is The Established Proppant Of Choice
Page | 16
Source: Smart Sand Investor Presentation May 2017
Permian Dune
Raw Sand US Proppant Market Share by Type:
92.7%
3.9%
3.4%
98.6%
0.2%
1.2%
Ceramic
Northern White
Raw Sand
Texas Regional
“Brown” or
“Hickory”
Raw Sand
Resin-Coated
Sand
Raw Resin- Coated Ceramic
2015
2016
2017 YTD
17. Page | 17
Source: Company websites, Headwaters MB research
Permian Dune Sand Texas Regional “Brown” or “Hickory” Sands Northern White Sand
Black
Mountain
Black
Mountain Unimin FMSA US Silica Unimin FMSA US Silica
40/70 100 40/70
Brady
40/70
Texas Gold
40/70
Premium Hickory
40/70
Unifrac
40/70
White
40/70
White
Winkler, TX Winkler, TX Brady, TX Voca, TX Voca, TX
K Value 7,000 8,000 6,000 6,000 6,000 11,000 8,000-9,000 9,000
Sphericity 0.7 0.7 > 0.6 > 0.6 0.6 0.7 - 0.9 0.7 0.6
Roundness > 0.6 > 0.6 > 0.6 > 0.6 0.7 0.7 - 0.9 0.7 0.7
Turbidity < 100 < 100 < 250 < 75 10 - 130 < 100 < 50 10 - 140
Acid Solubility < 3.0% < 3.3% < 3.0% < 2.0% 1.80% < 3.0% < 0.6% 0.80%
Regional Sand Is “Good Enough”
Majority of local/regional mines are
finer grades
18. Growing Preference for Finer Sand Mesh Sizes
• 80+% of total sand consumed
considered finer grades (i.e. 40/70 &
100 mesh), up from 60+% in 2014
• DJ Niobrara demand for finer grades:
74%
• Bakken demand for finer grades:
59%
Page | 18
Source: IHS Markit
5%
1%
16%
1%
1%
22%
4%
11%
19%
23%
25%
25%
25%
17%
17%
8%
6%
79%
16%
23%
48%
36%
36%
24%
61%
25%
82%
80%
45%
40%
3%
40%
51%
23%
38%
23%
75%
13%
57%
17%
20%
15%
47%
80%
2%
40%
7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Anadarko
Appalachia
Bakken
Barnett
DJ Niobrara
Eagle Ford
Fayetteville
Haynesville
Other US
Permian
Piceance
Uinta
US - Average
Canada - Average
20/40 30/50 40/70 100Notes: Coarse grades of sand includes 20/40 and 30/50; fine grades include 40/70
and 100 mesh. Small volumes of secondary categories have been grouped into
similar size primary categories, e.g. 16/30 has been grouped with 20/40.
20. Proximity to DJ Niobrara – Roughly The Same Distance
Page | 20
Hickory
21. The Frac Frenzy Is Just Getting Started in the DJ – Niobrara
Page | 21
Source: Energent Group as of July 2017
Tight Shale PlayPermit Issued
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
DJ - Niobrara
Average Proppant per Job
Raw
Resin
Tons
YTD: 4,082 tons/job
N = 967 jobs
DJ - Niobrara
Permits Issued in Last 2 Months
Industry Average:
5,250 tons/job
22. $0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
Stack/SCOOP Niobrara Midland Basin Delaware
Basin
Bakken Eagle Ford Other
DJ Economics Already Compelling in Low Oil Price Environment…
Page | 22
Source: Wall Street Sell-Side Research & Bill Barrett Corporation July 2017 Corporate Update
* assumes $40/bbl NYMEX oil & $2.50/mcf NYMEX gas in 2017-2020
Average = $39.86
23. … And Trends Toward Longer Laterals Makes For Better Economics
Page | 23
Source: PDC Energy July 2017 JP Morgan Energy Equity Conference
* assumes $40/bbl NYMEX oil & $2.50/mcf NYMEX gas in 2017-2020
Type Well
in DJ Basin
CWC EUR
(gross Mboe)
IRR @
$40/bbl *
PV @
r=10%
ROI
undiscounted
~ 5,000 Ft Lateral $2.5M 490 57% $3.6M 3.5
~ 7,500 Ft Lateral $3.5M 800 79% $6.4M 4.2
~ 10,000 Ft Lateral $4.5M 1,100 91% $8.4M 4.3
25. Page | 25
• Increasing their product lines
into resin coated sands to try to
add higher margin products
• Expanding and buying available
capacity, and investing in
regional sands
Diversifying
Product Lines
• Increasing use of unit trains
• Building out or partnering with
transload operators to have
“storefronts” in the shale plays
• Providing the last mile solutions
to the producers, including
containerized shipping solutions
Squeezing
Value
from
Logistics
What Are the Sand Companies Doing To Respond?
26. The Majors Are Utilizing Idled Capacity & Investing In Regional Mines
Page | 26
Source: HCLP May 2017 Q1 Earnings Call Presentation
Nameplate
Capacity
(mm TPY)
Q3 2016 Q4 2016 Q1 2017 April 2017 Q3 2017E Q4 2017E
Wyeville 1.85 Fully Utilized Fully Utilized Fully Utilized Fully Utilized Fully Utilized Fully Utilized
Blair 2.86
Partially
Utilized
Fully Utilized Fully Utilized Fully Utilized Fully Utilized Fully Utilized
Augusta
2.86 Restart
(Sept.)
Partially
Utilized
Partially
Utilized
Ramp Up Fully Utilized Fully Utilized
Whitehall 2.86 Idle Idle
Restart
(March)
Ramp Up Fully Utilized Fully Utilized
Kermit 3.00 Not Owned Not Owned
Under
Construction
Under
Construction
Ramp Up Fully Utilized
… With Supply Constraints:
- Difficult to obtain operating permits
- Local opposition to new, unpermitted facilities
- Long lead time for design-build phase
Example: Hi-Crush
27. Logistical Challenges Will Shift To the Right With Local Mines
Materials
Chemicals
Clean Water
Proppants
OCTG (Pipe)
*Railcars to
Transloading
5
From local
wells/reservoir
Avg - 55
Largest - 240
5~8
Trucks to
Wellhead Site
20
9.5 million
gallons / job
**
Avg – 220
Largest - 960
20~32
Avg – 260
Up to 1,000
Truckloads
Oil/Gas/NGLs
Pipeline, Truck,
Rail
Waste Water
Avg – 65
Up to 250
Railcars
Page | 27
* Example is for rail-delivered supply chain ** Horizontal/Directional well average in last 6 months (Energent Group)
Each well drilled requires:
-Heavily dependent on
trucking as well
Source: PLG / Headwaters Analysis
28. 0
200
400
600
800
1,000
1,200
1,400
1,600
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
HorizontalLandRigs
CarloadsOriginated
U.S. CLASS I QUARTERLY CARLOADS ORIGINATED FOR INDUSTRIAL SAND
AND U.S. HORIZONTAL LAND RIGS
U.S. Quarterly Carloads Originated for Industrial
Sand (STCC 14413)
U.S. Horizontal, Land Rigs
Source: STB (STCC 14413 – Industrial Sand: includes frac sand and other industrial sands), Baker Hughes, May 2017
Shale Gas
Boom
Rail sand volumes will have reduced correlation to overall sand volume as regional sand
with truck delivery continues to grow in coming quarters
Shale Oil
Boom
Oil Price
Collapse
High
Intensity
Fracking
Trucked Regional Sand Decouples the Rig – Rail Sand Rollercoaster
Frac Sand
Frenzy 3.0
Page | 28
29. • Dense clustering of new sand mines along the Kermit corridor will stress limited local traffic routes
• 30 mm tpy sand demand (45% of 55 mm tpy capacity in area below) = 2.5 million truck trips per year
Trucking Will Be The Logistical Bottleneck In the Permian
Page | 29
Source: Infill Thinking, analysis as of July 20, 2017
High Roller
Alpine
Hi Crush
BM Vest
Preferred Kermit
Preferred Monahans
Atlas
BM El Dorado
Vista
Smart Sand
West Texas Sands
US SilicaMonahans
30. Page | 30
Water Scarcity May Limit Regional Sand Growth
Source: WRI Aqueduct 2014
31. Page | 31
… Or Will The Sagebrush Lizard Have the Final Word?
Source: Texas Tribune August 14, 2017; Infill Thinking
Very high incidence of
lizards in the vicinity of
nearly 1/3 of proposed
dune mines may lead
to permitting delays
(or outright no-go's)
32. Page | 32
''The acquisition of Sandbox aligns with
our strategy of managing the entire
supply chain of frac sand from the mine
to the well site. Containerized delivery
increases transportation efficiency and
lowers delivered costs through faster
truck turns and reduced jobsite
congestion.’’
- U.S. Silica, Inc.
Source: Company web sites and news releases
“Provides a complete service
solution from the mine to your
well site or blender utilizing
PropX products.”
- HiCrush Partners, LP
“Through our vertically integrated
logistics network of transload
terminals and fleet of “last mile”
transport vehicles, Vista’s
customers further benefit from
our mine-to-wellhead frac sand
supply chain solutions and
assured security of supply.”
- Vista Proppants and Logistics, Ltd
“Spanning the entire logistics chain, SES
solves the industry challenges in
proppant procurement and delivery,
straight from the mine to the well site.”
- Source Energy Services
Mine To The Well Site Solutions Usher In New Bundling Era
33. High Intensity
Fracking
Expanding
… Driving More
Development
with Finer Sand
… Enabling
Regional/Local
Sand Market to
Grow
…Creating
Industry Leaders
Based on
Logistics
Capabilities
• Latest generation of high
intensity can add 25-40%
recovery per well
Tying Trends Together Showcases Market Shift Of Bundling Services
• Local sands will become
the lowest delivered cost,
displacing some current
resources
• Bundling last mile
service solutions is
natural next step for
local sand suppliers
…Low cost local
sand will drive
more high
intensity fracks
• 40/70 & 100 mesh is sold out
through this year, minimizing
resin-coated sand and
ceramics usage
Page | 33
Increased Shale
Oil Production
Flattens/Shrink
Oil Prices
… Which Limits
Sand Volume
Growth
Shale oil is a victim
of its own success
for a second time
BUT
35. -$50
-$40
-$30
-$20
-$10
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
Hi-Crush P Emerge P US Silica P
Fairmount Santrol P Smart Sand P Source Energy P
TUSK (Taylor/Chieftain) WTI Ave Price
Source: SEC Edgar, SEDAR, Yahoo Finance, Headwaters MB research
Proppant Margins Are Improving
$PerTon Page | 35
• Q2 2017 EBITDA “blended” average margins on old & new contracts were US $5-21/short ton
• Regional sands are positioned to outperform Northern White sands in 2017
Q2 2017
EBITDA US $/Ton Sold
Hi-Crush $12.57/t
Emerge $ 5.41/t
US Silica $20.61/t
Fairmount $14.09/t
Smart Sand $12.17/t
Source Energy $14.59/t
TUSK $ 7.72/t
Adjusted EBITDA US $ / Short Ton
36. Source: SEC Edgar, Yahoo Finance, Headwaters MB research
… But Company Valuations Are Still At Unsustainable Levels
Page | 36
24.0
8.9
5.76.18.07.8
12.5
21.1
16.814.2
-50
-25
0
25
50
75
100
2017Q22017Q12016Q42016Q32016Q22016Q12015Q42015Q32015Q22015Q12014Q42014Q32014Q22014Q12013Q4
TEV / LTM (Adjusted) EBITDA
Hi-Crush Emerge US Silica Fairmount Santrol Smart Sand Average
Historical GDF Data Transaction Multiples: 6 – 9x
37. #1 - 30% effective tax rate &
10% NPV
#2 - assume $50 mm build out
cost per press release
#3 - with contingency payout
based on performance
#4 - assume $23 mm build out
cost per company
presentation
#5 - assume 30% of purchase
price ($28.62 mm) for 5 barge
& 3 rail terminals
Source: Company press releases, Headwaters MB research
Page | 37
Date Buyer Target Amount
Annual
Tons
Capacity
$ / Ton
EBITDA
Margin 1
Sand Type
Jul-16 SLCA NBR $210,000,000 2,000,000 $17.62 TX Regional
Feb-17 HCLP Permian $325,000,000 2 3,000,000 $20.62 TX Regional
Apr-17 EMES Osburn $20,000,000 300,000 $10.15 TX Regional
Aug-16 HCLP HCLP Blair $170,000,000 2,860,000 $8.65 WI Northern White
Aug-16 HCLP HCLP Blair $180,000,000 3 2,860,000 $9.16 WI Northern White
Feb-17 SHLE.TO SP Blair $45,000,000 1,400,000 $5.43 WI Northern White
Feb-17 HCLP HCLP Whitehall $140,000,000 2,860,000 $7.50 WI Northern White
Feb-17 HCLP HCLP Whitehall $205,000,000 3 2,860,000 $11.00 WI Northern White
Mar-17 TUSK Chieftain Sand $36,000,000 1,500,000 $3.94 WI Northern White
Mar-17 TUSK Taylor $105,775,000 4 1,700,000 $9.95 WI Northern White
Aug-17 SLCA Miss Sand $66,780,000 5 1,200,000 $8.75 MO Northern White
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
EBITDAMargin/Ton
Nameplate Capacity – Million Tons Per Year
Recent Sand Transaction Show Valuation Patterns
When does
competition
eliminate
this gap?
38. Frac Sand Supply Chain – CLAW* WINS!!
Source: Headwaters MB research, PLG Consulting; Preferred Sands S/1
The frac sand supplier must balance the economics of all stages: Cost Landed At Wellhead
from production through to the “Last Mile” of delivery
Operating Costs =
$15 - $30 / ton
(depends on mine quality)
Transload
Facility Fees =
$7 - $20 / ton
(depends on
regional
competition
and product)
Freight + Railcar Leases +
Fuel Surcharges + Logistics =
$30 - $60 / ton
(depends on basin delivered
to and unit train capability)
“Last Mile”
Trucking Costs =
$15 - $50 / ton
(dependent on
distance from
transload facility to
well site, driver
availability, and
truck demurrage)
Mining Processing Rail
Load-out
Long Haul Rail Transloading
and Storage
Trucking to
Well
Note: Transloading may be required for trucking
over ~150 miles from sand mine to wellhead
Northern White
X X X X X X
Regional Sand
X X ? X
Regional Sand is a game changer
Page | 38
39. Low CLAW Sources Will Displace Current Supplies
Page | 39
Source: Preferred Sands Inc. S/1 filed August 10, 2017 with SEC – page 141
“We believe that this lower CLAW for in-basin facilities will render Northern
White frac sand as incremental supply in Texas, which is expected to
become approximately half of the total proppant market in 2018.”
- Preferred Sands Inc.
* including rail freight expense, railcar lease, demurrage and storage expenses,
transload expense and truck to the well site expense
Eagle Ford Permian
Costs Landed At Wellhead (CLAW) per Ton Sand*
Northern White
In-Basin Regional
CLAW Difference
40. Page | 40
Source: PLG, Infill Thinking, company investor presentations
Entity
Capacity
(mtpa)
City Basin
High Roller 3.00 Kermit Permian
US Silica 4.00 Crane Permian
Lonestar (Vista Sand) 3.00 Kermit Permian
Black Mountain * 8.00 Kermit Permian
Alpine Silica 3.00 Kermit Permian
Hi-Crush 3.00 Kermit Permian
Aequor Mgt. 3.00 Van Horn Permian
Preferred Sands 3.30 Monahans Permian
Preferred Sands 3.30 Notrees Permian
Fairmont Santrol 3.00 N/A Permian
Badger Mining 3.00 N/A Permian
Delaware Sands 2.00 Clovis Permian
Unimin 5.00 N/A Permian
Atlas Energy * 6.00 N/A Permian
Smart Sand 3.00 N/A Permian
Emerge - Osburn 3.00
San
Antonio
Eagle Ford
Preferred Sands -
Atascoca
3.00 Atacosta Eagle Ford
Total 61.60
* 2 sites
Legend
Recent Concentrated Drilling
2017 Acquisition or
Proposed Frac Sand Mine
Existing Frac Sand Mine (as
of 2016)
Source: PLG Analysis
• All recent mining activity is within 100 miles of Permian & Eagle
Ford drilling
• Previous TX/OK regional sand mines required long truck haul or
short rail haul, sometimes requiring transloading
Localized TX Mine Additions Being Driven By CLAW
Source: PLG Analysis
41. Agenda for DiscussionTakeaways
I. Proppant Intensity Driving Sand Demand
II. Low CLAW Drives Regionalization
III. Bundling of Logistics & Last Mile Solutions
Marginalization of Northern White Sand
I
II
III
Page | 41
IV
… What Are Your Thoughts?
42. For follow up questions and information, please contact:
Looking Forward To Your Questions!
Joel Schneyer
Managing Director
Headwaters MB
jschneyer@headwatersmb.com
303.619.4211
Anna Wall
Associate
Headwaters MB
awall@headwatersmb.com
970.580.5096
Taylor Robinson
President
PLG Consulting
trobinson@plgconsulting.com
508.982.1319
Page | 42