Source digs in on Canadian frac sand market share with US$80 million asset buy

Image: Carter Haydu/JWN

Source Energy Services has added a second operational mine to its portfolio delivering “Source White” frac sand to Western Canada as producers increase demand.

According to GMP FirstEnergy, the company has paid US$80 million to acquire a second sand mine in Blair, Wisconsin, two distribution facilities in Western Canada and the exploration rights to a sand deposit in Alberta.

As a result of, Source will increase its production capacity by 26 percent, its terminal capacity by 16 percent, its rail car fleet by 28 percent and its mineral resource base by 32 percent, noted GMP FirstEnergy analysts Ian Gillies and Cole Pereira.

This is designed to help serve growing requirements from oil and gas drillers, particularly in the Montney and Duvernay plays.

In the Montney, GMP FirstEnergy currently expects proppant tonnage per well to increase by 19 percent in 2018, which is lower than the five-year average of 30 percent per year. The analysts also expect growth in the Duvernay field, as proppant tonnage per well has increased by an average of 69 percent year-over-year over the last five.

“Source anticipates it will be able to increase its market share in the Western Canada Sedimentary Basin as a result of this transaction through incremental customer commitments,” they wrote in a research note, adding that GMP FirstEnergy’s forecast for proppant demand is likely conservative considering leading edge completion designs that are currently being deployed.

“We understand that Duvernay players are testing greater than 10,000 tonnes per well and leading edge Montney players are testing greater than 6,000 tonnes per well. In 2018, we are currently forecasting tonnage per well in the Duvernay and Montney of 7,500 and 3,100 tonnes, respectively.”