Pioneer takes stake in U.S. Silica's Permian sand mine

By Luke Geiver | September 17, 2018

Pioneer Natural Resources is now a stakeholder in a West Texas frack sand mine. Through its agreement with U.S. Silica, the Midland Basin producer will gain an interest in U.S. Silica’s Lamesa, Texas, mine. The move will reduce Pioneer’s frack sand cost by roughly half. The sand processing and supply agreement will span 15 years.

“This unique, very long-term contract at our new Lamesa site delivers significant value for both companies in the Permian and is clearly aligned with our stated goal of generating sustainable and predictable free cash flow yield from our oil and gas sand mining assets,” said Bryan Shinn, president and CEO of U.S. Silica, the largest provider of frack sand to the U.S. market.

Tim Dove, president and CEO of Pioneer, said the partnership will supplant U.S. Silica as one of the E&P’s key suppliers of proppant.

The Lamesa mine will produce 6 million tons of various sand grades per year, including fine grade 100 mesh and 40/70 mesh. Production of sand will start at the end of the year. In 2019, Pioneer expects to receive 1.4 million tons in 2019 before increasing its sand order from the mine in 2020 to 2 million tons annually.

In August, Pioneer explained its success with what it labeled as its version 3.0 frack strategy. The new strategy relies on higher proppant volumes in the 2,000-pound per foot range. The company also said its horizontal laterals drilled for hydraulic fracturing range from 7,500 feet to nearly 14,000 feet.

U.S. Silica first announced plans to build multiple frack sand sites in the Permian and Midland Basin plays in June 0f 2017. In addition to the planned expansions, the company has also acquired multiple sand processing and supply companies, including Mississippi Sand for just under $100 million and also EP Minerals for $750 million.