March 5, 2018 Infill Thinking – Joseph Triepke
Shortly after pressing send on an early-February 2018 edition of the Infill Thinking newsletter, we hit the road in Odessa bound for a visit to High Roller Sand’s Kermit frac sand plant. The facility had been open for just a few days at the time of our visit, about four weeks ago.
At the time, the company was positive about ramping up, having shipped 70 trucks of sand the day before. But shortly after our visit, some startup issues emerged, and the High Roller team has spent the better part of the last four weeks working out the startup kinks in their plant.
Any sand producer facing a looming startup deadline can make one of two choices if they aren’t quite ready:
- A) hit the deadline and give customers whatever sand they can produce while they work through the startup issues, or
B) delay startup until their wash and dry plants are humming, wet stockpiles are built, and their silos are full.
High Roller sand chose option A. As Dave Frattaroli (EVP of Business Development) told us in early-March 2018:
“the choice was build the airplane while we are flying it or build it on the ground before we take off. We chose to build it in the air, and we’d probably make the same decision again if we had a chance at a do-over.”
This choice allowed them to serve customers faster, but it has resulted in some production consistency challenges that the company now believes are behind them. These included:
- starting with a temporary wet plant (more on this below) resulted in damp feed limitations;
- starting with an insufficient damp stockpile resulted in feeding the dryers overly wet sand causing inefficiencies and plugging;
- wet plant commissioning was slower vs. management’s aggressive timeline, although inline with similar wet plants; and
- both cold temps and rain have worked against them on drying sand, and weather impacts were exacerbated by starting out with a temporary damp stockpile.From here, High Roller expects to resume their initial ramp up, having put their darkest hour behind them. The damp feed they are working with today is far improved. They also have a sizeable stockpile of damp feed now – a stockpile that has been given time to dry. Management believes the damp feed should no longer be the bottleneck for this plant (and that’s been what has held them back the most these past few weeks).Here’s What We Saw On Location During Our February 6, 2018 Site Visit
- Management tells us the plant is running at a nice clip now, and they are working this week to bring all their contract customers in and up on tonnage. Three dryers are running, and six silos are currently commissioned. At this point, management expects to reach full production runs on capacity in 30-45 days (April 2018). By late this week, or early next they expect to record multiple days with 100 truckloads shipped.
- During these growing pains, the company has been open and transparent with their customers about tons available and has not sold a single ton into the spot market. Management confirmed to us that they do not plan to sell a single ton into the spot market until customer obligations under contract are met.
- When In Kermit… Eat Here And Treat Your Staff Well. We highly recommend the Mexican joint where we met the High Roller Team for a quick bite before the plant tour – you can’t go wrong with the fajitas or green chicken enchiladas at El Joey’s. On the way out, Dave took delivery of 20 burritos he had ordered take-out for the plant staff. Given turnover and the limited creature comforts out here, you’ve gotta treat your ops guys right (this is a theme we saw from several plants out in West Texas). After lunch and a quick 15-minute drive to the plant, General Manager Tom Giordani and EVP Business Development Dave Frattaroli showed us around.
- High Roller Sand Is Nothing If Not Determined… When we first visited this location in August 2017 it was just cleared land, a blueprint, and a determined team. Since then, High Roller staff have burned the candle at both ends to get their silos vertical and truckloads rolling out. For a brand new entrant building in a new frontier, 6.4 months from ground breaking to grand opening at a 3mmtpa+ facility isn’t half bad. The day before our visit, High Roller shipped 70 truckloads. The ramp has been delayed as discussed above, but the company plans to be fully ramped by sometime in April 2018 – about a quarter after flipping the switch to “on”.
- …And The Wet Plant Work Around Is A Good Example. We recall hearing talk in the market last year from the company’s financial backer that this plant would open faster than everyone expected. And we saw a symbol of this commitment to shipping in early-1Q18 during our visit. In the picture below, trained frac sand eyes will recognize two wet plants (one green, one blue). The blue equipment is the permanent facility – an Allgaier plant manufactured in Spain. In the original shipment from Europe, some of the bolts and electrical wiring were missing. Instead of just waiting on the next slow boat delivery and delaying the open, High Roller Sand went out and bought a portable McCloskey wet plant. This portable system had been acting as the primary wet plant during the first few weeks of production until the completion of commission on the permanent Allgaier wet plant in late-February. It’s limitations largely explain the delay in ramping up.
- My Cup Is Full And Running Over. When we asked about water on location, management was quick to point out water pooling in a shallow quarry (see picture below). High Roller is hitting the water table at a depth of 40 ft. With frac sand pay depths averaging 60-80 ft. here, this mine could eventually become a dredging operation (lower opex/ton than strip mining). We saw the same thing happening at the Atlas Kermit site, which is just a few miles southeast (stay tuned for takeaways from that visit soon). One recurring theme we noticed during our trip was that some of these upper dune mines are sitting on a large quantities of surface water. High Roller is contemplating selling water and reclamation should be pretty simple – their quarries will eventually be ponds.
- 10-15% Waste At The Wet Plant (In Line With Peers); Virtually No Waste At The Dry Plant. During our tour we passed by the company’s dry plant waste pile four-days into production. The waste pile that we saw could have fit in the back of our pickup. As de minimis as the waste here is, one interesting anecdote is that the company is seeing 200-mesh sand in the by-product. For now, they’d be shipping the ultra-fine proppant out in 5-gallon pails as there’s not much volume here, but in time… who knows…
- Labor Is And Will Continue To Be A Challenge For All In Basin Plants. The company will run shifts of about 22 workers on location at a time. Workers will do 7 days on / 7-off. Labor has been a challenge for High Roller and others. During our visit we detected a note of frustration with plant management about some recent poaching that had resulted in a key employee not showing up for his shift. This is a real production risk for all plants in this area given the limited labor pool and the rapid pace of industrial growth here.
- Gradation, Hatch Men, Decant Building, and Other Plant Operating Tidbits.
- First production runs are coming out at 60% 100 mesh, 40% 40/70. Eventually the company plans to move to a fifty-fifty split.
- Truck hatches will be opened and closed by high roller staff – they plan to have 2 hatch men overhead on each side of the silos (each hatch man is responsible for covering three lanes). Management believes strongly that it is important to treat truckers well and encourage them to come back – truckers talk to each other and plants that don’t treat them well could quickly end up with a bad rap.
- As full production rates are reached, High Roller plans to begin a drop-and-swap operation where full boxes and pneumatic trailers will be staged to speed up pickup and create additional finished product storage to debottleneck the operation. As Dave Frattaroli said several times during our visit: “anyone can make sand, not everyone can ship it.” No plant in this industry has ever trucked 3mmtpa straight to wells before.
- For now, High Roller is outsourcing a heavy haul trucking operation to move sand from the quarry to the wet pile. Eventually, they will install a slurry pipe system to the wet plant.
- Fine sand mined here comes out of the wet plant with too much moisture for the dryers to handle. So High Roller was in the process of constructing a stockpile building that will store 40,000 tons of washed sand between the wet plant and the dryer. In this building, sand will dry out for several days. The company will employ a paddle scraping system to pull the driest sand out of this intermediate stockpile to feed the dyer (5-6% dampness expected in the feed-stock). UPDATE: As of March 5, 2018, about half the concrete is poured on this slab and the team is constructing the drainage systems. Finishing this facility feature will be key to them achieving full production as management now expects in April 2018.
- Although it may be a stretch to see shortline rail companies make the investment to lay tracks to Kermit, outbound rail conversations are underway here (similar to what we heard at Badger). High Roller said that they are receiving incoming calls from rail to talk about building a spur from area facilities to tracks about 10 miles west.
