By Joel McKay
Forget local beaches, Scott Broughton has gone to northeastern B.C. to find sand.
The Vancouver-based miner believes his latest venture, Stikine Energy Corp. (TSX-V:SKY), could be exactly what the province’s burgeoning shale gas sector has been waiting for.
Tight gas or shale gas production requires two commodities – water and sand.
When mixed together (plus some chemicals) the viscous cocktail is pumped miles into the earth where it’s used to shatter shale rock caps and displace the natural gas hidden inside.
Water can be sourced locally, but currently B.C.’s shale gas producers import their sand from the Prairies, Wisconsin and in some cases Texas.
Broughton said Stikine’s Nonda sandstone deposit could change all that and create a new business sector for sand in B.C.
“We really think through our quality and cost we can totally monopolize the supply of sand to the Horn River basin,” Broughton recently told Business in Vancouver.
Here’s his pitch.
The Horn River basin is quickly being labelled as one of North America’s largest shale gas plays and is home to companies such as Apache Canada Ltd., EnCana Corp. (TSX:ECA) and EOG Resources Inc. (NYSE:EOG).
Broughton said those companies are transporting approximately 300,000 tonnes of frac sand to the Horn River annually; another 300,000 tonnes are destined for the nearby Montney shale basin.
“Right now the costs are ranging from US$250 to US$275 a tonne to have this stuff delivered,” Broughton said.
By virtue of size and proximity, Stikine believes it could deliver sand to its customers from Nonda for an estimated cost of US$125 a tonne.
The implied margin for conventional sand delivery, according to Stikine, is between US$10 and US$29 a tonne, while Nonda’s margin may be up to US$125 a tonne, assuming current costs represent a floor price for delivered frac sand.
Capturing this market could not only help the bottom line for gas producers in the northeast but could make this a very successful “made-in-B.C.” story.
The Nonda project is located only 150 kilometres from the Horn River Basin and represents what could be a massive supply of frac sand having the potential for 25 to 50 years of development at that site.
Similarly, the Angus project near the Montney Basin could also contain enough material to supply frac sand for that gas basin’s long-term development.
To show that its technology works, Stikine has set up a pilot plant in Abbotsford where over the next few weeks it hopes to prove that Nonda’s sandstone can be processed cheaply into sand.
If the plant process works, Broughton, who is also president and CEO of B.C.’s Roca Mines Inc. (TSX-V:ROK), believes Stikine’s resource will beat out any competition for sand in B.C.
“It’s proximity that wins the day here because of the transportation cost,” he said.
One of those competitors is Sand Source Services.
The company supplies sand to shale gas producers from a small plant it has in Chetwynd.
Plant manager Bill Disher said the company began operations in June.
It recently shipped as much as 720 tonnes of sand per day to nearby gas producers.
Disher said he’s had to hire extra people to keep up with the demand, but that demand depends on gas producers that continue to ramp production up and down.
“Our whole business here is what they do out there,” Disher said. “We’re always running to catch them.”
That could mean that Nonda might not be viable until production at the Horn River is more consistent.
Still, EnCana spokesman Alan Boras said a nearby source for sand could be a major boon for the company.
“We’re hoping to find more cost-effective ways to find the supplies that we need to develop the gas, sand being a significant cost component,” Boras said.
At press time, Stikine’s shares were trading at $0.27.
Vancouver
CEO: Scott Broughton
Employees: N/A
Market cap: $18.4m
P/E ratio: N/A
EPS: N/A
Sources: Stockwatch, TSX