1. 1
Frac Sand – New Volumes
Presented by
Taylor Robinson, President
PLG Consulting
June 26, 2014

2. 2
Boutique consulting firm with team members
throughout North America
• Established in 2001
• Over 90 clients and 250 engagements
• Significant shale development practice since 2010
Practice Areas
• Logistics
• Engineering
• Supply Chain
Consulting services
• Strategy & optimization
• Assessments & best practice benchmarking
• Logistics assets & infrastructure development
• Supply Chain design & operations
• Hazmat training, auditing & risk assessment
• M&A/investments/private equity
Industry verticals
• Energy
• Bulk commodities
• Manufactured goods
• Private Equity
About PLG Consulting
State of the Proppants Market
Partial Client List

3. 3
Proppants – High Level Overview
Common fracking industry “rule of thumb” has been:
 80% / 10% / 10% (Natural Sand, Ceramics, ResinCoated) volume usage
 Everybody has their secret recipe that is different for each play
 Ratio has shifted towards more natural sand overall – sometimes 100%
Demand
 Natural sand rising significantly due to new stimulation techniques
 Ceramic and resin coated volumes are flat to down
 Natural sand is ~10% of ceramic proppant cost and can be delivered in cost-efficient unit
train service
Supply
 New natural sand mines continue to come on line, trans-loading is adequate
 New capacity for ceramics coming –PyraMax (Imerys) opening inWrens, GA
Trends
 Ceramics needed for high pressure drilling – deep shale and dry gas
 Gas rigs still <300, not expected to rise significantly in near future
State of the Proppants Market

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Frac Sand Supply Chain Definition and Industry Trends
Mining Processing Rail
Load-out
Long Haul
Rail
Transloading
and Storage
Trucking to
Well
• Rapid growth and maturation of hydraulic fracturing and frac sand industries simultaneously
• Consolidation of responsibilities – out-sourced or in-sourced
• Demand has fluctuated but strong upward trend
• Sand supply growing while consolidating number of players
• Unit train shipping is the game-changing logistics development
• Trucking market remains regional and disaggregated
State of the Proppants Market

5. 5
More well bores per well pad
 Directional bores to multiple shale layers
 Reduced well spacing per acreage – increases well density
 Zipper wells – stimulating two wells in tandem
Optimal lateral lengths
 Lateral lengths had tripled since the start of horizontal drilling,
but this trend is being challenged by new practices
Zone fracturing
 Micro-fracture testing at multiple points vs. one average test that
enables highest extractions of each zone
Shorter, fatter fractures
 Bigger holes in casing combined with additional sand and water
use
Nearly all new techniques drive more sand usage!
Productivity gains continue
 Time required for drilling 15,000+ ft. well cut in half in last two
years (9 days vs. 18 days)
 Eagle Ford example – new well oil production per rig has
increased by 150% over past 3 years
New FrackingTechniques Drive Increased Production At Lower Costs
Source: Marathon, February 2014
Source: Whiting Petroleum, December Investor presentation
State of the Proppants Market

6. 6
Frac Sand Deposit Locations
Most desired sand
comes from WI, MN,
IL
MO has momentum
More interest in OK
State of the Proppants Market

7. 7
Major Sand Shipping Flows
State of the Proppants Market

8. 8
• 91 operational frac sand mines
• 15 in development
• 15 permitted
• 16 proposed
• 5 stalled
• 3 inactive
• Trempealeau County moratorium on
new facilities effective August 30,
2013
• Most activeWI county relative to frac sand
permits
• 26 companies
• Moratorium in effect for up to one year,
pending environmental and ethics
investigations
• State continues to be a legal,
environmental and quality of life
battleground
Sand Mining and Processing -Wisconsin
Source: www.wisconsinwatch.org as of May 1, 2014
As of
5/1/14
State of the Proppants Market
Trempealeau
County Area

9. 9
Sand Mining and Processing - Minnesota
• State has launched a multi-agency, cohesive
management approach, including website
(silicasand.mn.gov) to provide a single source of
information regarding rules and activities
involving the mining, transportation and
processing of silica sand
• Environmental Quality Board (EQB)
• Minnesota Department of Natural Resources (DNR)
• Pollution Control Agency (PCA)
• Department of Health
• Department of Transportation
• Department of Agriculture
• Have had “growing pains” in establishing
common data and ability to react to
constituency requests
• Map notation regarding lack of previously displayed
location data is example
• Winona, MN PCA data request is three months overdue
• Earlier this week, MN Court of Appeals upheld
decision to not require an environmental impact
statement for Winona County project, creating
precedent for similar disputes
State of the Proppants Market
High Activity Area for Active
& Proposed Frac Sand
Mining, Processing and
Transloading (*)

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Sand Mining and Processing - Illinois
Major facilities for key players (U.S. Silica,
Santrol/Fairmount, Unimin) and increasing number
of mid-tier and new sand companies
Key players are expanding existing facilities and
acquiring new sites
Well-positioned to provide high-quality Northern
White product at a lower delivered cost per ton vs.
WI/MN sand to
• Eagle Ford
• Permian
• Marcellus/Utica
To-date support from state government leaders for
expansion and new development projects
Increasing environmental protests from citizen
groups
State of the Proppants Market
Source: www.fracktracker.org

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Missouri - Up and Coming
State of the Proppants Market
Missouri has an existing sand industry –
frac sand is a natural evolution
Missouri has geographic advantage and
potentially logistics advantage vs. other
Northern White locations
Some facilities have access to multiple
Class I rail carriers
Barge access is plentiful to the Northern
White sand mines in SE Missouri

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Hydraulic Fracturing Materials Inputs and Logistics Involved
Materials
Chemicals
Clean Water/
Cement
Frac Sand
OCTG (Pipe)
Source to
Transloading
2
Local source
40 ~ 70
5
Transloading to
Wellhead Site
8
~1,000
160 ~ 280
20
~1,200 Total
Truckloads
Oil/Gas/NGLs
Truck, Rail,
Pipeline
Waste Water
~500 Total
Truckloads
State of the Proppants Market

13. 13
Frac Sand Handled by Railroads
0
10,000
20,000
30,000
40,000
50,000
60,000
Carloads
Quarterly Data
UP
BNSF
NS
CN
CSXT
CPRS
KCS
STCC 14413 Source: US Rail Desktop
Western carriers
are geographically
advantaged
State of the Proppants Market

14. 14
Processed Sand -Total Delivered Cost perTon
Source: PLG analysis using BNSF public pricing – does not
include fixed assets at origin or destination
“Benchmark” unit train example – Illinois to
South Texas
• Single-line haul (one rail carrier)
• Private railcars
• Railcar fleet achieving two round trips per month
• Origin sand facility has direct rail load-out
• Destination trucking is less than 100 miles
Unit train operations include efficient
origin/destination handling
• 24 – 36 hours per train
Manifest service would increase rail-related
costs by 16%
• Increased freight rate (13% higher)
• Railcar fleet only achieves one turn per month, on
average
• Additional trackage required to accommodate larger
fleet
• Delivery patterns are more variable, requiring
additional destination storage and inventory
Total Delivered Cost perTon ~ $126
Logistics costs
drive ~ 63% of
total delivered
sand cost
State of the Proppants Market
Sand, 36%
Destination
Transload &
Trucking, 25%
Rail - Freight,
FSC and Eqp
Lease, 38%

15. 15
Sand Railcar Market Conditions – Small Covered Hoppers
Current market described as “high demand”,
“red hot”, “very tight” by leasing companies
 Increased frac sand per well demand, surging liquids
production
 Additional sand sources opening inWisconsin
 New orders from cement shippers
Best availability is generally well into 2015
Typical full service lease rates $600 - $650
Frac sand shippers/receivers will continue to
move towards more efficient methods of rail
transportation
 Manifest shipments require 2X the number of railcars vs. unit
trains due to increased cycle times
 Use of manifest service usually encourages use of railcar as
storage at destination, further increasing fleet requirements
Cement consumption is expected to grow by
6.4% in 2014 and 6.2% in 2015, encouraging
railcar orders
State of the Proppants Market

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End Market Drivers Will Also Influence Growth Curve of Industry
Upside demand levers
• Domestic crude will continue to displace imports due to
competitive and profitable delivered cost of tight light oil
(from shale)
• Global oil prices likely stay relatively high
• Increase demand for natural gas – higher prices eventually
• Continued switch to natural gas from coal for electricity generation
• Dry gas exports to Mexico
• LNG exports
• CNG/LNG for transportation markets
Downside demand levers
• Crash in crude oil prices
• Government intervention and/or
more regulations
• Global recession
• Fracking technology that
displaces sand as a proppant???
State of the Proppants Market

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#1 Key to Winning – Most Efficient Supply Chain
Mining Processing Rail
Load-out
Long Haul
Rail
Transloading
and Storage
Trucking to
Well
“Never shut down a well” – supply availability of quality product remains “given”
Total cost “down the hole” by the end customer will become more precise and accurate
• Logistics cost is the highest portion of total delivered cost – best freight and handling cost structure
• Hidden or soft costs at the customer will also drive sourcing decisions
Winners will turn the supply chain into a conveyor belt – smooth, predictable, synchronized
• Find ways to tighten relationship with customers – schedule synchronization
• Utilize supply chain technology to further improve their performance and increase efficiency
• Invest in strengthening supply chain teams
• Cash flow will move up the priority list for sand companies – Inventory management will become important
State of the Proppants Market

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#2 Key to Winning – LeverageWill Drive Further Industry
Consolidation
Mining Processing Rail
Load-out
Long Haul
Rail
Transloading
and Storage
Trucking to
Well
End customers will continue to mix in-sourcing and outsourcing
• Early in-sourcing driven by supply assurance and controlling own destiny
• Can outsource beat the most efficient in-sourcing?
• Will the end customers consider sand to be core competency?
End customers desire “Storefronts” – can choose between “Walmart andTarget”
• Allows them to focus on their core competencies
• Minimizes their inventory costs while maximizing their flexibility
Leaders understand the total cost structure with trade-offs and leverage the whole supply chain
Best
“Tier 1”
suppliers
will win
State of the Proppants Market

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What Will the Frac Sand Industry Look Like in 3 to 5Years?
Frac sand leads with significant growth forecast
• New fracking techniques and faster well completion for liquids
• New gas demand will drive gas drilling growth down the road
• Resin coated sand and ceramics not expected to grow significantly
• Price inflation coming later in 2014 and 2015?
“Survival of the fittest” supply chain – the evolution
will continue
• “Tier 1” supply base will further consolidate smaller players
• The best niche players will thrive as 2nd tier and in small plays
• Supply chain practices and technology flow in from other industries
• Continuous Improvement mindset required to win
Heavy focus on cost reduction will continue
• Cost and margin will continue to be rationalized – direct and soft
• Difficult to win without volume leverage
• Sand supply
• Unit trains
• High volume transload and storage capability
Will continue to be an exciting industry for the
foreseeable future!
State of the Proppants Market

20. 20
ThankYou!
State of the Proppants Market
This presentation is
available at:
www.plgconsulting.com/
categories/presentations
For follow up questions and information,
please contact:
Taylor Robinson, President
+1 (508) 982-1319 / trobinson@plgconsulting.com