I'm pleased to welcome Smart Sand, ticker is SND, CFO Lee Beckelman. I think it'll be an informative half hour. With that, let me turn it over to you, Lee.
Thanks, Steve. I want to thank Sidoti for giving us the opportunity to present and for those that are joining us today. I am Lee Beckelman, the CFO of Smart Sand. I've been with the company since 2014. Smart Sand is a public company that trades on the NASDAQ. We've been public since November 2016, and we'll go through and tell you what Smart Sand is about. Smart Sand is a fully integrated provider of mine to well site solutions for Northern White Sand. We are a 100% provider of Northern White Sand. We have three facilities and mines, two in Wisconsin, one in Illinois.
Our business model is that we mine, process, and transport the sand from our locations on Class I railroads to all the operating basins in the U.S. and Canada through terminals we either control directly or third-party terminal partners, which ultimately means that sand gets delivered to the well site to be used to frack oil and gas wells in the U.S. and Canada. We also provide well site storage solutions at the well site that help pressure pumpers and E&Ps, exploration and production companies, manage their sand as it flows into the pressure pumping equipment. Our company's strengths are, first of all, we have the right operating model. We have almost 400 million tons of high-quality Northern White reserves in three locations. We have the processing capacity of up to 10 million tons at those three locations.
Those locations all have very large infrastructure logistics that allow us to ship our sand in very large unit train bases on 100-150 cars per shipment from our location directly to terminals and the operating basins on a very efficient basis. We also have the right sand. Our sand today is 70% plus in our reserves of fine mesh sand. There's four main products of frac sand in the market. There's what's called 20/40, 30/50, 40/70, and 100 mesh. 20/40 and 30/50 are what's called coarse sand versus 40/70 and 100 mesh is fine mesh sand. The market today, 90% of the demand going into fracking oil and natural gas wells in the U.S. and Canada is fine mesh sand, either 40/70 or 100 mesh. Our reserve base, 70% plus of our reserves is in that quality of sand.
It allows us to be very efficient in meeting the market needs over time. We also have what we believe is the right capital structure and ownership structure to really support long-term shareholder value. We keep very low leverage levels. We have a lot of variability in our business because we are driven by ultimately the amount of wells being drilled in the U.S. and Canada and complete is driven by oil and natural gas prices, which can fluctuate pretty dramatically from quarter to quarter to year- over- year. We maintain very low leverage levels so that we can manage our business through those operating cycles. We have very strong ownership within the company. Today, collectively, insiders own 33% of the stock of Smart Sand.
Charles Young, who's our founder, who founded the company in 2008 to 2010 and ultimately led to building what Smart Sand is today. He owns 20% of the business. His family is in the business as well. We are really a family business that's focused on generating long-term value for our shareholders by growing the business, growing our cash flow, and ultimately providing value back to our shareholders in the form of either distributions by dividends or shareholder buybacks. In 2023, we bought back 11% of our shares. In 2024, we did our first dividend at $0.10 per common share. Looking at our summary financials, you can see this is the last five quarters. In the fourth quarter of this year, we reached an all-time high of volumes of just under 1.5 million tons.
That led to strong revenue and contribution margin per ton that led to EBITDA of just under $12 million. From this, you can also see that we do have variability quarter to quarter, and that is really driven by our customers and how they operate today. Most of the exploration production companies today drill on a pad basis. They set up at a pad with a drilling rig and pressure pumping equipment and frack crews, and they may complete two, three, four, five, six wells at that pad, and then they will have downtime as they shift that activity to another area. You can see that typically when we have a strong quarter, we may have a little bit of drop in activity for the next quarter or two as activity shifts, and then that activity picks back up.
Overall, on an annual basis, we continue to show strong growth. In 2024, we sold 5.3 million tons in total. That was a 17% increase over 2023 levels of 4.5 million tons. Our EBITDA went up to just under $39 million for the year in 2024 versus roughly $33 million in 2023. In terms of the market, one of the drivers that we think is very positive for the oil and gas industry in the U.S. and Canada and for Smart Sand in particular is the long-term fundamentals are strong for natural gas demand. In the chart to the upper left, you can see kind of natural gas production currently in the U.S. has been relatively flat the last two years and 100-105 billion cu ft a day.
There are some really strong drivers that are looking to drive the need for that supply to grow pretty dramatically over the next five years. One of the key drivers is LNG capacity growth in the U.S. as well as Canada. The chart on the upper right just shows you U.S. LNG capacity growth potential. These are all projects that are already being built and/or commissioned or in the process of being brought online over the next five years. This incremental LNG capacity could add up to 15 BCF a day of incremental demand for supply for U.S. natural gas. That is coupled with power generation needs that are exploding, particularly around data center demand for artificial intelligence data centers. You can see the chart on the lower left.
This shows that power demand in the U.S. has been relatively flat, growing at less than 1% a year over the last 20 years or so. That is expected to grow almost 3% a year for the next five years plus. That is being driven by the need to build data centers to support AI internet activity. A lot of that electric capacity is expected to be supplied with natural gas, and that is leading to incremental gas demand to support AI data center growth. In the chart in the bottom right, you can see potentially that adds another potential 8-10 BCF of incremental demand for natural gas in the U.S., in particular to support the needs of the LNG and this data center demand.
To add that all up, over the next five years, natural gas demand in the U.S. could grow from roughly 100 BCF a day to potentially 120-130 BCF a day, which will require a significant amount of increase in drilling and completion activity to add new wells to meet that supply need. The reality is that Smart Sand today, 60-70% of our sand volumes go into natural gas basins. Our biggest basin is the Marcellus in the northeast, which is a dry natural gas basin. We are also growing our demand and our supply into Canada, into the Montney and Duvernay shales, which are also very strong natural gas basins. Another driver in the business, which is good for frac sand overall and good for Smart Sand, is that the demand for sand per well continues to increase.
One of the key efficiency drivers for exploration and production companies are they are increasing their lateral lengths of their horizontal wells. Five or ten years ago, a lateral length might be 5,000 to 10,000 ft. Today, lateral lengths are typically getting to 20,000 to potentially 25,000 ft. You're getting up to five-mile laterals. With that longer lateral, they're also increasing the intensity of the fracs by adding more stages per lateral foot and more sand per stage, which is leading to increasing demand for proppant or frac sand per foot of lateral being drilled and increasing amounts of sand per well being completed. Even though people look at frac spreads as one leading indicator of the activity of completions activity in the U.S. and Canada, and frac spreads have been relatively flat over the last two years.
The reality is that while they're getting, due to the efficiencies of the industry, each frac spread is completing more wells per spread per year, and those wells are having longer laterals, which is requiring more sand for each completion. In the chart on the right of this slide, you can see that frac sand per frac spread per quarter has been growing pretty dramatically over the last 10 years. We expect this growth potential to continue, which is a positive in terms of what we expect to be demand for frac sand and for Northern White Sand in particular.
In terms of this potential growth opportunity being driven by natural gas demand and supply growth, as well as increased intensity per well for the need of increasing proppant per well to complete the wells, Smart Sand is very well positioned to take advantage of that. Last year, we sold 5.3 million tons. We currently have 10 million tons of capacity. We believe we're the second largest provider of natural Northern White Sand in North America. We have the assets. We have the reserve base of over 500 million tons, the processing capacity of 10 million tons. We have the ability to grow with the market without having to have a lot of incremental growth capital to capture that incremental increasing utilization and demand for Northern White Sand.
In terms of our operating model, we are in a commodity business, and so we're very focused on being a low-cost producer. All three of our mines are very efficient in terms of we built our model wanting to have very large reserve bases that we can mine the sand, process the sand, and have the capability to ship the sand in large quantities to our customers in the basins through terminals. We focus on getting asset bases that had very large reserves. Today, our Oakdale facility has almost 250 million tons of reserves. Our Blair mine has over 100 million tons of reserves, and our Ottawa facility in Illinois has approximately 125 million tons of reserves. Each of those facilities, Oakdale's has 5.5 million tons of operating capacity. Blair has 3 million tons of operating capacity, and Ottawa has 1.6 million tons of operating capacity.
We're connected to each of those facilities. Oakdale is connected to the Canadian Pacific and UP directly. Blair is connected directly to the CN, and Ottawa has access on the Burlington Northern. We're connected at all three of our mine sites to multiple Class I railroads that allow us to efficiently ship our sand to any basin in the U.S. and in Canada. Also, because of how we operate, we mine at the facility and process the sand at the facility and ship that facility. That allows us to be able to get a very low operating cost. This next slide kind of shows that. Again, our process is that we extract the sand from the mine at the location. It's delivered to our wet plant that processes the sand into the feed that goes into the dry plant. The dry plant makes the four different products.
Those products are then delivered onto rail cars. From that location at the plant, those rail cars are filled up typically in unit trains of 100-150 cars per shipment. We ship those shipments directly to the terminals in the operating basins. All our facilities have very low royalty rates. This all combines to give us a very low cost structure to be able to manage through the operating cycles and the ups and downs of pricing in the frac sand business. This is an overhead picture of our Oakdale facility. Again, it's our largest facility. Almost 500 million, almost 250 million tons of reserves at Oakdale. It's 1,300 acres, plenty of room to continue to expand at this location as activity grows. We have five dryers, two wet plants, 11 miles of rail track, and plenty of opportunity to grow in this facility.
We believe this is, if not the largest, one of the largest sand mine processing facilities in North America. We believe it's a very efficient facility because of the scale of our operations. This is just a picture of some of the rail assets that we have at the Oakdale facility. Going on to Ottawa, Ottawa's facility that we acquired very cost-effectively in the downturn. It was an idle facility that was owned by Eagle Materials. We bought it along with another plant in New Auburn, Wisconsin, that we've kept idle. This facility is in Illinois, about an hour and a half outside of, actually, a little less than an hour and a half outside of Chicago market. It's close to Metropolitan Market.
This facility not only allows us to get on the Burlington Northern to feed into frac sand markets in the Western United States, as well as other areas. It also gave us an opportunity to get into the industrial sand business. The industrial sand business is more regionalized and draws the sand closer to where the activity for the sale of the sand is. Ottawa is well positioned to compete for industrial sand activity and markets in the metropolitan areas of Chicago and St. Louis and other Midwestern markets. Our Blair facility is our latest facility we acquired. This asset was idle and owned by Hi-Crush. Hi-Crush went through a bankruptcy reorganization, and this is a facility they kept idle, and we were able to acquire it very cost-effectively. In March 2022, we brought it back online in March of last year.
This facility was very attractive for us. First of all, it's a very efficient operation, very similar to Oakdale in terms of scale. It also got us onto the Canadian National Railroad, which allows us to get access into the Montney and Duvernay shales, which we believe is going to be a very important and growing market for Northern White sand. This gave us an entree to get into that market. Talked a lot about logistics already. This kind of just highlights the fact that we've built a very efficient logistics network today. We own four terminals, or control four terminals directly. We have a terminal in Van Hook, North Dakota, that serves the Bakken market. We have a terminal in Waynesburg, Pennsylvania, that serves Southwestern PA and West Virginia, portions of the Marcellus.
Last year, we acquired two terminals in Ohio, in Dennison and Minerva, Ohio, that gives us access to the Utica Shale, as well as the northeastern parts of the Marcellus. We have always been very focused on logistics. We have always believed this is a bulk commodity business that has to be, needs to be shipped on rail very efficiently. We have always focused on unit train shipments, where we made sure we had large infrastructure at our plant sites to allow us to handle multiple unit trains at a time. We can load trains of 100-150 rail cars while empties are coming in. Those cars, then that unit train of 100-150 rail cars then gets shipped to each of our terminals or third-party terminals that we access to on a direct basis.
There's no stops in between, but it leads to very efficient delivery of that sand, typically in less than five days in the market. We can then unload that train in one or two days and ship that train back very efficiently on a single haul without any stops back to our plants. That allows us to be very efficient. Good utilization of our rail cars also allows us to negotiate and get very competitive rates with the rail carriers because they like to have that efficiency of movement. Also, by being on multiple Class I's and having three mines on different railroads, that allows us to also create competition there because we have the ability if one railroad is not providing us the best pricing or service.
We have the option to be able to deliver into some of the markets and on different railroads that allows us to have that competition to always ensure we're getting the best logistic value that we can provide to our customers. This is just a picture of the Van Hook terminal. Our focus on terminals typically is to get large acreage that we can put a lot of rail track on so that we can manage unit trains and not really need the investment for fixed storage. We can use the rail capacity and our rail cars as storage as needed while we're filling the orders. This is the model we built at all of our facilities today. This is a Van Hook in North Dakota. The Marcellus is our biggest market today. Depending on the month, it can be 40-50% of our volumes.
The Bakken is a very strong market for us. Depending on the month, it can typically, on average, the Bakken is about 25% of our volumes on an annual basis. This is our Waynesburg terminal that we developed and started operations in 2022. It has really allowed us to expand our market presence in the Marcellus. We started with an anchor customer here, and we have been able to expand to multiple customers at this facility. This has been a very good investment for us into growing our business into the Marcellus markets. Last year, we acquired two terminals that were idle. We bought them at a very efficient price and brought them online in August of last year to really get access to the Utica Shale. The Utica Shale is a liquids play.
It does have some natural gas, but it's primarily being driven by oil and natural gas liquids that they're drilling for in that area. There has been a very strong increasing activity there. The returns there look promising for E&P. We expect that market to continue to grow. These two terminals really allowed us to be able to get access into that market that we really didn't have good access before through third-party options. Our final piece, two other pieces of our business that are relatively small today, 90+% of our volumes and our revenues are generated by selling sand directly to the customers, either E&Ps or pressure pumpers. We also do provide the additional service of well-site storage solutions where we have silos and portable transloading equipment to be able to manage the sand when it gets to the well sites.
Sand is delivered to the well sites by trucks. That sand can be processed and stored in our well-site storage solutions that then feeds that sand into the pressure pumping equipment at the well site. This is a small part of our business, less than 5%, but we see some potential good growth opportunities in this business, and we're looking forward to grow over time in the markets that we serve. The final area that I talked about a little bit earlier is industrial products. Again, this is a small part of our business today as well. It was about 3% of our volumes last year, but we expect and are looking to really kind of grow this business over time.
Industrial products are sold on much smaller volumes, and it takes a while to build up your customer base because each customer has specific requirements for their products, and you got to go through a testing period. Basically, in order for them to get comfortable that you can deliver their product at the specs they want. The last two years, we've been building up that kind of presence in the market. We've been getting in front of the customers, and we expect to start seeing some benefit of that in 2025 and hopefully grow from there. Again, today, this business is less than 5% of our sales, but we would hope over time that we could get this to grow up to maybe 10% of our total volumes in the next two or three years.
While we will sell some industrial sand products from our Blair and Oakdale facilities, Wisconsin, the key driver of this business is for Ottawa. Ottawa is well positioned to compete for that, and we've been really trying to grow our base out of. It's also the Ottawa sand. It's very white in color, and it works well for industrial applications. Its proximity to the markets and its quality of sand, we think, leads both well for us to be able to build this business over time. Finally, again, these are the key drivers for the business. First of all, we believe we have the right model, and it's a sustainable model. Almost 500 million tons of reserves, 10 million tons of capacity, three very efficient facilities where we can prop mine, process, and ship the sand at a low-cost basis to our customers.
Access to all Class I railroads in the U.S. that allows us to get access to all operating basins and the ability to efficiently and sustainably supply the sand to our customers to meet their really growing demand for sand per well. That, coupled with our very prudent capital structure, today we have about $12 million of fixed debt that's amortizing over the next few years. I think we're comfortable having debt levels in the $10 million-$15 million basis on a fixed basis, but we'll always keep that at a pretty low level. Again, because we have a lot of variability from month to month and quarter to quarter, we want to avoid that fixed cost of debt. When times get tight, we can manage through it and then have the ability to get the benefit when times are in much better position.
Finally, we have a management team that's committed to the company and the long-term shareholder value. Again, Charles Young, our CEO, owns 20% of the business. Insiders, including myself and others collectively, own another 13%. Our management team has been together for over 10 + years, and we are very focused on increasing our free cash flow, increasing our utilization of our assets to generate more profit and cash flow over time, and looking for ways to continue to deliver that value back to our shareholders and firms in terms of dividends and buybacks in the future. That's all my prepared comments. I think we got a few minutes that we can address some questions.
Thanks so much, Lee. Really informative 20-25 minutes. We have about five minutes or so remaining.
There are already several questions in the queue, but as a reminder, if you do have a question, press that Q&A button on your screen, and we'll get to as many as we can with time remaining. Not going to surprise you, Lee, that the topic du jour is coming up in the queue. Tariffs. You talked about the Ottawa facility. I think everybody expected there were some tariffs coming with this new administration. I don't think anyone expected the prime target would be Canada. What's the potential impact?
There is some potential impact for us in that some of our volumes are going to Canada today. Not necessarily. It's really from the Blair facility, not from the Ottawa facility. Canada is a long-term growth market for us, and some of our volumes are going to that market.
It's still relatively small, so the impact today, I don't think it's going to have a big impact on us. Less than 10% of our volumes last year went into Canada.
And that's primarily the gas plays, which shouldn't have the same impact as, say, an oil play in terms of activity in Canada, I would think.
That's correct. Where our gas, where our volumes are going, I apologize, are into the Montney and Duvernay shale where they're drilling for natural gas, primarily to feed LNG export capacity on the West Coast of Canada. The need for that drilling should continue, albeit they'll have a higher price for their sand to the extent that tariffs are imposed on that and they stay imposed for a long period of time. The other positive is that over two-thirds of the sand used in Canada is Northern White sand from the U.S..
Canada, while it does have some regional sand and can try to develop incremental regional volumes, does not have the capability to displace Northern White in its supply chain. While they may have higher cost, they still ultimately need Northern White to support that growth. It could, in my view, again, this is just Lee Beckelman's view, if we do have tariffs on the long term, it could slow down the growth of the activity and be in a little more measured pace, depending on how it affects producers' budgets. Overall, we think there will still need to be need for growth for natural gas drilling and completion in Canada to support that LNG capacity, which may even become more of a priority in terms of Canada looking to create other markets for their products.
That should continue to lead for demand for Northern White to help meet that gas supply.
Excellent. I do have a couple of questions around, you talked about positive cash flow. We have questions around maintenance CapEx, working capital, how they may contribute over the next couple of years, and also possible additional uses of cash, i.e., M&A.
Yeah, that is multiple questions. I'll try to take it more here. In terms of maintenance capital, and we've said this in the past, our maintenance capital, depending on the year and really how much we're investing in mining to increase, basically as a mining company, once you deplete one area, you have to make investment into the next area, which for us typically means we're stripping over the overburden to get access into, to be able to get access to the sandstones that we're processing.
Normally our kind of maintenance capital to support the business and its current kind of operations is, let's say, around $10 million. Depending on the year, we may have incremental capital to support mining and/or growth initiatives. This year, last year, we spent $7 million. We did not really have a lot of growth capital we spent last year and really focused on just maintaining the business. This year, we guided to $13 million-$17 million for capital expenditure. Of that $13 million-$17 million, as we said in our earnings release, $8 million of that is related to either incremental mining investments to expand new areas and/or potential investments in new terminals. Where I would say in terms of incremental growth capital and where that would be, we'll never say never.
If there are quality assets that we can get at an attractive price that really allows us either to get better access onto a Class I rail carrier or allows us to get entree into a new market, that is where we might do acquisitions around buying additional reserves or plant facilities. Our real growth initiative over the next few years is really going to be around strategically targeting areas that we can get in and invest in terminals to allow us to penetrate the markets we serve better.
That makes sense.
We have proven over the last five years when we have our own terminals, and typically we strategically place those in very close proximity to where most of the activity is so they can efficiently supply that sand to producers, we have been able to dramatically increase our market shares in those markets. Bakken is an example.
In 2018, we invested in Van Hook. Less than 5% of our volumes are going to the Bakken before we had our own terminal. Today, 25% of our volumes, which is a, we're selling at a much higher rate today as well, going to that market. Waynesburg, we're able to expand our activity into Marcellus very rapidly and strong over the last three years by having that Waynesburg terminal. We are always looking for opportunities for another terminal, either by getting it connected into that market onto another rail line or getting us further into the market and closer to the activity by having another terminal. Those will be the areas I think will be our primary focus.
I would right now expect those incremental investments in terminals to likely be in markets where we expect the greatest growth potential, and that is going to be in the Marcellus and in the Canadian markets. The Marcellus is a very large basin, so having multiple terminals there can really increase our value. Canada is one market we do not have terminals today. We do have good third-party relationships there for terminals, but ultimately we want to have and control our own terminals in that market as well.
Let me ask, I know we are running out of time, and you touched on the Marcellus. You ran through the catalysts for a recovering activity, which was LNG export capacity. I feel like I have been talking about that for two years, but it feels like it is finally here. A lot of this capacity is coming.
We finally had a cold winter after two warm winters. Plus, we have expectations of rising domestic power consumption. When do we see that impacting, in your view, the Marcellus? I've heard anecdotally some pickup of activity in the Haynesville. What are you seeing in the Marcellus? What are your customers saying? What's your take right now, which I know can change and move?
Yeah, based on what we're seeing today and kind of where gas prices are, we would hopefully, again, we can't necessarily control the spending timing of our customers. Most E&Ps today are still being very disciplined. You got to remember, coupled on all this growth is the E&Ps are still saying are being driven by their investors who want to give capital back and to understand their cash flow.
They're going to grow their budgets to the extent that they can grow their overall cash flow and still deliver the same amount of more value to their shareholders. That may limit and kind of have it be more measured in terms of the growth potential while still growing over time. Right now, gas prices right now are $4 +, I think $4.50 going out of the winter, which is double where gas prices were a year ago. I think if, and producers, the back end of the curve is starting to pick up. I think producers, as they see more confidence that gas prices are going to be at high levels, we would expect activity, hopefully, and particularly in the Marcellus, to start picking up in the second half of the year.
I do not think we will see the full benefit of this incremental natural gas in 2025, but I think getting into 2026 and 2027, we could really see that starting to ramp up. Again, if we stay in the environment today where the incremental demand for data centers and a lot of that LNG capacity is coming online, the latest figures I have seen are that the demand for LNG is up two or three BCF a day on average versus where it was a year ago. That is already starting to happen.
I think second half of the year, we should start seeing it, hopefully start seeing it, but I would expect 2026, as people go into and plan for their budgets into 2026, that we could see a bigger increase going to that year if we continue to see these kind of strong fundamentals and see the gas prices. Again, gas prices above $4 in my mind. The counter to that, if gas prices run to $6-$7 in MCF and people say they're going to stay there, that can lead to some demand destruction. The $4-$6 MCF gas price is really kind of the sweet spot that I think if gas prices can stay in that over the next couple of years, I think it's going to be very good for natural gas development in the U.S. and Canada.
That should bode well for Smart Sand over time.
Really, I mean, that's Marcellus, a market you've been gaining market share. If that were to start coming back, that's potentially a very good catalyst for your stock if we start seeing it, see clear signs Marcellus is picking up.
Yes, it should be. Again, we believe we're, if not the largest, one of the largest providers of frac sand in the Marcellus market. We have north, in our opinion, of 20% market share there. If we do nothing else but grow with the market, we're going to have significant value. We're not just focused on growing with the market. We want to continue to increase our share in that market. In the same vein, we have a very low market share in Canada.
If we could get, if over time we could approach the market share that we have in the Marcellus and in the Bakken over the next three to five years and move our way up to those levels, that bodes very well for us having incremental growth on top of what we can capture in the Marcellus.
Yeah, it's a great way to wrap it up. We did go a little bit over, but we did have a lot of questions. A lot of interest today, Lee. Lee Beckelman, CFO of Smart Sand, thanks so much for being here today and hope everyone found it as informative as I did. Thanks, Lee.
Thanks, everybody, for your time. Really appreciate it.