Next, I'm gonna be sitting down with Lee Beckelman, Chief Financial Officer of Smart Sand, to talk about all things Northern White sand. Everyone, please stick around. All right. Hello everyone, and welcome to the Smart Sand Fireside Chat. My name is Robert Blum. I'm managing partner here at Lytham Partners. Today, I'll be moderating a Q&A discussion with Lee Beckelman, Chief Financial Officer at Smart Sand. As a reminder, Smart Sand trades under the ticker symbol SND on the NASDAQ. All right, let's get started. Lee, welcome.
Thanks, Robert. Thanks for having us. We're glad to be here today. I love to talk about the business and how things are going, so.
Fantastic. Yeah. For those not familiar with Smart Sand, what is your business model today? You know, how do you sort of make money across mining, logistics, and services?
Yeah. The way we make money is we mine, produce and transport and sell sand that goes to either oil and gas companies or industrial customers. 90% of our sand today goes to oil and gas producers. The sand is used to hydraulically frack and complete oil and gas wells. Most of our sand, the primary markets we serve are in the Northeast United States, in the Marcellus and Utica basins, the Western United States, primarily in the Bakken shale basin, and in Canada in the Montney and Duvernay shale basins. We're a 100% Northern White business. We mine and produce our sand in the Midwest United States. Two mines in Wisconsin, one in Illinois. All of our sand has to be shipped by rail to our customers for the oil and gas business.
We do truck some to our industrial. Again, 90%+ of our sales is going to oil and gas business. We are much of a logistics company as a mining company, and the value that we provide is not only providing high-quality Northern White sand to be used to frack oil and gas wells, but also to get that to our customers very efficiently and cost effectively through our logistics network.
For those not familiar, talk a little bit more about Northern White. You know, what is sort of the simplest way to explain when Northern White wins versus, you know, some in-basin sand and how you sort of prove that to the operators?
Yeah, if you talk to most oil and gas engineers, they'll say Northern White is a higher quality sand than regional sand, and that's really because of its properties, and that primarily comes down to mainly its crush strength. It has a very high crush strength, so it can withstand very high pressures and keep the fractures open in the oil and gas well. Then the sphericity of our sand, it's very circular in shape, which allows the oil and gas to flow out of the fractures into the well very efficiently, so which leads to ultimately better long-term production and cash flow results over time.
The reason that customers have moved to regional sand over Northern White isn't quality, and actually the long-term results is that regional sand is in the basin where they're completing the oil and gas wells, and they are able to reduce their logistics costs 'cause they can get that sand mined in the basin and just trucked to the well site versus our sand has to have the additional cost of railing it into a basin and going through a terminal before it's trucked to the well site. Those additional logistics cost is what led to some producers in regions where they had large quantities of regional sand in close proximity to the wells that really forced them to move that direction 'cause they had a...
We were able to save 10%-20% of the upfront well cost even though they knew that they'd have longer term less performance in the wells.
Yeah. When we talk about the demand for the service or for your product here for Northern White, you know, you've sort of suggested that there's more demand being driven with more sand per well and sort of the longer laterals. You know, talk about sort of the structural demand trends versus what's purely tied to just kind of general activity in the marketplace there.
Yeah, I think there's a couple of trends going on on the structural side that it's leading to more demand of sand and more use of sand per well, and the first is the longer lateral and that every well that the E&P companies, exploration and production companies, are continuing to get, try to get more efficient. They're basically looking to drill, get more production out of each well they drill, and ultimately try to drill and complete less wells but get the same or more production from those wells. One of the ways they're doing that, and the primary way they're doing that, is the lateral, which is the horizontal lateral where they're actually fracking the well. The length of those laterals continue to increase. When I started in this business in 2014, the average lateral was maybe 5,000 ft.
Today, the average lateral, depending on the basin, could be approaching 15,000-17,000 ft, and the leading players today are drilling wells where their lateral lengths may be approaching 20,000-25,000 ft. 25,000 feet is almost 5 mi. The length of the lateral is leading. As you have a longer lateral, you're gonna just need more sand to complete that lateral. The second structural change is that they're increasing what I call the intensity of the fracking, where they're adding more stages and they're using more sand per stage to try to get more conductivity through the well by getting more fractures in each foot of lateral to get more oil and gas out of each foot of lateral that they're completing.
That's leading to longer laterals, which is more sand overall because of the longer length, but also more sand per foot because they're using more sand per foot to increase the intensity of the frac. Those combinations of structural factors in terms of how they're doing fracking is leading to improving demand for sand even though you might see rig counts and frac spreads flattening out.
Right. No, it's a good understand the nuances there, when people are looking at the demand for your products out there. The other here is sort of this growing demand for natural gas. How does that sort of macro setup translate into the basins that you're most exposed to?
Well, we've got very good exposure and leverage to natural gas. Today, probably [60%] to, depending on the month or quarter, maybe 70% of our sand goes to natural gas driven basins. Our largest basin today is the Marcellus in the Northeast United States where they're completing drilling and completing wells primarily in Pennsylvania and West Virginia. That for the most part is a dry gas basin where they're just basically targeting natural gas activity, and that represents close to 40% of our demand in a given month. Our second, a growing basin for us is the Utica Shale, which is in Northeast Ohio and Pennsylvania, which is a combination oil, gas liquid basin, so that's increasing with gas activity.
One of our fastest growing basins for activity for our sand, which is primarily a Northern White market as well, is in Canada. The two markets we serve there are the Montney and Duvernay Shale basins where they're primarily drilling for natural gas to feed into LNG export capacity on the west coast of Canada. We've got very good exposure in terms of long-term fundamental drivers for increasing natural gas demand in the U.S. and Canada from LNG, increasing LNG export capacity, and increasing amount of power demand to meet AI data center growth, of which a lot of that power is expected to come from natural gas fed plants.
Both of those are leading to what we expect will be continued strong growth activities in those markets and 60%-70% of our volumes feed into those markets today.
Excellent. Talk a little bit about what the most important factors in delivered cost and reliability for your customers are and, you know, where sort of your rail access creates an advantage in the space for you.
Yeah, we really built our business on that it's a bulk commodity business that you really wanna be very efficient at the mining location. We, Oakdale as an example, it's over 1,300 acres of space. We have our 250 million tons reserves. We mine and produce and load our sand onto the rail cars at that location. It makes us a very low cost producer at the mine site. That's the first thing that drives value for our customers, that we provide the our commodity product at the lowest cost possible to produce it. Then second, that we've tied that with very efficient logistics in that this business is meant to be built on shipping very large volumes efficiently from the origination plant directly into the markets where it's being used.
We load up 100-150 rail cars in what's called a unit train, and that gets shipped directly from Oakdale or Blair or Ottawa, our three facilities, and goes directly to a terminal in one of the operating bases, whether that be in Pennsylvania, Ohio, North Dakota, Canada. From there, those 100-150 rail cars go into a terminal, get fully unloaded, and those cars immediately turn and come back to us. It gets a very efficient movement in the rail, which allows us to negotiate better rates with the rail providers and also allows us to be able to ship that much more efficient and timely to be able to get these large volumes of sand to our customers, cost-effectively, sustainably, and consistently at the well site.
Some wells today are using up to 10,000-15,000 tons per well. Well, that's a unit train. That's 100+ rail cars that have to be unloaded, which equates to 400 truckloads that delivers that sand to the well site to be used just to frack one well. Us by having investments in terminals, being able to ship on a unit train basis and being able to load on a unit train basis at the mine allows us to be very efficient, deliver that very efficiently, reduce the amount of demurrage and delay times, and to get that sand very cost-effectively and efficiently to our customers on a timely basis.
You know, I know this is a smaller part of your business, but talk about some of the wellsite solutions that you have, SmartSystem, SmartPath there. You know, what are the pain points that it looks to solve, and what needs to happen for adoption to maybe scale a little bit more materially going forward here?
Yeah. Our [SmartSystem] is basically providing the temporary storage and the feeding of the sand at the well site into the pressure pumping equipment. The real value added we're providing there, trying to bring to our customer in our new SmartSystem is to be able to handle very large volumes and deliver that very efficiently and timely into the pressure pumping equipment so the producers can in effect Producers today are trying to frack 24/7, and to do that, they've gotta be able to have the sand delivered on a just-in-time basis and fed into the pressure pumping equipment consistently. They're trying to shorten the amount of time it is to frack any individual well.
Our ability to be able to handle large volumes and to feed those volumes into the pressure pumping equipment efficiently and consistently is the product that we're providing and the value we offer to our customers, which allows them to ultimately complete the well faster, but also reduces the amount of trucks needed ultimately to feed the well and potential demurrage and delay times if the sand is not keeping up with the actual pressure pumping timing of completing the well.
You know, just to help people understand if they haven't had a chance to dive a little bit deeper, you know, help characterize the most recent year that you just completed here. Talk about, you know, some of the volumes, sales, EBITDA, if you have some of that, available.
Yeah. For 2025, we sold 5.4 million tons, so it was a record year for the company, up about, I think about 3%-4% from the year before. EBITDA was around $30 million, and we generated close to $30 million of free cash flow in the business. It was a very good year in terms of increased volumes. EBITDA was kinda steady. It was actually down year-over-year, but that was because of some one-off items
We were able to, we managed our CapEx very efficiently, spent about $12 million in CapEx and were able to to grow the volumes, you know, deliver strong cash flow and ultimately deliver value to our shareholders, in return of capital through dividends and share buybacks during the year.
All right. Excellent. As we wrap things up here, you know, taking a step back, what are some of the the milestones that investors should be looking out here for over the next year to sort of, you know, talk about the position of the business, the demand from a macro perspective, maybe some of the strategic initiatives that you guys are looking to deploy?
Yeah. I think the key thing to think is, you know, basically we are a pure Northern White business, and Northern White is here to stay. I think a lot of investors believe that Northern White was gonna go the way of the dinosaurs when regional sand came along, and regional sand really came on in the Texas and Oklahoma and Louisiana markets, and there was a view that Northern White was gonna get displaced throughout all the markets. I think we've proven that the markets we serve are strong Northern White markets. They're gonna continue to be supplied by Northern White, and there's limited, very limited regional sand capacity. Then secondly, those markets are growing and have strong, significant growth.
We position ourselves well to be what we believe is a premier provider of Northern White sand in North America. We have over 450 million tons of high quality reserves. 70% of those tons are fine mesh sand reserves, which meet the market demand. 90% of market demand for frac sand is fine mesh sand. We have 10 million tons of capacity today, of which we're operating at about 55% utilization. We've sized our business to operate efficiently at that level, but we have the ability to grow pretty dramatically over the next two, three, four, five years as demand grows, without having to spend a lot of incremental growth capital to capture that growth.
We have positioned to be well leveraged as if this market demand increases for natural gas in particular, and proves to be come on as expected. U.S. production for natural gas needs to grow from 110 Bcf/d to approaching 130 Bcf/d or more by 2030. Our markets are gonna need to help support that, and we're well-positioned to grow with the markets as that demand increases. Secondly, we are a logistics business, so we've made significant investments in logistics. We own four terminals today. We'll continue to look to invest in terminals to grow our logistics network to help us penetrate our markets at a greater level.
Third, we continue to have very low leverage levels, and we'll continue to have low leverage levels that allows us to be able to weather, you know, kinda survive any short-term downturns in the business by having that low leverage. Fourth, we have high concentration of insider ownership, close to 36%, which means we're not only managers of this business, we're investors, and focusing on the long-term value of the business as our shareholders as well. Fifth, we have room to grow the business, but we are focusing on generating consistent free cash flow. As we wanna grow the top line and EBITDA, we also wanna continue to deliver value back to our shareholders. We'll continue to have a balanced program of share buybacks along with dividends.
Since 2023, we've delivered $21 million back to our shareholders in a combination of share buybacks and dividends. We plan to continue to be focused on growing the business while still providing value back to our shareholders in return through dividends and stock buybacks.
Fantastic. Well, Lee, thank you very much for the overview. Thank you for participation in the summit here today. Thank you to everybody watching. If there are any questions or would like to schedule a one-on-one meeting with Lee here, I'd be happy to help coordinate. My email, Blum, B-L-U-M@lythampartners.com. Okay, we have additional presentations and our fireside chats coming up next, so please stick around. Again, Lee, thank you so much for your participation here today.
Thanks for having us, Robert. I really appreciate it.
All right, take care, everyone.
Thank you.
Lee, again, I greatly appreciate your insights into the frac sand market and broader energy space. Okay, up next, we will transition to a discussion with U.S.-based oil and gas producer, Kolibri Global Energy, and their CEO, Wolf Regener. Again, quick reminder, all of our webcasts will be available on demand, so if you missed anything today, please visit the link after the event to access the recording.