Industry Shifts Leading to Bankruptcy

Shifts in industries can often lead to major changes. Supply goes up, demand goes down, other factors come in, and an industry changes as a result. Sometimes, these shifts can cause things like widespread bankruptcy among industry participants. Sometimes, the string of bankruptcy is limited to a specific region. For example, the Wisconsin frac sand industry is in the midst of a major downturn. For a number of reasons, major producers of frac sand in the state are facing closure and bankruptcy.

Wisconsin Frac Sand Producer Faces Bankruptcy as Industry Shifts

Between 2010 and 2015, the frac sand mining industry in Wisconsin rapidly expanded. The state’s plentiful silica sand reserves were a natural draw for mining companies and processing plants. The Department of Natural Resources reports that there 128 frac sand facilities in Wisconsin, but this number may start lowering rapidly. In recent years, frac sand mines have begun popping up closer to the Texas oil fields making things easier for the local drilling costs. The oil drilling companies could get the Texas frac sand for much cheaper because they did not have to pay the shipping costs associated with bringing it in from Wisconsin. While the demand for frac sand, which is used in drilling for oil, is hitting all time highs, the demand for Wisconsin frac sand continues to dwindle. The drop in demand for Wisconsin frac sand led to plummeting prices for the commodity.

The pressure being placed on Wisconsin frac sand producers is already evident in record numbers of SEC filings. The bankruptcy filings are beginning. Recently, Emerge Energy Services LP, the owner of Superior Silica Sands, a major frac sand mining company operating in Wisconsin, is facing bankruptcy The company entered into a debt restructuring agreement with lenders this past April. Pursuant to the agreement, the company’s debt obligations will be cleared in exchange for the lenders becoming majority shareholders in the company. The alternative to this is the company filing for Chapter 11 bankruptcy.

Market analysts are confident that more companies will follow suit and estimate that up to 75% of Wisconsin frac sand mines might close. The opening of more Texas mines has led to an oversupply in Wisconsin while the demand for Wisconsin frac sand decreases. There has also been an emergence of frac sand mines in Oklahoma. In the past 18 months alone, more than a dozen mines have appeared in west Texas and Oklahoma. These mines are located near some of the busiest oilfields in the U.S. The Texas mines produce greater than 100 million tons of sand a year. This means that just the Texas mines are producing enough sand to satisfy the estimated annual industry need.  

Experienced Wisconsin Bankruptcy Attorneys

Industry shifts are often the root cause of companies filing for bankruptcy. If your company is in the midst of bankruptcy, Hanson & Payne, LLC is available to answer any of your questions and advise you of your options. What you decide to do now can have a major impact on your future. Contact us today.