On a chilly Permian morning about two weeks ago, we visited Sand Revolution’s headquarters in Midland before heading out to tour one of their job sites.
This is a fast growing company that has been generating some buzz in last mile logistics, but they are not widely covered or very well known outside of those that have a direct relationship with them.
So we wanted to see their operations firsthand and provide some visibility on their story.
Sand Revolution can best be described as a full service independent last mile logistics company.
Launched in 2017 by Jose Meraz, the company offers frac customers a complete package of sand logistics equipment and service from proppant origin through the blender.
Their last mile crews are entirely self-sufficient and package trucking, dispatching, software, and wellsite handling operations. The company’s proprietary technology permeates the entire suite of services and equipment.
So far, Sand Revolution’s commercial model is all or nothing. For example, they do not currently provide their high payload trucking service separately to offload into other wellsite solutions. Nor do they receive loads into their silos that aren’t carried by their trucks.
While we’ve written about this system from afar in the past, this was the first time we have seen the 100% non-pneumatic silo system in action. Color us impressed – we understand their rapid growth curve a little better now. It was also our first introduction to the company’s core leadership and operations team (although we know some of the company’s executive team – i.e. CEO Greg Lanham and Chairman Mike Mintz – from their prior industry roles).
Steve Villanueva (GM) and Manny Rico (Operations Supervisor) showed us around, and we also had a chance to meet some key members of the Sand Revolution ops, dispatch, software, and HR teams. All the folks we encountered are highly capable and very busy.
After starting off small and a bit unorganized like many startups, it was clear to us that ownership invested heavily in 2018 to “clean up” the back office functions that are required to resource a larger fleet in the last mile business. Their crew count doubled in 4Q18 alone, and it is on a course to double again by year-end to 20 crews (most of their 2019 growth is backed by customer commitments).
While touring Sand Revolution’s HQ, one of the first things we noticed was that this bustling nerve center seems to be bursting at the seams. Their recent growth spurt is already pushing this two-month old facility to its limit. Outgrowing your boots in this market is a high-class problem to have, and the company plans to scale up their office space during 1H19.
From HQ, we headed out to tour a Midland Basin job site. Key takeaways from our time on location follow.
Two Big News Stories Are Brewing At This Company; We Can Only Break One Today…
In the picture below, you can see the company’s new offloading conveyor. This is the first copy of the new version of this critical piece of wellsite equipment, and it’s arriving in the Permian today to get a Sand Revolution paint job.
This puppy represents step change in unloading sand at the wellsite, and as far as we know, it will become the new gold standard in unloading time. The new unit has a 36- inch belt that can unload 50,000 pounds of sand from the company’s high- payload trailers in less than 3 minutes.
The conveyor model deployed on Sand Revolution’s existing fleet is nothing to sneeze at. It has a 30-inch belt that unloads a full 54,000 pound load in 7-8 minutes. This is already a receiving speed that is rivaled by few peers in the wellsite storage market – we’ve heard of some other belly dump trailers unloading in 5 minutes, but we believe < 3 minutes for the new conveyor represents a new industry record low.
This innovation is an indication of Sand Revolution’s commitment to continuous improvement – something that we believe other solutions will also need to emphasize in 2019-2020 if they are to retain market share in an increasingly competitive market. Other examples of this continuing focus on innovation are a) automated sensors that are being installed to predict maintenance requirements and prevent downtime (most R&M is done on location by the company’s in-house mechanics), and b) blender enclosure coming in 1H19.
While we believe that “time on pad” is still a more important metric than offload time (as it measures dispatching efficiency too), this rapid unload feature will help to debottleneck deliveries and reduce detention at the well site. Combined with Sand Revolution’s smart dispatching (more on that in a moment), this new conveyor should virtually eliminate the need for trucks to queue up at their wellsites.
Growing Rapidly Despite Market Headwinds
Sand Revolution’s first system hit the market in September 2017. Their deployed fleet doubled in 4Q18 up to 10 units in the field, which is significant in our view since the broader new gen last mile market fell into oversupply territory in late-2018 even as frac crew counts were slipping.
The company plans to double their fleet again by 2020 – up to 20 units deployed. Their current build cadence has a new fleet rolling out of their yard about every three to four weeks. As of today, they are running 225 sand hauling trucks in the Permian. Their Permian presence has markedly increased since the last time we were in town. We saw too many Sand Rev trailers to count while on the road driving around the Basin on our own.
All 10 deployed Sand Revolution crews are working in the Permian Basin at this time (one in the Northern Delaware and the rest in the Midland Basin), but the company’s sales force is bidding on Eagle Ford and MidCon work now too.
Sand Revolution’s customer base is mostly weighted towards E&Ps but includes sand producers and pressure pumpers too. For E&Ps that are new to unbundling, we see significant value in Sand Revolution’s offering since it delivers a full and independent logistics package (trucking, software, well site operations, and dispatch). 80% of the crews Sand Revolution is serving today are direct sourcing sand.
As you’ll see in our site visit takeaways and photos below: the hardware is impressive, the software is impressive and the team is too. After visiting this company in the field, it’s easy to see why they are taking market share.
Site Visit Observations & Photos
The system’s wellsite footprint is small (similar to other silo systems), but it packs a bigger punch with 3.2mm lbs of vertical storage packed into 6 silos (33% more than the silo market leader and several days of inventory buffer). The conveyor is 175′ by 75′ and flexible in terms of placement angle. And there are no pneumatics trucks on site blowing off and taking up space.
The payload of Sand Revolution’s trucks is one of the system’s biggest selling features. Their trailers carry up to 54,000 lbs of sand, and management tells us they have been consistently carrying over 52,000 pounds per load (10-30% above industry averages depending on trailer type). It takes about 20-30 Sand Revolution trucks to resource a typical Permian frac crew, and getting trucks off the road with higher payloads reduces hauling costs by 15-18% according to management estimates. The trailers are manufactured for 20-30% less capital cost than industry standard (manufactured in Mexico near Chihuahua). Management says their fleet averages three turns a day, and they’ve never charged customers one cent of demurrage.
Advanced silica dust control is an important feature of this system too, and this was one of the cleanest job sites we’ve been to. The 100% non-pnuematic unloading reduces respirable crystalline silica and proppant degradation too. We watched a truck or two unload and saw virtually no dust. The blender is still an issue, as it is for all last mile solutions, but the company is working on an enclosure to mitigate that too. The typical Sand Revolution wellsite staff is comprised of four crewmen: one hopper operator, one conveyor operator and two truck spotters.
The most exposure the truck driver has at the wellsite is opening his cab door to say what’s up to the wellsite spotters and exchange paperwork (drivers don’t exit the vehicle). At origin, there is no climbing up on the truck, he simply uses this lever at the back of the trailer to open and close the top hatch.
While on location, we observed a truck carrying approx. 52,000 pounds unload in less than eight minutes (about 11 minutes total time on the well pad). Truck arrivals were steady like clockwork and paced to avoid queuing (a testament more to the company’s dispatch and software, but also to their belly-dump receiving and conveyor setup).
We toured the company’s 24/7 dispatch center, although the photo below is not one of ours and was provided by the company (we didn’t take any photos inside the office out of respect for confidential information). The space dedicated to dispatch will be expanding soon. We also got a download on the company’s software system, called Cedar Logistics. We plan to profile this in an upcoming Silica Valley piece, but suffice it to say that it checks all the boxes on providing full load lifecycle visibility (time stamps from origin through blender let users drill down) and the user interface and visibility it provides appear to be competitive with any software we’ve seen in this space. It also handles all the payroll and invoicing, paying drivers weekly by trip volume.
Rig up and down only takes a couple hours. The system is moved from job to job by a 9-trailer heavy haul crew. The company has two special crews with some of their most experienced staff dedicated to executing their system moves with oversize load permits. And there aren’t many moving pieces with this system – everything was designed to be extremely simple. As far as recruiting goes, the company guarantees drivers $1,500 per week, their best make $3,000 per week, and Sand Revolution is hiring aggressively (has recently been hiring 25 drivers a week as they’ve been ramping). They’ve averaged driver turnover of 19%, which is well below the industry standard of 60%. A training session for new employees was going on when we visited HQ, and they are basically a daily occurrence.