Frac sand developments for the Argentinean shale ? Frac sand developments for the Argentinean shale

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  • U3O8 Corp. Investee TSX: UWE OTCQX: UWEFF SSE: UWE | www.u3o8corp.com | www.samsilica.com

    March 31, 2015

    Frac sand developments for the

    Argentinean shale oil/gas market

    Richard Spencer, CEO, South American Silica Corp.

  • Forward-Looking Statements

    & Disclaimer

    2

    Certain statements and concepts contained herein constitute forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of South American Silica Corp. (SAS), including, but not limited to, the impact of general economic conditions, industry conditions, geopolitical risks, volatility of commodity prices, risks associated with the uncertainty of exploration results and estimates and that a resource will be achieved on exploration projects, that the Carina property will be developed as anticipated and frac sand potential is realized, that resource size estimates, production and timing of development will be achieved on any target area, currency fluctuations, the uncertainty of obtaining additional financing and exploration risk, and dependence upon regulatory approvals. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Potential size estimates are conceptual in nature. There has been insufficient exploration to define a resource on the specified targets. It is uncertain if further exploration will result in resources being delineated on those targets. These forward-looking statements are made as of the date hereof and SAS. assumes no obligation to update or revise them to reflect new events or circumstances.

    Comparisons of SAS properties and exploration targets with other frac sand projects are conceptual in nature, and have not been independently verified by SAS and information regarding these peer deposits are drawn from publicly available information. Information on SAS and its projects are available on the companys web site at www.samsilicacorp.com.

    Industry and peer information has been drawn from publicly available sources and have not been independently verified by SAS.

    www.samsilica.com | www.u3o8corp.com

    http://www.samsilicacorp.com/http://www.samsilicacorp.com/http://www.samsilicacorp.com/http://www.samsilicacorp.com/http://www.samsilicacorp.com/

  • Outline

    3

    Strategic importance of the Vaca Muerta to Argentina

    Potential for Argentina to become a regional energy powerhouse

    Sustained, increasing production from the Vaca Muerta

    Argentina getting its fiscal house in order

    Subsidizing the oil production below price-specific thresholds

    2015 presidential election

    What is the Vaca Muerta?

    Short-term market growth potential & required proppant quality

    Logistics in Argentina infrastructure developed over 100 years of

    conventional oil & gas production

    Conclusions & Opportunities

    www.samsilica.com | www.u3o8corp.com

  • 4 Sources: SIPG - AIPG

    Vaca Muerta:

    Strategic Importance to Argentina: could replicate USA shale oil & gas boom

    Vaca Muerta set to emulate USA oil & gas from shale success

    Vaca Muerta

    at this stage

    declining crude production

    being reversed by shale oil

    Weekly US Crude Oil Production Jan. 1983 to

    Nov. 2014

    (Ba

    rre

    ls p

    er

    da

    y

    millio

    ns

    )

    www.samsilica.com | www.u3o8corp.com

    Crude Oil

    Production

    19

    70

    19

    80

    19

    90

    20

    00

    20

    10

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    35,000

    40,000

    45,000

    50,000

    1-J

    ul-

    10

    1-N

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    15

    Oil

    pro

    du

    cti

    on

    (b

    oep

    d)

    Vaca Muerta production

  • 5

    Vaca Muerta: Fundamental Strategic Imprortance to Argentina

    www.samsilica.com | www.u3o8corp.com

    *Vaca Muerta Shale in Argentina; Eagle Ford & Bakken

    Shale in the USA

    Sources: WSJ, IEA

    OPEC Budget Breakeven Costs

    compsred with Shale Production Cost Argentinas oil imports $7B/year;

    Foreign currency reserves $34B;

    20% of total foreign currency

    reserves spent on oil imports per

    year

    Vaca Muerta production cost ~$58/bbl

    drive to reduce costs

    90% of Argentinas oil, 71% of its gas,

    from Patagonia - economic driver for

    semi-desert region in which there are

    few economic alternatives

    Argentina needs the Vaca Muerta

    oil production

  • Vaca Muerta:

    Strategic Importance to Argentina: Oil production in economically challenged area

    6 www.samsilica.com | www.u3o8corp.com

    Vaca Muesrta is in an economically

    stressed area

    Permitting farm sizes are

    typically 25,000 acres

  • Vaca Muerta:

    Strategic Importance to Argentina: Could drive Argentine Economy for Decades

    7

    75

    48

    32

    27

    26

    18

    13

    13

    9

    9

    Russia

    USA

    China

    Argentina

    Libya

    Australia

    Venezuela

    Mexico

    Pakistan

    Canada

    1,161

    1,115

    802

    707

    573

    545

    437

    390

    285

    245

    USA

    China

    Argentina

    Algeria

    Canada

    Mexico

    Australia

    South Africa

    Russia

    Brazil

    Shale Oil Rankings by Country Technically Recoverable Shale Oil Resources

    (billions of barrels)

    Shale Gas Rankings by Country Technically Recoverable Shale Gas

    (trillions of cubic feet)

    Source: US DOE Source: US DOE

    www.samsilica.com | www.u3o8corp.com

  • Vaca Muerta:

    Strategic Importance to Argentina: The infrastructure is already in place

    8 www.samsilica.com | www.u3o8corp.com

    Export pipelines to

    Chile

    Export pipelines to

    Chile

    Oil production started from

    the Nuequen Basin in 1918;

    Extensive infrastructure;

    Support & service industries

    based in local cities;

    Export pipelines to Chile:

    Imports 97% of its oil;

    Imports 77% of its gas;

    A consistently strong

    economy;

    Strong & consistent

    demand for fuel

  • Vaca Muerta:

    Strategic Importance to Argentina: Its getting its house in order

    9 www.samsilica.com | www.u3o8corp.com

    May 2012: Nationalized 51% Repsol ownership of YPF;

    $200B - $300B required to develop the Vaca Muerta;

    Reversal of policy:

    December 2012: 1st new deal with foreign

    oil company (Pan American Energy (a BP subsidiary)):

    Followed by JVs with Exxon, Chevron-Mobil, Dow, Total,

    Wintershal, China National Oil, Petronas, Petrobras, BP, among others;

    2014, April: Repsol accepted compensation for YPF (US$5B);

    2014: $15B foreign investment in the Vaca Muerta;

    2014: May: Settled with Paris Club of Lenders opened up French capital market;

    2014, July: Selective default because Argentina could not settle with bond holdouts;

    2014, July: $11B currency swap with China;

    2015, March: US Chamber of Commerce president says US companies will invest

    $20B/y in Vaca Muerta

    2015, April: Obama administration supports $2B Argentine loan from World Bank 1st

    such support since 2011.

    0

    10,000

    20,000

    30,000

    40,000

    50,000

    1-J

    ul-

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    Oil p

    rod

    ucti

    on

    (b

    oep

    d)

  • Argentina: A bad reputation

    10 www.samsilica.com | www.u3o8corp.com

    Economic challenges:

    High inflation rate

    expected to be 21% in

    2015, currently 18%;

    Foreign currency

    restrictions;

    Sovereign debt default;

    Economic positives:

    Debt-to-GDP not as bad as

    it is perceived to be;

    Oil producers are being

    subsidized;

    Vaca Muerta development seen

    as economic driver;

    October 2015 elections

    candidates have pro-business

    platforms

    Japan

    Singap

    ore

    USA

    Be

    lgium

    France

    UK

    Gre

    ece

    Italy

    Po

    rtugal

    Ge

    rman

    y

    Arge

    ntin

    a

    2014 Debt-to-GDP Ratios

  • Vaca Muerta:

    Strategic Importance to Argentina: Stimulus for oil producers

    11 www.samsilica.com | www.u3o8corp.com

    Subsidy of up to $6/bl to prevent drop in output due to lower international oil prices:

    $3/lb to companies that maintain or increase output relative to 2014;

    $2/lb to exporters for oil sold abroad - $3/lb for exporters that maintain or

    increase exports from 2014 levels;

    Subsidies apply while:

    34API Medanito prices are

  • Argentina:

    A bad reputation - but stocks are doing OK

    12 www.samsilica.com | www.u3o8corp.com

    Up ~60% in 2014

    Up 32% so far in 2015

  • Argentine Election:

    Leading Contenders:

    13 www.samsilica.com | www.u3o8corp.com

    Presidential election: October, 2015

    The job: ..leading a country mired in default, hemmed in by

    litigating hedge funds and ravaged by economic stagnation

    and double-digit inflation. Bloomberg

    Current poll

    Scioli 32.2+/-2.5%

    Macri 29.9%+/-2.5%

    Massa 13.6%+/-2.5%

  • Argentine Election:

    Scioli:

    14 www.samsilica.com | www.u3o8corp.com

    58

    Governor of Buenos Aires province (38% of national population), same political party

    as current Pres. Kirchner

    Family owned electrical appliance business

    Former world speedboat champion

    Vice President under Nestor Kirchner for 4 years

    Political platform gradual change:

    Would not devalue the Peso

    Would not settle with holdout bond holders related with Argentinas selective

    default in mid-2014. Indications: he would settle for 70% of the $1.6B awarded to

    the holdouts

    Track record in Buenos Aires province that accounts for ~1/2 Argentinas GDP

    Changed tax code

    Province went to budget surplus in 2013, 2014

    Legislate to protect savings so as to attract $200B held offshore by Argentineans

  • Argentine Election:

    Macri:

    15 www.samsilica.com | www.u3o8corp.com

    56

    Mayor of Buenos Aires city (35% of countrys population)

    Civil engineer

    Family construction company, credit analyst at Citibank, president of Boca

    Juniors football club (12 years) club won 16 tropies under his leadership

    Entered politics in 2005, elected mayor of Buenos Aires in 2007, re-elected

    in 2011

    Political platform: Agent of change:

    End currency controls

    End import restrictions & export tariffs to entice foreign investment &

    offest capital outflows

    Would settle with holdout bond holders related with Argentinas

    selective default in mid-2014

  • Vaca Muerta Shale Gas and Shale

    Oil Prospective Areas,

    Neuquen Basin

    16 www.samsilica.com | www.u3o8corp.com

    100-800m

    25-450m Vaca Muerta

    Los Molles

    Agrio

  • Comparison of Vaca Muerta

    with Shales in the US.

    17 www.samsilica.com | www.u3o8corp.com

    Source YFP Presentation, 2013

    Vaca Muerta Shale Oil

  • Vaca Muerta compared

    with shale plays in the US

    18 www.samsilica.com | www.u3o8corp.com

    Source: Credit Suisse Report, 2013

    Based on YPF, SPE, WoodMackenzie, UG Harts Reports

    Depth Comparison

    VM thickness = high proportion of

    vertical wells

    Small footprint = infrastructure is

    concentrated, and mostly already in

    place because of 100 years of

    conventional production

    Requires high K-value proppant

    Thickness

    Area Comparison

  • Argentina:

    Other Prospective Areas,

    San Jorge Basin

    19 www.samsilica.com | www.u3o8corp.com

    Los Molles

    D-129: 100-2,000m

    D-129 Formation: mainly gas-prone, deep

  • 20

    Vaca Muerta: Rough estimate of Supply/Demand

    for Proppant and Frac Sand

    Estimated total proppant

    requirement in 2017 ~ 800kT

    ~50% (~400kT) of requirement

    is for frac sand (oportunity 1)

    ~50% is for ceramic proppants,

    but a 9 or 10K (good quality)

    frac sand is very likely to

    substitute for some of the

    ceramic proppant requirement,

    increasing the potential market

    share for sands of exceptional

    quality.

    Need for very high quality frac

    sand

    www.samsilica.com | www.u3o8corp.com

    0

    100

    200

    300

    400

    500

    600

    700

    800

    900

    2015 2016 2017

    De

    man

    d (

    kT)

    Vaca Muerta - proppant supply/demand

    Frac sandproduction (kT)

    Total proppantdemand (kT)

    Total frac sanddemand (kT)

    Op

    ort

    un

    ity 2

    Oportunity 1

  • Local Frac Sand: 560mi by road from the Vaca Muerta

    Moderate quality

    21

    Frac sand ~93% of bulk sand

    Mainly divided between 20/40 &

    40/70 grain sizes

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    Characteristic API*

    Requiremt Original Test Results

    Sample 14528

    Results

    Conform

    to API

    Sample # 146 147 148 GEL 1101

    Fraction 20/40 30/50 40/70 20/40 40/70

    % of sand in that fraction 42% 73% 52% 45% 48% ~93%

    Sphericity 0.6 0.61 0.63 0.57 0.6 0.6 Meet

    Roundness 0.6 0.44 0.44 0.38 0.8 0.7 Exceed

    Acid

    consumption

    2% 1.7% 2% 2.5% Meet /

    marginal

    failure 3% 2.1% 3.9%

    Turbidity 250 FTU 102 78 166 193 140 Exceed

    Crush test API Requirement 14% @

    4K

    10% @

    4K

    8% @

    5K

    14% @

    4K

    8% @

    5K

    4Kpsi 8.8% 3% 5.3% Exceed

    5Kpsi 6.4% Exceed

    6Kpsi 9.4% 9% Meet

    8Kpsi 7.2% Meet

    K Value 8K 5K 6K

    Local Frac Sand

    *API (American Petroleum Institute) specifications for frac sand

  • Vaca Muerta:

    Current & proposed infrastructure

    22 www.samsilica.com | www.u3o8corp.com

    YPFs

    Caning frac

    sand plant

    Vaca

    Muerta

    Existing road

    YPFs

    planned

    Anelo

    frac sand

    plant

    Existing road

    Puerto Madryn

    Bahia Blanca

    5-8K

    sand

    deposit

    San Antonio

    Defunct rail

    Operating

    rail system

    Infrastructure is

    challenging

    By road from port -

    300mi

    Proposed rail unlikely

    to be built

    Existing narrow-

    gauge rail could be

    upgraded

  • Vaca Muerta: In-country logistics & transport cost guidance

    23 www.samsilica.com | www.u3o8corp.com

    Palmira

    Rio Grande

    San Antonio

    Puerto Madryn

    Bahia Blanca

    Vaca Muerta

    San Jorge

    Brazil

    Uruguay

    Ch

    ile

    Estimated Port Costs:

    Brazil - Rio Grande Port:

    US$5.24/ tonne

    Uruguay Palmira Port:

    US$7/tonne

    Argentina: Bahia Blanca Port:

    US$28/tonne

    Sea freight (US$/tonne):

    Rio Grande port to Bahia Blanca: US$20/t (container);

    Puerto Madryn to Bahia Blanca: US$12/t (bulk)

    Comodoro Rivadavia

  • Uruguay & Brazil sands:

    24 www.samsilica.com | www.u3o8corp.com

    Good quality

    Full grain-size range tailor product to each

    clients requirements

    Safety silica dust is carcinogenic

    hydromining/dredging and initial wet-screening

    no dust!

    250mi from deepwater ports

  • Conclusion: Competitive advantages

    25 www.samsilica.com | www.u3o8corp.com

    5-8K frac sands are available locally (20/40, 30/50, 40/70#) moderate

    quality

    Opportunity:

    Argentina needs (and wants) oil production fracking accepted

    Vaca Muerta & especially San Jorge basin (gas), needs higher K sands

    Logistics are problematic for supply from local source:

    Road transport is most viable option (900km / 560mi);

    Planned rail unlikely to be built;

    Sea freight and east-to-west transport by existing rail / road

    network is attractive option. Opens the door for imported sand;

    Health effects of dust dredging is an attractive alternative that is

    likely to be more socially acceptable