◼ FINANCE Bloomberg Businessweek November 23, 202027ILLUSTRATION BY DANIEL ZENDER FOR BLOOMBERG BUSINESSWEEK. DATA: RYSTAD ENERGY
It says it reported an employee complaint to the SEC
in 2017 and has been cooperating with the regulator
on its investigation into disclosures related to three
products that have been discontinued.
In the wake of the shale bust, many investors
have discovered that some oil driller assets are not
as valuable as they thought. The sand business has
echoed that idea. For Covia, the SEC probe adds a
layer of uncertainty on top of a broader economic
drubbing. The sand industry peaked at about $4 bil-
lion in market value in 2018, according to researcher
Rystad Energy, but it’s collapsed along with the
2010s fracking boom it fed. Next year the market
for frack sand is expected to sink to half of what it
was in 2019, Morgan Stanley says. The industry has
suffered as the coronavirus continues to play havoc
with oil consumption. Demand has plummeted, and
Covia has suffered especially because many drillers
grew tired of fancy sand and decided the cheaper,
local type worked just fine. The company is one
of four leading frack sand producers to seek bank-
ruptcy protection this year, joining Vista Proppants
& Logistics, Carbo Ceramics, and Hi-Crush.
In the 2010s, though, as fracking pushed the U.S.
toward energy self-sufficiency, sand was a burgeon-
ing business, and executives at Fairmount Santrol
found a way to differentiate themselves. The com-
pany filed patents for products with names such as
PowerProp. Its sales force went from company to
company, hawking the new products to the biggest
drillers. Drillers looking for a way to improve their
output paid a premium at the time for specialized
sand from Fairmount and other producers. At its
peak price in the mid-2010s, a type of sand whose
grains are coated with resin went for $250 a ton,
a markup of $150 a ton over the cost of raw sand.
But inside Fairmount Santrol, scientists voiced
their skepticism of some of the company’s prod-
ucts. By May 2017 it was enough of an issue that the
company rented the hotel conference room a few
miles from its suburban Houston offices and set up
a folding table. According to attendees, who spoke
on condition of anonymity because they didn’t want
to jeopardize their job in the industry, four employ-
ees took turns speaking to a pair of executives.
The executives met with each employee for
at least an hour, some for more than two. One
of the people says it felt more like an interro-
gation than a fact-finding mission. A few weeks
later, one employee, who’d received a negative
work-performance evaluation two years before
for questioning his bosses, says he received a mes-
sage that the demerit would be removed from his
file. Aside from that, Fairmount Santrol executives
never talked about the meeting, he says.The SEC first approached Covia about its investi-
gation in March 2019. Weeks later, Jenniffer Deckard,
Covia’s chief executive officer, resigned. Covia said
in a statement at the time that it was pursuing “a dif-
ferent direction” with its leadership. (Deckard was
not one of the executives at the hotel meeting.) In
June 2020, Covia filed for bankruptcy protection.
Soon after, the SEC sent notice that its staff was rec-
ommending formal action against the company.
In a recent quarterly filing, Covia disclosed that
the SEC had subpoenaed “certain former employees
to testify regarding certain value-added proppants
marketed and sold by Fairmount Santrol prior to
the merger.” (Proppants are materials, including
sand, that prop open rock fissures to keep oil flow-
ing.) Agency staff have interviewed all four employ-
ees who filed complaints with the SEC, some more
than once, according to a law firm representing
the whistleblowers.More often than not, notices such as the ones the
SEC sent to Covia lead to formal action. Whatever
happens, the company faces an uphill struggle. In its
bankruptcy filing, Covia warned that after emerging
from Chapter 11, it most likely won’t generate cash
flow for the next two years unless creditors grant
the company temporary relief from making inter-
est payments. And sand, it turns out, isn’t such a
precious commodity anymore: Drillers have plenty
of places to get it. “Bankruptcies aren’t wiping out
any capacity,” says Joseph Triepke, founder of Infill
Thinking LLC and a former analyst at Citadel LLC’s
Surveyor Capital. “It’s going to be a very misera-
bleslog.”�RachelAdams-HeardandDavidWetheTHE BOTTOM LINE Fracking created a big market for sand—and
for claims that pricier sand could help drillers pump more oil.
Whistleblowers say one company exaggerated.