UPDATE 2-CP Rail to ship drilling sand for U.S. Silica

Fri Jun 22, 2012 5:45pm IST

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* CP to be the exclusive rail service provider at Sparta mine

* U.S. Silica's shipments to focus on Bakken shale

* Facility expected to be fully operational in Q1 2013

June 22 (Reuters) - Canadian Pacific Railway Ltd, Canada's second-biggest railroad, said it signed a multi-year deal with U.S. Silica Holdings Inc to transport drilling sand from the U.S. company's mine in Sparta, Wisconsin.

CP, which ships sand used in the hydraulic fracturing process to the North Dakota shale formation and crude oil out of the Bakken, said it will become the exclusive rail service provider at the Wisconsin mine.

U.S. Silica, which went public in April, is the No. 2 U.S. commercial silica maker. Its largest end market is oil and gas proppants, which are used in an exploration and production method called hydraulic fracturing that has spurred production.

The company is building a new frac sand facility located on the CP's rail line in Wisconsin that will produce Northern White sand for use in shale basins across the United States and Canada.

A boom in oil and gas drilling has driven up demand for fracking materials such as proppants. These materials were in short supply in the Rockies, Bakken, South Texas and Permian regions.

The Wisconsin mine, expected to be fully operational in the first quarter of 2013, will ship three different grades of dry sand to the Bakken shale.

U.S. Silica recently said it would partner with Berkshire Hathaway Inc-owned BNSF Railway Co to build a silica sand storage facility in Texas to cater to the rapidly growing oil and gas activity in the Eagle Ford shale formation.

U.S. Silica, backed by private equity firm Golden Gate Capital, operates 13 facilities and has 315 million tons of reserves, according to the company's latest filing with regulators.

Shares of Calgary-based CP closed at C$74.25 on Thursday on the Toronto Stock Exchange. U.S. Silica shares closed at $11.37 on Thursday on the New York Stock Exchange.

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