Digging Deeper: Eight Questions About Southern Red Sands
KANAB — A proposed mine for sand used in oil and gas extraction has stirred tensions and spurred questions in this small town just north of the Arizona border since the City Council voted in July to provide water to the project.
The mine’s opponents say local officials did not fully evaluate the mine’s potential impact on the area’s water, air and traffic. They also argue that the mine, which would produce at least 700,000 tons of sand per year, could threaten the city's aquifer and Best Friends Animal Society, a neighboring animal sanctuary that is the city’s largest employer.
Meanwhile, speculation and distrust have surrounded the company behind the mine, Southern Red Sands. The company, which has described itself as a start-up, has the financial backing of Gardner Company, the Salt Lake City-based real estate developer. Its chief executive, Chad Staheli, says his company is complying with all regulations. With the protest period for the city’s water service agreement ending on October 2, KUER looks at the origins of the company.
What is Southern Red Sands?
Southern Red Sands is a frac sand mining operation based in Kane County. The company has two full-time employees. The rest of the team consists of consultants and contractors, CEO Chad Staheli said in an interview with KUER.
The company began, however, in February 2018 with a different name, Integrated Logistics, according to business records filed with the state. The organizer of the company was J.T. Martin, a former Salt Lake City Council member and high-ranking executive of Integrated Energy Companies. Known as IEC, the energy company provides services to oil and gas companies in the Uintah Basin, among other functions. The company’s chairman is Kem C. Gardner.
Who are its backers?
The principal investor in Southern Red Sands is Gardner Company. The company describes its real estate portfolio as one of the largest in the state. Staheli said the only other investor is Vere Capital — a small investment management company he helped start seven months before he joined Southern Red Sands.
The Gardner Company asked Vere Capital to evaluate the frac sand mining project, shortly after the Integrated Energy Companies purchased the mining claims in 2018, Staheli said.
Soon after, the three companies decided to spin off the mining operation as a standalone company, rather than as a subsidiary of Gardner Company or IEC. Staheli accepted a position as the company’s CEO.
Staheli calls the company a “start-up” because none of the parties have specific experience with frac sand mining.
“If I was really trying to spin something, I wouldn’t call this a ‘start-up,’” he said. “I’d call this a ‘Gardner Project’ because they have the operational history to give a community like Kanab the comfort to know they’re getting taken care of.”
Who else is involved?
The other Southern Red Sands employee is Andy Gant, who besides being its operations manager also serves as a Kane County commissioner. The dual role has raised questions among residents about potential conflicts of interest.
Kane County Clerk Karla Johnson confirmed that Gant filed to run for county commissioner in March 2018 — the same month he started his position with Southern Red Sands, according to his LinkedIn profile.
Johnson added that it was widely known during Gant’s candidacy that he was working with the mining company and described the commissioner as an “open book,” adding that she “has always known him as an honest man.”
Staheli also dismissed any suggestion of impropriety.
“If somehow it benefits us, Southern Red Sands, to have Andy Gant as a county commissioner, I haven’t seen it,” he said. “If it exists, it’s something that’s nebulous and out there and I haven’t seen the real effect of it.”
Through a recent marriage, Gant is also related to Mike Noel, a polarizing former state representative who currently serves as the executive director of the Kane County Water Conservancy District.
The two became in-laws in December 2017 when Mike Noel married the sister of Andy Gant’s wife, Rhonda Gant, who also serves as the county’s human resources director.
What’s in a name?
Between May and July 2018, the mining company took on two new names.
The first change was from Integrated Logistics to Integrated Sands in May 2018. Around that time, Martin told conference attendees of the Governor’s Energy Summit, “We have some of the best frac sand in the country,” adding that “We are calling this ‘Utah pink Champagne.’ The Wisconsins have nothing on us,” according to the Salt Lake Tribune.
But that name didn’t last long. Less than two months later the company switched to its current name.
Staheli explains that the name changes reflect a marketing decision to differentiate their product from fracking sand mined in the Great Lakes region, which is often referred to as “Northern White” by industry insiders.
“The transition from business to business is nothing more than a change in business name — same involvement, same people,” he said, adding that the investors and ownership structure have remained consistent throughout the project.
What is “frac sand”?
Hydraulic fracturing or “fracking” is a method of extracting oil and gas from low-permeability rock formations. It works by using pressurized fluids to create fractures through which oil and gas can flow. Fracking operations use what's called a “proppant” to hold those fractures open. Sand, or “frac sand,” is a naturally occuring proppant. The majority of the country’s frac sand comes from the Great Lakes region.
What does Southern Red Sands plan to do?
The company’s production facility is being designed to yield 700,000 tons of sand per year. The mine could be retrofitted, however, to include an additional production line if there is sufficient demand, Staheli told KUER.
As planned, the operation will feature four 120-foot storage silos. But a conditional use permit issued by the Kane County Planning and Zoning Commission allows the company to build up to six silos.
The commission’s decision rankled residents during its July 11 meeting, as pre-meeting documents provided by the county showed the mine would be limited to two silos. Southern Red Sands and Kane County both say the discrepancy resulted from a typo committed by the county while preparing the information packet.
Where will the company mine?
Southern Red Sands holds the mining permits to 640 acres of land surrounding Red Knoll, which sits roughly 10 miles north of Kanab. Lease records indicate that Southern Red Sands’ precursor, Integrated Sands, purchased the permits from a New York-based mining company in May 2018.
The land is owned by the State of Utah School and Institutional Trust Land Administration, or SITLA, and functions as private land managed by the state to generate revenue for education. It is not subject to environmental regulations that exist for public land.
The company will restrict its mining to a 100-acre section of the SITLA parcel until the sand supply is exhausted, which Staheli expects to last between five and 10 years. The mine will then expand its operation onto adjacent Bureau of Land Management parcels if the demand for fracking sand still exists. Staheli has stated publicly that his company has purchased mining claims across 13,000 acres in the surrounding area. He says this a strategy to prevent potential competition from developing other sand mines.
How much water will it use?
Southern Red Sands says that extracting and processing that much sand will require roughly 400 acre-feet per year of water. The company will have access to up to 1,200 acre-feet per year, pending approval by the state engineer of water service agreements it has signed with Kanab and Kane County Water Conservancy District.
Where will the sand be transported?
The target market is the Uintah Basin, where oil and gas operations use between 1.1 million and 1.4 million tons of fracking sand each year, Staheli said.
Southern Red Sands is also considering shipping sand to the San Juan Basin in Northwestern New Mexico. However, Staheli says the option is not yet economically viable due to insufficient demand and road restrictions that would limit maximum truck weight.
Correction: 1:43 a.m. MDT 9/24/19. Oil and gas operations use between 1.1 million and 1.4 million tons of fracking sand each year. The Southern Red Sands production facility is being designed to produce 700,000 tons of sand annually.
David Fuchs is a Report for America corps member who reports from KUER's Southwest Bureau in St. George.