Do Good. Do Well.

OGFJ: Using sand to prop open fractures isn't a new phenomenon in the industry, but the exponential growth in the amount of sand used in completions is. What's driving the demand for more sand?

JD: As our industry recovers from one of the most dramatic downturns on record, we are seeing an increase in new well completions. Out of the downturn first came dramatic increase in rigs, and most recently, as rig counts are stabilizing, we continue to see an increase in the number of wells completed as completions resources catch up to drilling and operators work their way through drilled and uncompleted well (DUC) inventories. Further, E&P companies are pushing the envelope to alter decline curves and find new ways to make their operations more efficient and their wells more productive. The continued trend has been to increase the amount of proppant intensity per lateral foot and to drill longer laterals. Most E&Ps are finding that different proppant intensities can significantly improve the economic viability of their wells. As a result, we've seen a large uptick in demand for proppants, particularly frac sand.

OGFJ: This move to more proppant and greater intensity has had an effect on proppant pricing too. Can you give use an overview of the supply/demand dynamic here in the US and what Fairmount Santrol or the industry may be doing to address the shortage?

Michael Biehl (MB): You can expect to see new mines come online from the industry this year and next, primarily in the Permian basin - time will tell how quickly this new supply will come to market, as there are several matters mining companies may need to address before bringing new mines into a production mode. However, we expect proppant demand to expand both within the Permian Basin and in regions outside of the Permian Basin, so additional supply will be needed. We do not expect all E&Ps to do a complete conversion to regional sand grades and quality, leaving some of the Permian Basin demand to be addressed from current supply. While we certainly look at the bigger picture, our team is focused on serving our customers and making sure we have ample inventory to do so. We recently began construction of our Kermit mine in the Permian Basin to meet the growing demand for in-basin, regionally produced sand, and more specifically, meet the increased demand for smaller mesh sizes. Additionally, we've taken steps to optimize our supply chain distribution network, maximize unit train destinations and load per rail car. Recent advancements with our proppant transport technology have provided operators the flexibility to select coarser mesh sizes, which should help balance demand for various types and qualities of sand. We've increased raw sand prices approximately $20 per ton since the beginning of the year. Our ability to increase prices over the last few quarters has been the result of higher demands driven by industry dynamics such as proppant intensity as well as tightness in supply-especially as the higher demands are for finer grades of sand whereas the market supply dynamics are skewed toward a coarser mix.

OGFJ: With greater industry activity comes the need to balance our impact on the environment and our resources. Are upstream companies doing all they can to reduce their footprint?

Gerald Clancey (GC): Corporate social responsibility is a foundational value driver at Fairmount Santrol. We have a motto: Do Good. Do Well. So it's important for us to work with companies that share similar values. Our end customers and partners are constantly looking for ways to improve their operations, reduce their environmental impact and enhance their sustainability practices. Efforts to reduce truck miles, increase the use of recycled water while decreasing the use of fresh water, and minimize noise pollution are all successful initiatives we've seen recently. As exploration and development creeps closer to urban neighborhoods and established communities, we believe there will be an even greater emphasis placed on sustainable practices to better position operators and the industry as welcomed neighbors.

OGFJ: What has Fairmount Santrol done to keep up with the changing needs of the upstream industry and meet the demand for better, greener and more productive completions?

GC: Several things, in fact. We've introduced our proppant transport technologies, Propel SSP® and Propel SSP 350, to solve the decades-old challenge of evenly distributing proppant throughout the full length of a created hydraulic fracture. The technology props open the fracture from wellbore to tip, maximizing the fracture surface area to increase hydrocarbon production. Sand or ceramic proppants coated with our special polymer that swells in water, provide unprecedented transport to the tips of fractures. By doing so, E&Ps can overcome multiple operational constraints during their completions while reducing freshwater use and emissions, as well as, chemical and fuel consumption at the well site. Further, since larger proppant grains can now be carried and placed with ease and efficiency, operators have the flexibility to choose a larger and more conductive grain, increasing permeability and hydrocarbon flow through the proppant pack. In comparison to a common slickwater design, some operators have reduced frac water required by more than 50% when using Propel SSP. Adding to these advantages, operators have reported seeing increases in initial production rates and estimated ultimate recoveries by over 20%. What we're seeing is that our technologies are helping operators do well while doing good for the environment. In addition to reducing the amount of water, Propel SSP 350 allows for water reuse which presents significant opportunities for E&P companies to reduce costs and reduce their environmental impact.

OGFJ: Some proppant companies are making supply chain changes to better serve the needs of upstream E&P companies-direct sourcing and direct to well site delivery, for example. You are focused instead on making changes to the proppant itself in order to optimize fractures-is that a fair assessment?

MB: Yes, we want to more directly help E&P companies maximize the value of their assets, which means we have to help them improve production rates and recoveries in addition to supporting their cost-reduction and efficiency goals. We will always assess ways to improve our supply chain and operations, yet continue to focus on better completions.

What is the optimal fracture design, and what does the ultimate customer engagement look like for you?

JD: E&Ps want to safely yield the most effective propped fracture area with the least amount of resource demand, such as capital, time, sand, water, fuel, equipment and people. Achieving an optimal design through technology application, such as with Propel SSP, provides an opportunity to rethink field development plans, for instance, through tighter well spacing, as a result of enhanced propped area, as well as more effective infrastructure and service contracts. To address this hurdle and realize the full value potential of increased reserves and improved capital efficiency, the ideal customer engagement is forged from an open and collaborative relationship from the field to the executive suite. The path to a truly optimized frac involves a broad perspective of operational risks and benefits - changing the status quo. Executive engagement can reduce process barriers and increase willingness to allocate and invest resources. The results can be extraordinary.

OGFJ: Fairmount Santrol's proppant innovations have been used in wells in the Permian, Utica, and Marcellus, and even garnered traction internationally. What are operators seeing in terms of results?

GC: We've completed more than 150 wells using Propel SSP. Typical productivity gains are 20-25% within 12 months, however some studies have shown more than 50% uplift. Although it's designed to increase production through more effective proppant placement, benefits are immediately recognized on the surface where we have the ability to complete wells at any pump rate, any proppant concentration, any mesh size and varying water quality, while lowering the average treating pressure. Compared to a typical slickwater design, E&Ps will observe that a Propel SSP optimized design reduces water, chemicals, and time needed to complete wells.

OGFJ: Do you see your two main businesses at cross purposes with each other - selling sand and selling proppant systems that could potentially use less sand?

GC: We see them as complementary. Over the years, we've consistently developed strategic relationships to maximize value through mine and supply-chain efficiencies, as well as value added technology solutions. For years we have been the leading supplier of coated proppant and fluid diverting agents while consistently growing our mining operations and demand for our frac sands. Specifically, Propel SSP adds portfolio dynamics that enhance our value to customers. E&Ps can now shift between frac sand grades to hedge against inflation due to the ability to pump coarse sand with Propel SSP while fine sand in the market tightens.

OGFJ: Water management is a significant issue, especially for operators in the Permian, with some looking to reduce freshwater use and water management costs. Are these realistic goals for operators?

JD: Yes, in fact, this year, we introduced a produced-water tolerant version of Propel SSP to cope with these needs - Propel SSP 350, allowing operators to use up to 100% produced water. Believe it or not, you can actually frac with seawater, not to mention brine and produced water. With this extension of technical capability, we now can reduce overall demand for frac water by loading proppant with Propel SSP at more than two times the concentration of sand in slickwater, and promote water reuse. In fact, we've seen more than 50% water reduction in wells while using Propel SSP over a traditional slickwater design. To answer your question though, water management costs and disposal concerns continue to challenge operators, not just in the Permian. As an industry, we need to find more eco-friendly and economically viable ways to reduce fresh water use, increase water reuse, and utilize non-potable sources.

OGFJ: You recently reported second quarter 2017 operational and earnings results. What should readers glean from the quarter about the future performance and outlook for the company?

MB: We continue to execute well to meet strong demand as well as positioning ourselves, both operationally and financially, for the long term. Operationally, we're gearing up for what we see as another year of increased proppant demand and intensity per well, and a growing appetite for in-basin and regional sand. We are in the process of building our West Texas Kermit mine, which we anticipate will start-up early next year to serve the Permian Basin. Also, our Shakopee, Minnesota mine and sand processing plant, which is located on the Union Pacific railroad, has recently been reactivated. The addition of these two mines will add approximately 3.7 million tons of annual processing capacity to our mining footprint. We're also making investments to better align our production with demand. For example, we are increasing our production of fine grade sand, which we expect to be in the shortest available supply, at our Wedron, Illinois facility. And we're continuing to invest in Propel SSP field trials to build a strong case history of performance. Financially, we've demonstrated strong capital discipline by prepaying debt in 2016 and again in the second quarter of 2017. Our top priorities for the coming quarters will be to begin operations at our Kermit facility, continue reducing our net debt through free cash flow generation and to refinance our term debt and revolving credit facility prior to the end of 2017.

OGFJ: One last question for Jenniffer. You've been the company's president and CEO since 2013. How would you grade the level of diversity in senior leadership roles in our industry? How is Fairmount Santrol promoting diversity in its workforce?

JD: Diversity is vital for optimal success - in all industries, including our own. More perspectives means more opportunities for us to get to the right answer. At Fairmount Santrol, we pride ourselves on being a company with a people-first approach. And we're always looking for ways to improve. Just recently, we established our internal Diversity and Inclusion Council that is charged with developing meaningful ways to promote real diversity in our workplace culture, so we're excited to see the benefits that this council will create.

OGFJ: Thank you very much for your time.