A key principle to Foolish investing is to invest in long-term trends -- preferably megatrends that will supply a vital and growing global economic need for decades to come. One of the largest of these needs is energy, specifically oil and natural gas. Despite growing interest in alternative energy sources, a recent study by Morgan Stanley and Rystad Energy predicts that global demand for oil will increase 13%-26% from its already record levels.

This is expected to increase the price of oil to $125/barrel to $150/barrel and create immense incentives for energy E&P (exploration and production) companies to increase production of oil and gas. This includes spending almost $650 billion annually on oil exploration and production (a 15% CAGR growth rate over the last 11 years).

This immense market creates opportunities for "pick and shovel" providers such as oil services companies, who provide necessary and highly sought after tools and services to drill, maintain, and maximize output from oil and gas wells. This article is about a particular sub-industry within this sector, a major provider of a niche product whose demand is skyrocketing and will only increase in the years and decades to come. 

Fracking sand: the new white gold
Hydraulic fracturing involves blasting high-pressure water into rock containing trapped oil and gas, which escapes through the created cracks. Each well costs $4 million to $12 million to drill, and so energy companies are eager to maximize production and yield from their expensive investments. 

One of the easiest and most cost-effective methods for increasing oil/gas production is through the use of proppants; materials that "prop" open cracks and are highly porous (thus helping to maximize flow to the surface). 

The leading proppant used today is white silica fracking sand, mined out of Wisconsin, Illinois, and Texas. Leading producers of frack sand include Emerge Energy Services (NYSE: EMES), US Silica Holdings (SLCA 0.16%), and Hi-Crush Partners. The second leading proppant is industrial ceramic, mainly produced by CARBO Ceramics (CRR), which is slightly more expensive but better suited for more severe conditions, such as deeper drilling. Demand for proppants has been booming in recent years and is expected to increase 30% between 2013 and 2016, making all four companies excellent investments. This article highlights one of the oldest and most well run companies providing this vital energy niche product.

US Silica Holdings has been in operation for over 100 years and is a leading supplier of high-quality sand to both energy and industrial companies. The company has 15 facilities with another two planned and reserves of 297 million tons of sand (36.2 years of production at current levels).The investment thesis for this company consists of three parts: expansion opportunities, pricing power, and future potential dividend growth.

In the most recent quarter the company reported a 45% increase in demand for sand. In the earnings call the CEO reported that the average well has doubled its use of sand from 2,500 tons/well to 5,000 tons/well, and some wells are using up to 8,000 tons of sand. 

Demand is projected to increase an additional 25% this year, and the company is currently sold out of all grades of sand. This has granted the company immense pricing power, and it recently announced an increase in pricing for non-contracted silica (average of 20% increase). The company is planning to use the additional revenues to fund its aggressive expansion efforts. 

This expansion includes new transportation centers closer to key shale areas such as the fast-growing Eagle Ford in Texas. The company is currently constructing a San Antonio facility with storage capacity of 15,000 tons that will be able to deliver a total of 500,000 tons/year. On the supply side the company is building a new mine in Utica Illinois, scheduled to come online at the end of Q2 2014. This mine will increase annual sand capacity by 1.5 million tons annually, or 18.3%. 

The final key to the investment thesis is the potential for immense dividend growth. Currently the yield is an unimpressive 1%, and the company hasn't raised the dividend for five quarters. However, analysts are projecting immense future dividend growth of 25% over the next decade, backed by 20% EPS growth.

Foolish takeaway
America's fracking boom is just getting started, and fracking sand suppliers are one of the best "pick and shovel" methods for investors to cash in on the new gold rush. US Silica represents one of the oldest and most established firms in the space. With some of the largest reserves and hard-to-replicate, diversified customer relationships, US Silica is poised for many years of solid growth. Despite the recent run up in price patient, long-term investors should initiating a small position in the company, or at least placing it on their watch lists.