US Silica 2Q16: So-So Quarter, Buys Frack Logistics Company
Last week U.S. Silica, one of the largest frac sand providers in the U.S., issued their second quarter 2016 update last week. Frac sand providers are a good barometer for when/if drilling is coming back. You don’t order sand unless you’re drilling wells. The company lost $12 million in 2Q16 versus losing $10 million in 2Q15. However, $1.1 million of that was due to “restructuring costs.” What about revenue? Revenue was $117 million in 2Q16 versus $147.5 million in 2Q15. So we can sum up 2Q16 as “so-so.” Not terrible, not good. With luck, 3Q16 will look better (with drilling beginning to pick up). However, in a sign that U.S. Silica believes the market will come back, they also announced last week they are buying out Sandbox Enterprises, “a leading provider of innovative logistics solutions and technology for the transportation of proppant used in hydraulic fracturing in the oil and gas industry.” That’s a sure sign they think oil and gas is coming back…
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Contrary to the BH view that drilling will remain in the crapper for the rest of 2016 (see Baker Hughes Laid Off 3K in 2Q16, No Drilling Recovery in 2016), CARBO Ceramics, a company that supplies sand and ceramic beads used in fracking, was more upbeat about the rest of the year in their second quarter 2016 update. CARBO’s CEO Gary Kolstad said, “…the second quarter likely marked the bottom for activity levels as both oil and natural gas commodity prices and the North American rig count started to recover,” and “Sales volumes began to improve as the quarter progressed. In addition, with the increasing commodity prices, we have received increasing customer inquiries about procuring ceramic proppant for completions in the second half of 2016.” In other words, things are beginning to look up–at least according to CARBO. Their own numbers don’t seem to reflect that optimism. Total proppant sales (as measured in millions of pounds sold) were down an astonishing 75% year over year: 448 million pounds sold in 2Q15 vs. 112 million pounds sold in 2Q16. Here’s the CARBO upbeat 2Q16 update…
Fairmount Santrol, an Ohio-based sand producer that sells sand as a proppant for use in Utica and Marcellus Shale drilling, released their preliminary second quarter 2016 results last week. Although the company expects to lose between $91-$93 million for the quarter (compared to a profit of $14.1 million a year ago), things are not all bad. Yes, it’s been tough for Fairmount and other companies in the oil and gas industry. Really tough. But Fairmount’s CEO Jenniffer Deckard, said this: “…we are also encouraged by the early signs of improvement we are seeing in the proppant market.” In other words, a crack of light is peeking through the door and we’re beginning to see the great slowdown in drilling come to an end…
Fairmount Santrol is a proppant manufacturer/supplier headquartered in Ohio. Proppants are things like sand and ceramic beads used to “prop open” tiny fractures created in hydraulic fracturing of shale oil and gas wells. In other words, Fairmount Santrol is a regional sand supplier for shale drillers–and a good proxy to understand what’s happening (or not happening) in our neck of the woods when it comes to drilling. If drillers aren’t drilling as much, that will show up first in the balance sheets of companies like Fairmount. And so it does. Fairmount reports in their first quarter 2016 update that revenues in 1Q16 were down 52% from 1Q15. But you can’t automatically assume that means there was half the drilling one year later. Fairmount also reports the volume of sand sold was down just 8% from 1Q15 to 1Q16. Why the discrepancy between revenue and volume? Fairmount doesn’t say, but we think we know: drillers have been putting the squeeze on supply chain companies like Fairmount, forcing them to deeply discount their prices…
MPR Transloading & Energy, part of MPR Supply Chain Solutions, operates a 20-acre transloading site on the shores of the Ohio River in Belmont County, OH, just across the river from Wheeling, WV. MPR is working hard to finish a new, large sand hopper at the site so trucks hauling frac sand can pull under it to quickly load and head off to drill sites in the region. There’s just one small problem: There are only 35 rigs operating in eastern Ohio and West Virginia today, half of the number that were operating just a year ago when the sand hopper was planned. That is, there’s less demand for sand…