InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

How To Collect Your Share of My Million Dollar Giveaway

How To Collect Your Share of My Million Dollar GiveawayWe recently kicked off the most outrageous initiative in the history of investment research. It’s called the Income Millionaire Project. And the goal is simple: create 1,000 income millionaires. That’s a $1 billion goal! No one has ever tried it before, but that doesn’t bother me. I’m so sure you can use this program to make a million bucks… I’ll pay you $1,000 to start your journey. Go here for details.

 

Surf’s Up for Fracking Sand Suppliers

By Robert Rapier on August 11, 2016

The companies supplying sand for hydraulic fracturing (aka “fracking”) were among the hardest hit by the shale oil bust that began in mid-2014. Fracking involves pumping water, chemicals and (typically) sand under high pressure into an oil or gas well in order to break open channels (fractures), releasing the oil and gas trapped in rock. Oil and gas do not travel easily through these shale formations, which is why they need to be fractured. The sand helps to hold those fractures open, allowing oil and natural gas to flow to the well bore.

Oil and gas producers learned over the past decade that increased use of sand in fractured wells provided a huge return on investment. Thus, not only did the number of fractured stages per well increase, but the amount of sand used per stage also soared. This led to exponential sand consumption growth in drilling operations. In 2014, a major consulting firm projected that, after growing nearly 30% annually in 2012-13, demand would keep increasing 23% annually through at least 2016.

Then the shale bust came along and wrecked almost everything. While even major oil and gas producers saw their market value cut in half, the carnage among the sand providers was even worse. Major suppliers like Emerge Energy Services (NYSE: EMES) and Hi-Crush Partners (NYSE: HCLP) depreciated more than 90% from their 2014 highs. This was the result of the steep decline in rig counts, which undermined demand for sand even as usage per well  continued to grow.

The fracking sand market is highly fragmented, with some 50 producers. Among those that are publicly traded, Fairmount Santrol Holdings (NYSE: FMSA) is the second largest by production volume, but it also has a significant business line supplying sand and its resin-coated derivatives for the foundry, building products, water filtration, glass and recreation markets.

Emerge Energy Services is the 5th-largest producer by volume, and is structured as a master limited partnership (MLP). Until recently it had a fuel business that has now been sold to Sunoco (NYSE: SUN), turning Emerge into a pure-play fracking sand producer.

U.S. Silica Holdings (NYSE: SLCA) is the largest pure-play fracking sand provider, while another MLP, Hi-Crush Partners, is also among the top 10 suppliers.

EOG Resources (NYSE: EOG) is the 4th-largest producer, though it uses all of the sand it mines in its own wells.

Here is how the four major publicly-traded sand producers (excluding EOG) rank on some important financial metrics. Keep in mind that HCLP and EMES are both MLPs:

160811TELfracksandtable

  • EV – Enterprise value in millions of U.S. dollars, as of Aug. 9
  • EBITDA – Earnings before interest, tax, depreciation and amortization, in millions for the trailing twelve months (TTM)
  • FCF – Levered free cash flow, in millions
  • Debt – Net debt at the end of the most recent fiscal quarter
  • YTD Ret – Total shareholder return, including dividends, thus far in 2016

After a steep decline in late 2014 and last year, the group is up an average of 147.7% thus far in 2016. Of course cash earnings contracted sharply with the collapse in shale drilling, but a recovery in oil prices is expected to knock down those hefty multiples. U.S. Silica appears to be the healthiest of the group given its relatively large size, low debt, and FCF that’s not too deep into the red over the past year.   

But do any of these stocks belong in your portfolio? By now, most of them have run well ahead of their fundamentals. The downside risk is pretty high given my outlook for oil and gas prices over the next 6-12 months. But as that outlook changes, check in with us at The Energy Strategist and MLP Profits to see which of these fracking sand producers we might recommend when the time is right.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 


You might also enjoy…

 

Obscure Tax Law Forces This Company to Pay Out 90% of its Profits

A 50-year-old loophole is forcing one company to pay out $9 of every $10 it makes from ironclad contracts with the U.S. Government.

In fact, over the past seven years, it’s made payments ranging from a few dollars… to tens of thousands of dollars… 30 times. Without a single cut! 

Most folks don’t even know this company exists, but the ones that do are making a mint.

Like Ted B., who’s set to receive a check for $1,096 just a few days from now.

Merrill H., a 58-year-old from New York, has collected over $3,385 so far. 

And retirees Beth and Terry P. have raked in $16,555.

I’ve put together a special report that will give you all the details, including simple instructions on how to get your name on the payout list before the next cutoff date.

You can get your copy here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.