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Frac sand companies could continue to feel strain even if oil makes a recovery

Every corner of the oil and gas industry has felt the effects of lower commodity prices since prices fell off drastically November of last year. Even as prices seem to be making a slow comeback, with Brent at $65.07, up $11.56 from March 17, and WTI at $57.13, up $13.67 also from March 17, businesses selling sand for fracs are feeling continued pressure.

Many frac sand companies are choosing to cut or maintain their distributions as a part of an overall strategy to manage costs during the price downturn. Hi-Crush Partners (ticker: HCLP) announced flat distribution sequentially after numerous consecutive quarters of distribution growth. The company said that annualized distributions will be $2.70, according to a press release.

Other companies, like Emerge Energy Services (ticker: EMES) have struggled more with low oil prices and reduced development activity. EMES decided to cut its distribution by 29% from Q4’14, to $1.00 per unit, according to the company. Ted Beneski, chairman of the board, said that the company expects a number of unnamed opportunities to improve results and the revised guidance better reflects current market conditions.

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Basic Energy (ticker: BAS) has seen a 15% decline in sand prices and management believes there is still more room for prices to fall. In 2014, BAS prices for sand were about $135-$145 per ton, but have since fallen to $115-$120 per ton, leading to a 35% decline in quarter-over-quarter revenue, according to the company. Global Hunters Securities believes BAS is well-positioned in the completion and and production maintenance sectors and has “adequate liquidity” to survive an extended downturn.

Frac sand companies may feel the more lasting effects from the price downturn as well, according to Abhishek Sinha at Wunderlich Securities. “Price concessions secured by the E&P companies would not be very short term and could put a lid on the low sand prices for 12-18 months even if oil prices stage a convincing recovery,” said the note.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.


Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.