Current HCLP Stock Info

Hi-Crush accelerates plans to provide frac sand to the Permian

Hi-Crush Partners (ticker: HCLP) released its first quarter earnings Monday reporting improving financial results and an increased pace of development on Permian facilities. The company plans to increase the number of crews it has operating to nine or more by the end of the year, up from four currently, the company said in its press release.

The news comes as the company looks to accelerate the development of a new terminal in Pecos, Texas, and a sand production facility in Kermit, both of which will service the Permian Basin.

“The first quarter results were in line with our forecasts and represent the logical progression in recovering margins as we experience significant and sustainable increases in demand for frac sand, which are expected to drive a 50-60% sequential increase in our volumes for the second quarter,” said Hi-Crush CEO Robert Rasmus.

Higher sales, higher pricing, higher revenues

Revenues for the first quarter of the year increased to $83.4 million from $67.3 million sequentially due to an increase in sales volumes, combined with higher pricing, the company said. Pricing continued to increase throughout the first quarter, according to Hi-Crush, and the company expects the trend to continue even as the industry’s capacity grows.

Hi-Crush potential sand demand

Hi-Crush reported EBITDA of $1.3 million for the quarter compared to a $0.3 million loss in Q4 2016 and a $44.9 million loss in Q1 of last year.

Increasing demand and stronger pricing have prompted the company to increase its 2017 CapEx budget range to $115 to $125 million as it looks to capitalize on the uptick in Permian drilling.

“What we had originally included in the [2017] budget would have just been some minimal CapEx [at the Pecos facility] with the majority of the spending happening in 2018,” said Hi-Crush CFO Laura Fulton. “Now, all of that has been accelerated into 2017.”

Starting in Q3: 3 million tons of sand annually from Hi-Crush facilities in the most active region of the U.S.

The company’s Kermit facility will offer Hi-Crush 55 million tons of reserves located closely to the Midland and Delaware Basins. Since the beginning of 2017 alone, there have been 1,500 well permits filed within 75 miles of the facility Hi-Crush said during the company’s conference call. The facility, which is scheduled to be operating by the third quarter of this year, will provide 3 million tons of sand per year once completed.

Hoping for the lowest delivered sand cost in the Permian

“With Kermit’s expected favorable production cost and its proximity to Permian demand centers, our in-basin facility should be the lowest delivered cost sand plant in the most active basin in the United States,” said Rasmus.

Hi-Crush portfolio

Sand expected to drive higher service costs

A report released by EnerCom Analytics in March of this year found that sand and pressure pumping are expected to be the main drivers behind increasing service costs across the United States. Based on conversations with members of the industry and institutional investors, EnerCom believes that overall service costs will increase 10% to 15% over the course of 2017 with services like pressure pumping and frac sand increasing by as much as 20% to 30%.

Most plays in the U.S. continue to generate 20% or greater internal rates of return (IRRs) with the expected service cost increases at $50 oil or better, but the picture quickly changes at $45 oil. Based on EnerCom’s analysis, only the Midland would be able to absorb the expected service cost increases at $45 WTI.

To learn how much of a service cost increase each play could absorb at various prices, what companies are doing to soften the blow of service costs and what service companies are doing to innovate in today’s markets, click here to see EnerCom’s Energy Data & Trends report.

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