Hi-Crush Touts Higher Sales; Successful First Quarter

Hi-Crush Partners reported first quarter 2017 results. Revenues for the quarter ended March 31, 2017, totaled $83.4 million on sales of 1,384,887 tons of frac sand. This compares to $67.3 million of revenues on sales of 1,358,511 tons of frac sand in the fourth quarter of 2016. The limited partners’ interest in net loss was $5.4 million for the first quarter of 2017.

The partnership announced the completion of its previously announced series of purchase agreements, including the acquisition of Permian Basin Sand Co. LLC, the acquisition of the Whitehall facility, the acquisition of the remaining 2 percent additional interest in Hi-Crush Augusta LLC and additional properties located near the Whitehall facility.

Consideration for these acquisitions was $340 million in cash and 3,438,789 newly issued common units, exclusive of the up to $65 million contingent consideration associated with the Whitehall transaction. To finance the transactions and the construction of the Kermit, Texas, production facility on the Permian Basin Sand acreage, Hi-Crush sold a total of 23,575,000 public common units in a previously completed equity offering, raising total net proceeds of approximately $412.7 million.

“The first quarter of 2017 was busy for our team and I’m very proud of how our employees continue to position Hi-Crush for the further increases in industry activity,” said Robert E. Rasmus, chief executive officer of Hi-Crush. “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 to 60 percent sequential increase in our volumes for the second quarter. We are pleased with our progress toward achieving full utilization on our 10.4 million tpy of existing Northern White capacity and bringing our new 3.0 million tpy in-basin Kermit facility to market in the third quarter of 2017. We remain intensely focused on executing our plans using the basics that have made Hi-Crush an industry leader in cost structure and logistics flexibility, now on our expanded asset base and service offering.”

Revenues for the first quarter of 2017 increased due to the sequential increase in sales volumes, combined with higher pricing generally, and the impact of higher volumes sold in-basin during the first quarter of 2017. Reflecting the change in mix in customer demand, approximately 6 percent of the volumes were sold in-basin for the first quarter of 2017, an increase from 57 percent in the fourth quarter of 2016 and from 59 percent in the first quarter of 2016.

Average sales price was $60 per ton in the first quarter of 2017, compared to $49 per ton in the fourth quarter of 2016 and $54 per ton in the first quarter of 2016, reflecting a higher pricing environment, particularly during the second half of the first quarter of 2017, and the mix of greater in-basin sales volumes. Pricing in the first quarter of 2017 was rising throughout the three-month period, with the majority of price increases occurring in February 2017, and generally was higher than the first quarter of 2016, during which pricing was declining month over month.

“Our first quarter of 2017 results were in line with our general expectations outlined in our fourth quarter 2016 earnings call,” said Laura C. Fulton, chief financial officer of Hi-Crush. “As we expected, our volumes lagged certain demand indicators such as completions and rig count due primarily to the decision we made in September 2016 to not resume operations at the Augusta wet plant given uncertain market conditions at the time. Industry supply was particularly tight during the first quarter as winter inventories were depleted. Today, we have all four production facilities operational and are in a prime position to meet the growing industry demands. Even with additional industry capacity coming online from restarting facilities such as our own Whitehall facility that reopened in March, we anticipate strong spot pricing trends to continue, particularly for fine mesh sands, as demand further outstrips supply.”

Contribution margin was $8.15 per ton in the first quarter of 2017, compared to $3.51 per ton in the fourth quarter of 2016. The increase in contribution margin per ton was the result of the pricing increases realized during the first quarter of 2017, partially offset by increased production costs of approximately $2.00 per ton due to the normal winter maintenance performed on wet plants, as well as additional costs incurred for the resumption of operations at the Whitehall facility. Production costs in the first quarter of 2017 benefited by approximately $1.00 per ton from the sale of coarser grades of sand as compared to the fourth quarter of 2016.

The partnership also announced the acceleration of the construction plans for the new unit train capable terminal with silo storage under construction in Pecos, Texas. The terminal will be the largest in the southern Delaware basin and will complement the existing Hi-Crush terminals in the Midland Basin. Combined with the in-basin sand production from the 3.0-million-tpy Kermit facility under construction and expected to be completed in the third quarter of 2017, Hi-Crush will have the ability to deliver the lowest cost sand into the most active basin in the United States.

“The flexibility of our owned and operated distribution network and the ability to offer a full suite of services from the mine site to the blender hopper is of critical importance to our customers,” said Rasmus. “Instrumental to this integrated supply chain is the ability to control the matching of origin and destination pairings to get sand in-basin efficiently and cost effectively, and avoiding the bottlenecks associated with final delivery to the operator well site. As sand intensity continues to increase, we are confident that our PropStream service offering will continue to gain even further traction as customers seek surety of supply and efficiency of operations, whether sourcing from our terminal network or our in-basin mine.”

Hi-Crush currently has four PropStream crews operating in the Permian Basin and the Northeast, serving the Marcellus and Utica plays, with the expectation to grow the total fleet of crews to nine or more by the end of 2017. The equipment used in the PropStream operations is purchased or leased from Proppant Express Investments LLC (PropX), a joint venture owned in part by Hi-Crush. Fifteen PropX systems are currently active in various basins in North America, with expectations to grow to over 30 fleets by the end of 2017 including those utilized by Hi-Crush, giving PropX since inception an estimated market share of 10 percent or more in 15 months.

For the second quarter of 2017, the partnership expects volumes to increase by 50 to 60 percent sequentially. Pricing is also expected to increase sequentially, as the partnership realizes the full-quarter benefit of price increases implemented midway through the first quarter of 2017, combined with further price increases driven by supply and demand imbalances, particularly for fine mesh sizes of sand.

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