During Hi-Crush’s most recent conference call, management walked investors through some of these growth plans and the trends that underpin their future plans. Here is a look at some of the most pertinent management statements from the company, according to Tyler Crowe, writing for The Motley Fool.
• Sand and sand logistics are becoming the keystone issues for shale development. For the past year, shale drilling in the U.S. has been growing at a rather astounding rate. Oil prices in the $50 a barrel range were more than enough to entice producers out of their capital preservation strategies and back into producing more oil from places like the Permian Basin. According to Hi-Crush CEO Robert Rasmus, this is putting enormous strain on companies that manufacture frac sand as well as the logistics network to deliver it to shale basins. Bottlenecks and industry disruptions will only continue to negatively impact completion schedules and rapidly inflate E&P input cost.
• Last mile logistics matter. Continuing on that sand logistics theme, Rasmus went into last-mile logistics. This has been a big challenge for sand suppliers as delivery from rail terminals to well sites have been some of the less efficient aspects of the supply chain. So this gave Rasmus an opportunity to talk about its PropX and PropStream services. These are the last-mile services that use interchangeable hoppers instead of dump trucks. So far, it looks like these kinds of services are paying off.
• With the Permian Basin quickly becoming the crown jewel of the American oil and gas industry again, frac sand producers are looking at all the ways possible to lower sand costs and get as much product delivered to the basin as possible. One way to do that is with a mine that is in the basin. Hi-Crush recently purchased land in Kermit, Texas, that has the potential to be a premier sand mine for the company.
• If there is one thing worth critiquing about Hi-Crush’s plans, it’s that management is working on a short time horizon for all these expansion and development projects. One lesson that we learned from the oil price crash is that over-building for hypothetical growth could be devastating if that growth never materializes. Also, the company is putting off some debt reduction to do these expansion projects. According to CFO Laura Fulton, though, these moves need to happen now because the industry is already undersupplied. “Based on an average sand usage of just over 5,000 tons per well, an environment where the industry is operating 900 rigs or just 5 percent above the most recent rig count, would result in the need for approximately 95 million tons of sand,” she said. “We continue to see average sand loadings increase, so we concur with the analysts’ forecast and believe the assumption is driving this level of demand at today’s intensity levels could even prove to be conservative.”