Rail Congestion a First-Quarter Obstacle for Hi-Crush

Hi-Crush Partners LP reported revenues for the first quarter of 2018 totaled $218.1 million on sales of 2,617,627 tons of frac sand. This compares to $216.5 million of revenues on sales of 2,985,115 tons of frac sand in the fourth quarter of 2017.

“I am very pleased with our performance during the first quarter,” said Robert E. Rasmus, chief executive officer of Hi-Crush. “We were successful in growing our financial results sequentially, despite impacts to our business and the industry resulting from issues experienced by Class-1 railroads that limited our ability to fully meet increasing market demand for sand. Our performance in the face of this challenging environment is directly attributable to our highly contracted asset base, as well as our “Mine. Move. Manage.” strategy, which provides unique and valuable operational flexibility in serving our customers. We remain firmly committed to our owned and operated terminal strategy which, combined with our in-basin Permian sand production facility at Kermit and our PropStream last mile service offering, allowed us to execute and limit impacts to customers during the quarter. Our team is the best in the business, and I am very thankful for their efforts to deliver on behalf of our customers and unit-holders.”

Revenues for the first quarter of 2018 totaled $218.1 million, compared to $216.5 million for the fourth quarter of 2017. This slight increase was driven by higher frac sand pricing and increased logistics-related service revenues, largely offset by lower volumes resulting from rail issues.

The number of total unit train shipments in the first quarter of 2018 declined by approximately one-third compared to the fourth quarter of 2017, with unit train deliveries on the Canadian National Railway lower by nearly one-half. Average sales price was $73 per ton in the first quarter of 2018, compared to $71 per ton in the fourth quarter of 2017 and $60 per ton in the first quarter of 2017.

This improvement was due to supportive supply and demand dynamics in frac sand demand in excess of available supply, particularly for fine mesh sand, in addition to a higher percentage of volumes sold in-basin, which represented 86 percent of sales in the quarter compared to 76 percent in the fourth quarter of 2017.

Of total sales volumes, 21 percent were sold at the well site through PropStream, compared to 15 percent in the fourth quarter of 2017. The percentage of volumes sold at each delivery point varies quarter to quarter due to customer mix; however, the percentage of volumes sold at the terminal or the well site is generally expected to grow over time as customers increasingly prefer landing sand closer to, or at, the well site.

Contribution margin was $29.08 per ton in the first quarter of 2018, compared to $23.46 per ton in the fourth quarter of 2017. The 24 percent growth in contribution margin per ton primarily resulted from higher pricing, as well as increased volumes sold in-basin through Hi-Crush’s terminal network and at the well site through PropStream.

Ongoing rail congestion due to extreme weather conditions early in the quarter and power availability issues on the Class-1 railroads impacted operations in the first quarter of 2018. Volumes of Northern White sand available for delivery were temporarily restricted, resulting in sequentially lower sales volumes for the quarter. The partnership experienced improvement in rail service in the latter half of the first quarter of 2018, but anticipates some impacts to persist through the second quarter of 2018. Hi-Crush continues to work closely with its rail partners to formulate the best solutions to their lingering issues.

“Our financial and operating results were the direct result of the agility of our people and operations, as well as our successful response to dynamic market conditions,” said Laura C. Fulton, chief financial officer of Hi-Crush. “We responded creatively to the rail challenges, including the proactive direction of volumes to our most efficient terminals, the strategic trucking of sand to better enable rail shipments, the achievement of full run-rate capacity at our in-basin Kermit facility, and increased utilization of our in-basin storage and PropStream service to best align supply and delivery needs.”

Hi-Crush continued to operate its Kermit facility at full utilization during the first quarter of 2018, representing annualized run-rate production of approximately 3.0 million tpy. Kermit is contracted at approximately 90 percent of its nameplate capacity under long-term, fixed-price arrangements with high-quality customers, including large E&P companies. At the Pecos terminal, strong demand for Northern White sand volumes in the Permian Basin resulted in the highest throughput tonnage of any of Hi-Crush’s owned and operated terminals during the first quarter of 2018.

At the end of the first quarter of 2018, Hi-Crush had 12 PropStream crews in the Permian Basin and Marcellus/Utica plays, up from 10 crews at the end of the fourth quarter of 2017. As of today, Hi-Crush has 13 PropStream crews, and expects more than 20 crews to be deployed by the end of 2018.

“Following several quarters of major growth and development projects, including the completion of our Kermit facility, the start-up of our Pecos terminal, and ongoing deployment and growth in our PropStream offering, the first quarter accentuated the value of our dedicated, extensive, and fully-integrated platform,” said Rasmus. “During the quarter, we benefited from the ability to draw on our entire range of assets and capabilities to successfully address difficulties and opportunities head-on. Our increased direct alignment with customers provides us with greater visibility into the timing and levels of demand in the basins we serve, and we look forward to even closer collaboration with our customers going forward.”

“During the last few months, strategies by others in the industry have seemingly diversified away from logistics capabilities and a focus on energy markets and customers,” continued Rasmus. “We continue to believe that full control over the movement and management of frac sand is equally as vital as the production of sand. We are unwavering in our commitment to the energy industry, and our position as an integrated, dedicated provider of frac sand supply and logistics.”

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