Emerge Energy reported a net loss of $3.9 million, or $(0.12) per diluted unit, for the three months ended Sept. 30, 2018, compared to net income of $5.0 million, or $0.16 per diluted unit for the three months ended Sept. 30, 2017. For the three months ended June 30, 2018, net income was $9.4 million, or $0.30 per diluted unit.
Net revenues were $63.0 million for the three months ended Sept. 30, 2018, compared to $103.2 million for the three months ended Sept. 30, 2017, and $101.8 million for the three months ended June 30, 2018. Net revenues decreased due to lower northern white volumes sold, shift in mix away from higher priced terminal sales and a decline in northern white prices. Volumes sold through the company’s terminals totaled 23 percent of volume in the third quarter of 2018, compared to 45 percent in the third quarter of 2017, and 26 percent in the second quarter of 2018.
“We experienced disappointing results in the third quarter driven by the short-term challenging market conditions and a delay in ramping up our new San Antonio plant,” noted Ted W. Beneski, chairman of the board of directors of the general partner of Emerge Energy. “The slowdown in oil and gas completion activity has been well documented by notable industry participants. Leading oilfield services companies were surprised by the speed in which many of their Exploration and Production customers began to pull back completion programs starting in August. As a result, the market conditions for frac sand changed rapidly in the second half of the third quarter. The market quickly turned from a state of short supply in the first half of the year to oversupply in the last two months as the demand pullback coincided with an increase in production from new in-basin mines across west Texas, south Texas, and the Mid-Continent regions. Consequently, the entire industry has experienced pricing pressure, primarily on northern white product. We are responding to these market conditions by reducing costs and idling over 50 percent of our northern white capacity.
“Despite the limited visibility for fourth quarter activity, our customers are signaling that 2019 should be a high growth year as budgets are reset and the midstream issues in West Texas are resolved,” he said. “Customer sentiment for next year is upbeat, giving us confidence that the current demand softness is a temporary state.
“We remain excited about our two new in-basin plants – San Antonio, Texas, and Kingfisher, Okla. We made progress in the third quarter ramping up San Antonio, as sequential frac sand production doubled in the third quarter. However, weather and contractor delays impacted the final portion of construction. We now expect the plant to achieve the full four million tons per year run-rate at the end of November.
“We also expect to significantly reduce our production costs in the coming months when our new wet plant phases out purchasing third party wet sand and our new permanent utilities displace higher cost temporary electricity and natural gas sources,” Beneski concluded. “We are more than 60 percent contracted for the plant’s full capacity and are projecting to achieve 80 percent by year end. For our Oklahoma project, we broke ground in September, and we expect to be producing sand as early as January next year if the permitting process goes smoothly. We have worked hard to reposition Emerge Energy into a balanced producer of both northern white and in-basin frac sand, and we are confident that we will reap the benefits of this repositioning in 2019.”