Fairmont Santrol Reports Reduced Frac Sand Volumes

Fairmount Santrol announced results for the second quarter ended June 30, 2015. Second-quarter 2015 revenue totaled $221.3 million, down 34 percent from $334.3 million for the same period in 2014, and down 27 percent from $301.5 million in the first quarter of 2015.

Overall sales volumes were 2.2 million tons for the quarter, approximately an 8 percent decrease compared with 2.4 million tons in the second quarter of 2014 and a 4 percent sequential decrease from 2.3 million tons. The decrease in volumes in the second quarter of 2015 over the prior-year period was primarily a result of reduced demand for proppants due to the continued decline in U.S. oil and gas land drilling activity driven by sustained low oil and gas prices.

For the second quarter, net income was $ 14.1 million, or $0.08 per diluted share, compared with net income of $43.9 million, or $0.27 per diluted share, for the same period a year ago and $30.8 million, or $0.18 per diluted share, in the first quarter of 2015. Adjusted earnings per diluted share were $0.02, compared with $0.27 for the second quarter of 2014 and $0.19 in the first quarter of 2015.

Adjusted earnings per share exclude the after-tax impact of non-recurring charges of $0.06 per share taken in the second quarter and the benefit recorded in the quarter of $0.12 per share from a decrease in the company’s estimated full-year tax rate from 25 percent to a negative 55 percent. Adjusted EBITDA of $36.5 million was down 62 percent from the same period a year ago and down 51 percent sequentially. The decline in adjusted earnings resulted primarily from lower proppant volumes and pricing, as well as a mix shift toward uncoated products.

Total Proppant Solutions volumes for the second quarter of 2015 were 1.6 million tons, down 10 percent compared to the prior-year period and the first quarter of 2015. Raw frac sand volumes were 1.4 million tons, flat compared with volumes for the same period a year ago and down 7 percent sequentially. Coated proppant volumes were 0.21 million tons, down 45 percent from the prior-year period and down 29 percent versus the first quarter of 2015. The company saw certain customers move away from using resin-coated sand in the quarter in their efforts to reduce near-term input costs.

During the second quarter, the company saw an average decline in selling prices of 13 percent across all product lines. For the period, that represented an approximate $9 to $12 per ton decline in the average selling price of raw frac sand.

Proppant Solutions revenue totaled $188 million in the second quarter, a 37 percent decrease compared with $301 million in the same period a year ago and down 31 percent sequentially.

Adjusted contribution margin for the Proppant Solutions segment decreased to $37.8 million this quarter from $103.9 million in the second quarter of 2014 and $83.8 million in the first quarter of 2015 due to the decline in volumes and selling prices described above. The operating results for the Proppant Solutions segment include the company’s net investment in developing Propel SSP of approximately $2 million.

“We are proud of the way the entire Fairmount Santrol organization has responded to the very challenging conditions in the oil and gas market,” said Jenniffer Deckard, president and chief executive officer. “Our focus is on reducing costs, maximizing efficiencies, developing differentiated products and gaining market share by helping our customers to lower costs and improve productivity. We and our customers continue to benefit from our terminal network, with 70 percent of our frac sand products sold in basin in the second quarter. This footprint differentiates Fairmount Santrol, allowing us to gain share and to realize solid returns on our logistics investments.

“We continued our cost reduction actions in the second quarter, including further organizational restructuring, facility consolidation and tightening of operating expenses,” Deckard continued. “While we incurred cash and non-cash charges related to these actions during the quarter, they were essential for protecting our flexibility and cost position going forward.

“The company remains very encouraged by the continued momentum in Propel SSP trials and the strong well results that customers are reporting,” Deckard concluded. “This is a challenging market in which to introduce new technology. The continued growth in Propel SSP trials is a testament to the unique value proposition this product provides our customers. We are continuing to gather data and to refine our commercial launch strategy, and we maintain our conviction that this product will be an important part of Fairmount Santrol’s technology offering and will serve to enhance the productivity of oil and gas wells and to reduce the operator’s production cost per BOE.”

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