Hi-Crush Partners LP reported third quarter 2015 results. The limited partners’ interest in adjusted net income, adjusted to exclude the impact of one-time expenses, was $5.6 million and the basic and diluted adjusted earnings were $0.15 per limited partner unit. The basic and diluted loss per unit during the quarter was negatively impacted by $23.7 million of one-time expenses associated with the write-down of assets acquired from D&I Silica, LLC in June 2013, as well as the costs associated with reducing headcount.
Including the impact of these charges, the limited partners’ interest in net loss was $18.1 million for the third quarter of 2015, resulting in basic and diluted loss of $0.49 per limited partner unit.
Of the $23.7 million of one-time charges taken during the third quarter of 2015, $23.1 million were non-cash, while the remaining charges were related to severance, and costs associated with the realignment of development and operational priorities. Excluding the non-cash portion of the impairments and other expenses, the Partnership reported adjusted earnings before interest, taxes and depreciation and amortization of $13.4 million for the third quarter of 2015.
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“We continued to gain market share during this challenging market environment as evidenced by an 18 percent sequential increase in our third quarter sales volumes following sequentially unchanged volumes from the first to second quarter,” said Robert Rasmus, co-chief executive officer of Hi-Crush. “The reduced net income reflects the continued downward pricing pressure, which accelerated in August. While the long-term trend of more sand usage per well remains firmly in place, the near-term outlook for sand volumes is muted due to low energy prices causing reduced drilling and completion activities.”
Revenues for the quarter ended Sept. 30, 2015, totaled $81.5 million on sales of 1.4 million tons of frac sand. This compares to revenues in the second quarter of 2015 of $84.0 million on sales of 1.2 million tons of frac sand. Approximately 49 percent of our volumes were sold in-basin for the third quarter of 2015, a decrease from 58 percent in the second quarter of 2015 and an increase from 44 percent in the first quarter of 2015. Average sales price per ton sold decreased to $57 per ton in the third quarter 2015 from $67 per ton in the second quarter 2015, reflecting continued pricing pressure as a result of a general slowdown in market activity, particularly for well completions. The lower average sales price per ton during the third quarter also reflects the 9 percent drop in the percentage of volumes sold in-basin.
“Given the energy industry’s outlook for fourth quarter activity levels, and our customers’ anticipation of much greater than the usual seasonal declines across the industry, we expect the downward trend in well completion activity to continue in the fourth quarter with more pressure on pricing and reduced sequential sales volumes,” said Laura Fulton, chief financial officer of Hi-Crush. “As the prospects for a recovery are being pushed out, we continue to shore up our liquidity and improve our cost structure, including the temporary idling of our higher cost Augusta facility. We are expecting the remainder of 2015 and at least the first half of 2016 to be challenging with continued uncertainty in the level of well completion activity, a key driver of sand demand.”
Production costs for sand produced and delivered from the Wyeville and Augusta facilities was $11.32 per ton during the quarter, versus $13.45 per ton during the second quarter of 2015 and $13.89 per ton during the third quarter of 2014. Of the 1.4 million tons sold during the third quarter of 2015, approximately 67 percent were produced and delivered from the partnership’s facilities, with the remainder being purchased from the sponsor’s Whitehall facility.
The partnership announced a temporary suspension of its quarterly distribution due to challenging market conditions. Hi-Crush paid distributions of $2.40 per unit on all common and subordinated units for 2014, $0.675 per unit for the first quarter 2015, and $0.475 per unit for the second quarter 2015.
“Our decision to reduce our distribution a second time reflects our updated outlook for the fourth quarter of 2015 and full year 2016 operating and financial performance,” said Rasmus. “It is clear in light of public comments by the major oilfield service companies, combined with our discussion with these and other customers, the responsible action was to temporarily suspend our distribution. This is about prudent preservation of capital, building market share and positioning Hi-Crush for the eventual market turnaround. We continue to believe the fundamentals for increased frac sand demand over the long-term are favorable, but the recovery will take longer than previously thought.”