When discussions turn to proppants, three companies are always part of the conversation. The first company discussed is usually Hi-Crush Partners because it's a pure play on monocrystalline sand proppants. Another company that enters the conversation is US Silica Holdings which offers whole grain commercial silica for use in hydraulic fracking but also offers products for the industrial and special chemicals industry. A third company often mentioned is Emerge Energy Services that offers various grades of industrial sands used in hydraulic fracking but also has fuel operations that operates two petroleum fuel terminals and two transmix processing facilities.
So what exactly are proppants? They're different sized particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment. They can be made of naturally occurring sand grains or man-made or specially engineered proppants, such as resin-coated sand or high-strength ceramic materials like sintered bauxite. Proppant materials are carefully sorted for size and sphericity to provide an efficient conduit for the production of fluid from a trapped petroleum reservoir to the well bore for extraction.
Hydraulic fracturing is a petroleum extraction process in which fracturing fluid is pumped into a well bore at a rate sufficient to increase pressure at the target depth to exceed that of the fracture (pressure) gradient of the rock. The fracture gradient is defined as pressure increase per unit of depth relative to density, and is usually measured in pounds per square inch, per foot, or bars per metre. The rock cracks, and the fracture fluid permeates the rock extending the crack further. Fractures are localized as pressure drops off with the rate of frictional loss, which is relevant to the distance from the well. Operators typically try to maintain "fracture width", or slow its decline following treatment, by introducing a proppant into the injected fluid – a material such as grains of sand, ceramic, or other particulate, thus preventing the fractures from closing when injection is stopped and pressure removed. Consideration of proppant strength and prevention of proppant failure becomes more important at greater depths where pressure and stresses on fractures are higher. The propped fracture is permeable enough to allow the flow of gas, oil, salt water and hydraulic fracturing fluids to the well.
The use of hydraulic fracturing ultimately increases the rate at which fluids can be recovered from subterranean natural reservoirs that are typically porous sandstones, limestones or dolomite rocks, but also include "unconventional reservoirs" such as shale rock or coal beds. Hydraulic fracturing enables the extraction of natural gas and oil from rock formations deep below the earth's surface (5,000–20,000 ft) which is greatly below typical groundwater reservoir levels. At such depth, there may be insufficient permeability or reservoir pressure to allow natural gas and oil to flow easily from the rock to the well bore to make the process economically feasible. As a result, creating conductive fractures in the rock is instrumental in extraction from naturally impermeable shale reservoirs. Fractures are a conductive path connecting a larger volume of reservoir to the well. In some cases "Super Fracking," is a process that creates larger cracks deeper in the rock formation to release even more oil and gas with greater efficiency.
According to the International Energy Agency, the remaining technically recoverable resources of shale gas are estimated to amount to 208 trillion cubic metros (208,000 km3), tight gas to 76 trillion cubic metres (76,000 km3), and coalbed methane to 47 trillion cubic metres (47,000 km3). As a rule, formations of these resources have lower permeability than conventional gas formations. Therefore depending on the geological characteristics of the formation, specific technologies (such as hydraulic fracturing) are required. Although there are also other methods to extract these resources, such as conventional drilling or horizontal drilling, hydraulic fracturing is one of the key methods making their extraction economically viable. The multi-stage fracturing technique has facilitated the development of shale gas and light tight oil production in the United States and is believed to do so in the other countries with unconventional hydrocarbon resources.
The yield for typical shale bores generally falls off after the first year or two, but the peak producing life of a well can be extended to several decades.
The use of hydraulic fracturing ultimately increases the rate at which fluids can be recovered from subterranean natural reservoirs that are typically porous sandstones, limestones or dolomite rocks, but also include "unconventional reservoirs" such as shale rock or coal beds. Hydraulic fracturing enables the extraction of natural gas and oil from rock formations deep below the earth's surface (5,000–20,000 ft) which is greatly below typical groundwater reservoir levels. At such depth, there may be insufficient permeability or reservoir pressure to allow natural gas and oil to flow easily from the rock to the well bore to make the process economically feasible. As a result, creating conductive fractures in the rock is instrumental in extraction from naturally impermeable shale reservoirs. Fractures are a conductive path connecting a larger volume of reservoir to the well. In some cases "Super Fracking," is a process that creates larger cracks deeper in the rock formation to release even more oil and gas with greater efficiency.
According to the International Energy Agency, the remaining technically recoverable resources of shale gas are estimated to amount to 208 trillion cubic metros (208,000 km3), tight gas to 76 trillion cubic metres (76,000 km3), and coalbed methane to 47 trillion cubic metres (47,000 km3). As a rule, formations of these resources have lower permeability than conventional gas formations. Therefore depending on the geological characteristics of the formation, specific technologies (such as hydraulic fracturing) are required. Although there are also other methods to extract these resources, such as conventional drilling or horizontal drilling, hydraulic fracturing is one of the key methods making their extraction economically viable. The multi-stage fracturing technique has facilitated the development of shale gas and light tight oil production in the United States and is believed to do so in the other countries with unconventional hydrocarbon resources.
The yield for typical shale bores generally falls off after the first year or two, but the peak producing life of a well can be extended to several decades.
Weekly Chart (Click to Enlarge) Hi-Crush Partners LP produces and supplies monocrystalline sand in the United States. The monocrystalline sand is a mineral that is used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. It owns, operates, and develops sand reserves and related excavation and processing facilities, which include a 751-acre facility with integrated rail infrastructure, located in Wyeville, Wisconsin; and the Augusta facility located in Eau Claire County, Wisconsin. The company offers raw frac sand used in hydraulic fracturing operations for oil and natural gas wells. It primarily serves pressure pumping service provides. Hi-Crush GP LLC operates as the general partner of the company. Hi-Crush Partners LP was founded in 2012 and is based in Houston, Texas. (Summary) (Company) (Daily Chart)
HI-Crush Partner's reserves consist primarily of Northern White sand predominately found in Wisconsin and limited portions of the upper Midwest region of the US. This particular sand is highly valued as a preferred prop pant due to its favorable physical characteristics. From this source Hi-Crush Partners produces a range of frac sand sizes used in all the major U.S. shale basins. It's also one of the few Northern White sand producers with onsite rail capacity. Substantially all of their frac sand production is sold to leading investment grade-rated pressure pumping service providers under long-term, take-or-pay contracts that require their customers to pay a specified price for a specified volume of sand each month.
In June 2013 HCLP acquired D&I Silica, LLC, the largest supplier of frac sand servicing the Marcellus and Utica shale regions. As part of that acquisition the company not only supplies frac sand, they also now provide a variety of trainload services for their customers including terminal storage and railcar storage and handling.
HI-Crush Partner's reserves consist primarily of Northern White sand predominately found in Wisconsin and limited portions of the upper Midwest region of the US. This particular sand is highly valued as a preferred prop pant due to its favorable physical characteristics. From this source Hi-Crush Partners produces a range of frac sand sizes used in all the major U.S. shale basins. It's also one of the few Northern White sand producers with onsite rail capacity. Substantially all of their frac sand production is sold to leading investment grade-rated pressure pumping service providers under long-term, take-or-pay contracts that require their customers to pay a specified price for a specified volume of sand each month.
In June 2013 HCLP acquired D&I Silica, LLC, the largest supplier of frac sand servicing the Marcellus and Utica shale regions. As part of that acquisition the company not only supplies frac sand, they also now provide a variety of trainload services for their customers including terminal storage and railcar storage and handling.
| 3 May 2015 Price $34.88 1yr Target $45.25 Analysts 12 1yr Cap Gain 29.73% Dividend $2.70 Yield 7.74% 1yr Est Tot Return 37.47% 1yr DivGR 16.75% 2yr DivGR N/A P/E 10.38 PEG 1.37 | Market Cap $1.29 Bil Beta UNK EPS (ttm) $3.36 Payout Ratio 80.35% EPS next yr $3.42 Forward P/E 10.20 Debt/Equity 1.14 ROA 32.60% ROE 78.20% ROI 35.60% Sales $386.50 Mil Income $123.10 Mil Profit Margin 31.85% |
Weekly Chart (Click to Enlarge) U.S. Silica Holdings, Inc. produces and sells commercial silica in the United States. It operates through two segments, Oil & Gas Proppants, and Industrial & Specialty Products. The company offers whole grain commercial silica products to be used as fracturing sand in connection with oil and natural gas recovery, as well as sells its whole grain silica products in various size distributions, grain shapes, and chemical purity levels for manufacturing glass products. It also provides ground commercial silica products for use in plastics, rubber, polishes, cleansers, paints, glazes, textile fiberglass, and precision castings; and fine ground silica for use in premium paints, specialty coatings, sealants, silicone rubber, and epoxies. In addition, the company offers other industrial mineral products, such as aplite, a mineral used to produce container glass and insulation fiberglass; calcined kaolin clay, a mineral primarily used as a functional extender in paints, plastics, specialty coatings, and rubber; and adsorbent made from a mixture of silica and magnesium for preparative and analytical chromatography applications. It serves oil and gas recovery markets; and building products, fillers and extenders, foundry products, chemicals, recreation products, and filtration products industries, as well as container glass, fiberglass, specialty glass, and flat glass products industries. As of December 31, 2014, the company had approximately 363 million tons of proven and probable recoverable mineral reserves. The company, formerly known as GGC USS Holdings, Inc., is headquartered in Frederick, Maryland. (Summary) (Company) (Daily Chart)
The company is a leading producer of industrial minerals, including sand proppants, whole grain silica, ground silica, fine ground silica, calcined kaolin clay and aplite clay. In addition to offering over 250 products in these categories, U.S. Silica also operates as a research and development specialist for customized products and solutions utilizing the same raw materials. The wide variety of industries and applications served by U.S. Silica includes oil and gas, glass, chemicals, foundry, building products, fillers and extenders, recreation, industrial filtration and treatment, and testing and analysis.
The company is a leading producer of industrial minerals, including sand proppants, whole grain silica, ground silica, fine ground silica, calcined kaolin clay and aplite clay. In addition to offering over 250 products in these categories, U.S. Silica also operates as a research and development specialist for customized products and solutions utilizing the same raw materials. The wide variety of industries and applications served by U.S. Silica includes oil and gas, glass, chemicals, foundry, building products, fillers and extenders, recreation, industrial filtration and treatment, and testing and analysis.
| 3 May 2015 Price $37.67 1yr Target $41.77 Analysts 13 1yr Cap Gain 10.88% Dividend $0.50 Yield 1.32% 1yr Est Tot Return 12.20% 1yr DivGR 33.33% 2yr DivGR N/A P/E 16.89 PEG 0.56 | Market Cap $2.01 Bil Beta UNK EPS (ttm) $2.23 Payout Ratio 22.42% EPS next yr $1.86 Forward P/E 20.30 Debt/Equity 1.25 ROA 13.60% ROE 37.90% ROI 15.30% Sales $876.70 Mil Income $121.30 Mil Profit Margin 13.83% |
Weekly Chart (Click to Enlarge) Emerge Energy Services LP acquires, owns, operates, and develops a portfolio of energy service assets in the United States. The company operates in two segments, Sand and Fuel. The Sand segment is involved in the production and sale of various grades of industrial sand primarily used in the extraction of oil and natural gas, as well as in the production of building products and foundry materials. The Fuel segment operates two terminals and two transmix processing facilities located in the Dallas-Fort Worth, Texas area and Birmingham, Alabama. This segment also engages in the sale of wholesale petroleum products; provision of third-party terminaling services; blending of renewable fuels; and provision of reclamation services, such as tank cleaning services, as well as other complementary products and services. Emerge Energy Services GP, LLC operates as a general partner of the company. Emerge Energy Services LP was founded in 2012 and is based in Southlake, Texas. (Summary) (Company) (Daily Chart)
Sand. Emerge Energy Services’ sand subsidiary produces silica sand that is a key input for the hydraulic fracturing of oil and gas wells. While the Company is able to produce sand suited for the stimulation of both oil and gas wells, the Company has developed a strong reputation in the industry for producing sand that meets the strict requirements for use in oil wells. Their sand facilities are located in New Auburn, WI, Barron County, WI and Kosse, TX, with headquarters in Fort Worth, TX.
Fuel Processing and Distribution. Emerge Energy Services’ Fuel Processing and Distribution subsidiary is focused on acquiring, re-refining and selling transmix (transportation mixture). Transmix is received by the business from a number of common carrier pipelines that include the Explorer, Plantation, and Colonial pipelines, as well as via truck and private pipeline from independent refinery and terminal operators. Additionally this subsidiary includes wholesale, terminal and biodiesel operations.
Sand. Emerge Energy Services’ sand subsidiary produces silica sand that is a key input for the hydraulic fracturing of oil and gas wells. While the Company is able to produce sand suited for the stimulation of both oil and gas wells, the Company has developed a strong reputation in the industry for producing sand that meets the strict requirements for use in oil wells. Their sand facilities are located in New Auburn, WI, Barron County, WI and Kosse, TX, with headquarters in Fort Worth, TX.
Fuel Processing and Distribution. Emerge Energy Services’ Fuel Processing and Distribution subsidiary is focused on acquiring, re-refining and selling transmix (transportation mixture). Transmix is received by the business from a number of common carrier pipelines that include the Explorer, Plantation, and Colonial pipelines, as well as via truck and private pipeline from independent refinery and terminal operators. Additionally this subsidiary includes wholesale, terminal and biodiesel operations.
| 3 May 2015 Price $39.85 1yr Target $59.13 Analysts 8 1yr Cap Gain 48.38% Dividend $5.64 Yield 14.15% 1yr Est Tot Return 62.53% 1yr DivGR 273.65% 2yr DivGR N/A P/E 10.80 PEG 0.26 | Market Cap $945.24 Mil Beta N/A EPS (ttm) $3.69 Payout Ratio 152.84% EPS next yr $3.52 Forward P/E 11.31 Debt/Equity 1.51 ROA 22.50% ROE 55.20% ROI 25.00% Sales $1.11 Bil Income $89.10 Mil Profit Margin 8.01% |
My Perspective
Although hydraulic fracking has been around for about 65 years, it wasn't applied effectively to the oil and gas industry until around 1947, but at the time the technology of fracking was just too expensive to be practical. The current processes became economically viable in 2004 as the price of oil rose above the $60 per barrel threshold. Once that level was breached, an entire industry was created almost over night in North Dakota and South Texas. And that continued until the Saudi's realized they were losing market share and flooded the market with cheap OPEC oil. The result was both the fall in the price of oil and the end to hydraulic fracturing. And that greatly affected the sale of proppants. This can easily be seen in the price charts of the three companies above.
Since proppants are tied to hydraulic fracking and that is tied to the price of oil, then proppants are tied to the price of oil. I believe the price of oil bottomed a month ago near $45 per share and is now on the way up. Granted it won't be a straight line upward, but as oil pushes above $60 per barrel hydraulic drilling suddenly makes since. And the demand for proppants explodes.
While this is not the simple buy and hope strategy that most investors find themselves in after the buy is made, and it's not a buy based on an historical growing dividend since the track record on these are just not there. This is an investment that needs a little more monitoring. But it's also one that could be explosive as the price of oil moves higher.
It must be remembered that Hi-Crush is a pure play proppant company and is price will be the most dependent on the price of oil. US Silica Holdings and Emerge Energy Services have additional subsidiaries that will insulate its stock price on both the upside as well as the downside possibly making them a better investment as the price of oil falls and a worse investment as the price of oil rises.
I plan to monitor the price of these three companies and use cash secured puts and covered calls, as well as my usual momentum indicators, to slowly swing into and out of these shares. I think trading these stocks could provide both good money and good entertainment.
Although hydraulic fracking has been around for about 65 years, it wasn't applied effectively to the oil and gas industry until around 1947, but at the time the technology of fracking was just too expensive to be practical. The current processes became economically viable in 2004 as the price of oil rose above the $60 per barrel threshold. Once that level was breached, an entire industry was created almost over night in North Dakota and South Texas. And that continued until the Saudi's realized they were losing market share and flooded the market with cheap OPEC oil. The result was both the fall in the price of oil and the end to hydraulic fracturing. And that greatly affected the sale of proppants. This can easily be seen in the price charts of the three companies above.
Since proppants are tied to hydraulic fracking and that is tied to the price of oil, then proppants are tied to the price of oil. I believe the price of oil bottomed a month ago near $45 per share and is now on the way up. Granted it won't be a straight line upward, but as oil pushes above $60 per barrel hydraulic drilling suddenly makes since. And the demand for proppants explodes.
While this is not the simple buy and hope strategy that most investors find themselves in after the buy is made, and it's not a buy based on an historical growing dividend since the track record on these are just not there. This is an investment that needs a little more monitoring. But it's also one that could be explosive as the price of oil moves higher.
It must be remembered that Hi-Crush is a pure play proppant company and is price will be the most dependent on the price of oil. US Silica Holdings and Emerge Energy Services have additional subsidiaries that will insulate its stock price on both the upside as well as the downside possibly making them a better investment as the price of oil falls and a worse investment as the price of oil rises.
I plan to monitor the price of these three companies and use cash secured puts and covered calls, as well as my usual momentum indicators, to slowly swing into and out of these shares. I think trading these stocks could provide both good money and good entertainment.
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