I own BAS, VOC and HCLP, so yes today is welcome relief. I have a lot of upside to get back to break even (and honestly, more yet to hit my old highs). But I also know better than to start shooting off fireworks and spitting on oils detractors.
So far, word out of the oilfield services is that operations continue apace. This is not unexpected though, as the concern has always been for what would happen if oil prices don’t make further wells economical. Right now, future spending is null and that will be what ultimately drives the prices of companies like BAS (hence the massive drawdown in the name).
As for HCLP, the company is awesome and they have long term supply contracts signed which mandate minimum deliveries, so they are more prepared to weather the storm. But ultimately, again, demand for their product (frac sand) trumps financial tomfoolery like supply agreements.
VOC is a direct play on oil prices, and here I am getting hosed. I need price recovery. I thought I knew what VOC’s oil extraction cost was (which should have spared me concerns of a total collapse), but now the Trust is playing loose and fast, claiming the expenses have dramatically changed. Right… It smells bad, but I would stop short of calamity. Unpleasantness, though, may be an apt description.
I hope the accountants involved all burn in hell.
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Huge short covering, nothing more for now.
Some of my oil stocks are back to levels when oil was >$80 not $50.
Fracking takes a bad business and makes it horrible with it’s massive decline rates. Even if all existing wells stay open, they will still experience >20% reserve reduction w/o new wells. It needs to go away.
guys – my takeaway / summary of hclp call… sorry if this is too long.
FINANCIAL
• EBITDA was $45 million for the fourth quarter, an 83% increase compared to the $24 million in the fourth quarter of 2013. EBITDA for the full-year 2014 was $140 million.
• Our production costs were $15.72 per ton during the fourth quarter, which was higher than our third quarter production cost of $13.89 per ton. As I mentioned, this quarter on quarter increase of cost per ton was primarily due to an early onset of winter weather in Wisconsin which increased sand extraction and handling cost primarily at our Augusta facility.
• We have yet to borrow on our $150 million revolver facility.
• Our debt to the trailing 12 month EBITDA ratio continues to be conservative at 1.32 times.
• Turning to, we plan to spend in the range of 30-$50 million in 2015. We will continue some because of the plans and if it is the expansion of our Smithfield and Mingo junction terminals in the Marsalis and Utica.
• Last May we gave guidance for 2015 that included a base of contracted sales volumes of 4,000,000 tons. Since then, we’ve increased our contracted sales volumes to 6.6 million tons about one third of which is currently planned to be sourced from Whitehall.
• We are leaving our EBITDA guidance for 2015 unchanged for now. Our guidance is based on what exists in the partnership today and does not include any drop-down of Whitehall or any acquisitions
• We are conservative as is appropriate in today’s environment, and we will monitor the environment for the pace of increases as the year develops.
OPERATIONAL
• We’ve had many questions over how sand demand could possibly be flat compared to 2014 or even potentially grow at a time when brakes are being laid down. The primary factors are the result of changes in the completion methods where the focus remains on the same factors we’ve mentioned before, longer laterals, increased stages per well, and ultimately more profit per stage, which by now has been proven to maximize rates of return from a particular well.
o My note: remember when I told you it’s not just about oil prices/breakevens? Sand maximizes outputs, so while rig count is important, the use of sand is increasing a ton regardless
• As a producer today, you are likely going to do everything you can to maximize your cash flow, your returns, and performance results in the areas where you are drilling and for the most part, that means using more sand.
• First, we do believe the trend of more sand per well is here to stay.
• Secondly, the return of the producers to their development did oriented core areas plays right into the goal of maximizing returns on invested capital, which again means more sand.
• Finally, still only a small percentage of operators are employing these techniques. A percentage we see increasing, even in this downturn.
• Shifting to the supply side, we believe supply and demand were in tight balance in 2014. In fact, every grain of northern white sand produced was sold and shipped to meet that demand.
• If the current macro environment persists, new plans simply may not be billed and planned expansions could be pushed out
• As we’ve mentioned before, headwinds continue to strengthen against new frac sand development. It is clear the regulators and local government officials are under tremendous pressure to slow or stop frac sand production growth.
OTHER
• We only have take-or-pay contracts and they cover over 88% of our combined 2015 production capacity.
• Take or pay = We are obligated to supply and our customers are obligated to purchase a certain volume of frac sand at a specified price each month.
Q&A
• We are completely sold out right now so we don’t have the capacity to sign new contracts
o Also, drop down is sold out
• Dividend coverage of 1.3x
• There was an article where it was mentioned that Hi-Crush is working with customers to reduce their cost by 25 to 30%.
o And let’s be clear, all of our customers have requested price concessions.
• But it sounds like volumes in your conversation so far volumes have not been specifically questioned or challenged or sought. (i.e. people trying to negotiate down sand price, but apparently no one wants less sand)
• Right now after all of the re-upped and new contracts of 2014 are average contract duration exceeds four years right now, which is highest in the industry.
• With everything that’s going on right now, I think there may be a reluctance to go out to seven or eight years.
• We have not agreed to any changes [to contracts] yet.
o My note: why did they include yet?…
• The weighted average price per ton is in the low 70s. That hasn’t changed a whole lot from the third quarter
• My note: apparently also expecting final approval on regulation of a new mine in next 60 days.
• But, yes, I think that in fact, activity continues to slow down the first area where you will see some pricing pressure is in the spot market.
• We are not did spot market players by any sense, so we don’t quite have our year planted to the ground is firmly as some of our competitors. As well percent of our sand that’s not sold on long-term contracts technically is sold spots, but it’s often sold to our existing contract customers if they order more than there contract numbers. But I think in general, spot market prices are drifting a little closer to long-term contract prices, but just a little.
o My note: pricing starting to fall a bit, but hclp generally contracted out for a while
KEY TAKEAWAY
Generally seeing pressure from oil/natural gas /ngl sell off, but not as much as direct oil plays. Demand increasing for sand because well operators want to maximize output… but they have weighted average contract life of 4 years and for ~85%. Those contracts are apparently pretty stable and are allegedly only small percents of total counterparty demand, so hclp thinks that counterparties will likely decrease sand costs from other producers before them. They continue to sell out of capacity; volumes are very stable, and pricing generally stable, but some signs that pricing can / is coming down.
Nice work
I really appreciate your ideas and summary of important facts. I own lots . you have confirmed many of my ideas for holding.