Frac sand–producing MLPs Hi-Crush Partners (HCLP) and Emerge Energy Services (EMES) have surged nearly 250% and 170%, respectively, over the last year. Fairmount Santrol Holdings (FMSA) has risen 210% during the same period.
In this series, we’ll discuss the reasons behind these surges. We’ll also discuss the key factors that may drive these stocks in the future.
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The above graph compares the one-year stock performances of Hi-Crush Partners, Emerge Energy Services, Fairmount Santrol Holdings, and U.S. Silica Holdings (SLCA).
Hi-Crush Partners is a pure-play producer of monocrystalline sand, a specialized mineral used as a proppant to enhance the recovery rates of hydrocarbons from oil and natural gas wells. Following the sale of its Fuels business, Emerge Energy Services also became a pure-play silica sand producer.
Due to the natures of their businesses, frac sand stocks tend to have high correlations with crude oil prices. Low energy commodity prices in mid-2014 resulted in significant falls in the number of oil and gas rigs throughout 2015 and at the beginning of 2016. E&P (exploration and production) companies reduced their drilling activities to control costs.
In addition, many E&P companies announced that a significant number of wells drilled during 2015 weren’t completed and might not be completed for an indefinite period of time. These factors, among others, reduced proppant demand and pricing.
Given the recovery in rig counts, frac sand producers are now optimistic about the future demand for frac sand.