Behind Hi-Crush Partners’ High Correlation With Crude Oil
So far in this series, we’ve looked at the four MLPs with the highest correlation with crude oil: EnLink Midstream (ENLC), DCP Midstream (DCP), Mid-Con Energy Partners (MCEP), and Plains GP Holdings (PAGP). In this article, we’ll look at the commodity price exposure of the MLP with the fifth-highest correlation, Hi-Crush Partners (HCLP).
The frac sand producer has minimal direct commodity price exposure. However, it still has a high correlation with crude oil. HCLP and crude oil had a one-year correlation of 0.46 on October 6.
Interested in HCLP? Don't miss the next report.
Receive e-mail alerts for new research on HCLP
Hi-Crush Partners’ high correlation with crude oil could be attributed to its heavy dependence on drilling activity. Higher drilling activity drives HCLP’s frac sand volumes. Drilling activity, in turn, is dependent on crude oil prices.
However, despite crude oil volatility, US drilling activity continues to stay strong, particularly in the Permian Basin. According to Baker Hughes’s recent rigs report, the rig count in the Permian was 383 on October 6, 2017, compared with 370 at the end of 2Q17 and 264 at the end of 2016. For more on analysts’ recommendations on frac sand MLPs, read Analyzing Frac Sand Volume Growth for HCLP and EMES.