uploads/2016/07/can-increased-sand-intensity-offset-lower-completion-activity-1.jpg

What Does the Future Hold for HCLP and EMES?

By

Updated

Analyst recommendations

Analysts’ median target price for Hi-Crush Partners (HCLP) for the next year is $10.5. The low and high target prices for the stock over the same period are $4 and $17, respectively. The median target price implies a -17% price return over the next year compared to HCLP’s current price of $12.6.

About 45.4% of the analysts surveyed have rated Hi-Crush Partners as a “buy,” and 27.3% have rated it as a “hold.” Nearly 27.3% have rated HCLP a “sell.”

Article continues below advertisement

In comparison, 20% of the surveyed analysts rated Emerge Energy Services (EMES) a “buy,” 60% rated it a “hold,” and 20% rated it a “sell.” The median target price of the stock is $8.2. It’s currently trading at $11.4. US Silica Holdings (SLCA) got “buy” recommendations from 58% of the surveyed analysts.

Outlook for frac sand producers

One of the factors that partially offsets the declines in completion activity is greater frac sand intensity (or using more frac sand per well to generate superior well economics). However, as the falling volumes from producers indicate, the declines in well counts far outweigh the increased usage.

Another potential positive for the sector is the huge drilled but uncompleted well backlog, which offers significant frac sand demand potential.

Article continues below advertisement

According to the EIA’s (U.S. Energy Information Administration) latest STEO (short-term energy outlook) released on June 7, 2016, lower onshore investment is expected to reduce the count of oil-directed rigs and well completions in 2016 and 2017. The report said, “The current price outlook is expected to limit onshore drilling activity and well completions.” The decline in rig counts is expected to continue to limit production through 2017. Oil production is expected to start rising after the third quarter of 2017.

While the longer-term fundamentals of frac sand production are sound, it seems that the challenges will continue through the end of 2017. As the frac sand business continues to face headwinds, the players with better cost management and liquidity are expected to perform better. Maintaining or increasing market share in the highly competitive space will be the key factor that determines who survives the downturn.

Advertisement

More From Market Realist