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HCLP, EMES: Does the 2017 Fall Make Frac Sand MLPs Attractive?

Rekha Khandelwal, CFA - Author

Sep. 14 2017, Published 11:47 a.m. ET

Year-to-date fall

Emerge Energy Services (EMES) and Hi-Crush Partners (HCLP), which are frac sand MLPs, have fallen 45.0% and 60.0%, respectively, YTD (year-to-date). In comparison, Fairmount Santrol Holdings (FMSA) has fallen 75.0% YTD, and U.S. Silica Holdings (SLCA) has fallen nearly 50.0%. These frac sand companies have underperformed the broader energy sector. The Energy Select Sector SPDR ETF (XLE) has fallen nearly 14.0% so far in 2017.

Energy sector stocks have been impacted by crude oil prices during the year. Crude oil has fallen nearly 10.0% YTD.

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In this series, we’ll look at the recent operational performances of HCLP and EMES. We’ll also analyze their distributable cash flows and capital expenditures, compare their valuations, and look at the main factors that may drive these stocks in the future. We’ll look at the trends in short interest as well as institutional ownership for these two stocks. Finally, we’ll see Wall Street analysts’ recommendations for HCLP and EMES.

The above graph compares the YTD stock performances of Fairmount Santrol Holdings, U.S. Silica Holdings, Hi-Crush Partners, and Emerge Energy Services.

Factors impacting frac sand producers

Hi-Crush Partners produces and distributes monocrystalline sand, a specific mineral used as a proppant to boost the recovery rates of hydrocarbons from gas and oil wells.

Emerge Energy Services produces and distributes silica sand, which is used in the hydraulic fracturing of oil and gas wells.

Since the demand for frac sand directly depends on drilling activity, frac sand stocks tend to have a high correlation with crude oil production and prices. So it’s useful to monitor the changes in rig counts as an indicator of the level of drilling activity. Let’s look at the current US rig counts in the next part of this series.


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