Capital expenditures

Hi-Crush Partners’ (HCLP) capital expenditures in the second quarter of 2017 were $47.5 million. HCLP has provided 2017 capital expenditure guidance of $115.0 million–$125.0 million. Emerge Energy Services’ (EMES) capital spending in 2Q17 was $2.0 million. Hi-Crush Partners began operations on its new Kermit facility on July 31, 2017. The production facility with a 3.0 million ton per year production capacity is expected to reach full capacity in 4Q17.

HCLP and EMES: Can They Sustain Positive Distributable Cash Flow?

The above graph compares EMES’s and HCLP’s DCFs (distributable cash flows) and capital expenditures over the last six quarters.

EMES’s San Antonio plant

In July, Emerge Energy Services started operations at its San Antonio plant, which it acquired in April 2107. The plant’s frac sand production capacity is 300,000 tons per year.

EMES received a permit for phase 2 expansion of the plant in July 2017, and it’s currently under construction. With an additional cost of $2.0 million–$3.0 million, this phase is expected to be operational in late 3Q17.

Phase 3 of the plant’s expansion is expected to be operational by early 2Q18 and cost $50.0 million–$55.0 million. An add-on to phase 3 can be developed based on market demand and could become operational in 2018 with a minimal cost.

Distributable cash flow

After several quarters of negative DCF, Hi-Crush Partners reported positive DCF of $22.9 million. Emerge Energy Services produced DCF of $2.6 million in 2Q17. As we saw in the previous part of this series, increased volumes driven by higher drilling activity contributed to HCLP’s and EMES’s DCF for the quarter.

Distributable cash flow is a popular measure of evaluating MLP performance. It’s broadly calculated as EBITDA (earnings before interest, tax, depreciation, and amortization) less interest, tax, and maintenance capital expenditure. MLPs distribute a substantial chunk of cash flow generated to investors. That makes DCF a key measure of MLP performance.

EMES and HCLP haven’t paid any distributions since the second quarter of 2015. Hi-Crush Partners intends to resume distributions in late 2017.

Frac sand demand is expected to increase over the next couple of years. Let’s look at that next.

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