Frac-sand MLPs Emerge Energy Services (EMES) and Hi-Crush Partners (HCLP) are down more than 40% so far in 2017. In comparison, Fairmount Santrol Holdings (FMSA) is down 55% and U.S. Silica Holdings (SLCA) is down 39%. The frac sand companies underperformed the broader energy sector in 2017. The Energy Select Sector SPDR ETF (XLE) is down nearly 9% so far in 2017.
Notably, broader markets, as represented by the SPDR S&P 500 ETF (SPY)(SPX-INDEX), are up 18% year-to-date. Energy sector stocks were impacted by crude oil prices during the year. Crude oil prices are up nearly 9% year-to-date.
The above graph compares the YTD stock performance of Fairmount Santrol Holdings, U.S. Silica Holdings, Hi-Crush Partners, and Emerge Energy Services. As the graph shows, while crude oil prices gained strength since August, the recovery in frac-sand stocks was more subdued.
In this series
In this series, we’ll discuss the recent operational performance, distributable cash flow, capital expenditures, and future drivers for HCLP and EMES. We’ll look at the changes in short interest as well as trends in institutional ownership in the two stocks. We’ll also see Wall Street analysts’ recommendations for the two frac sand MLPs.
The demand for frac sand directly depends on the level of drilling activity. So frac sand stocks tend to have a high correlation with crude oil production and prices. Next, let’s take a look at the growth in US rig counts, which is an indicator of drilling activity.
Emerge Energy Services (EMES) and Hi-Crush Partners (HCLP) both reported strong 3Q17 results. Hi-Crush Partners sold 2.5 million tons of sand in the third quarter of 2017, representing 16% growth over the last quarter.
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As of 4:40 AM Eastern Time today, US crude oil active futures were at $51.83, ~4% below their closing level in the previous week. If US crude oil prices stay at those levels today, they'll mark their third week of decline in five weeks.
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