CARBO Ceramics Inc. (ticker: CRR) is the world’s largest supplier of ceramic proppant for fracturing oil and gas wells and a supplier of resin-coated sand (RCS) proppant; the provider of the industry’s most widely used fracture simulation software; and a provider of fracture design and consulting services. The company also provides a broad range of technologies for spill prevention, containment and countermeasures.
CARBO announced its Q4’13 and year-end results in a press release on January 30, 2014. The company achieved net income of $20.9 million ($0.90 per share) for Q4’13, a 7% increase compared to Q4’12. Proppant sales in North America (defined by CRR as Canada and the United States), where CARBO does the majority of its work, climbed 38%. Quarterly operating profit also increased by $1.3 million (4%) compared to totals from one year ago, while net income rose by $1 million (5%). CARBO management said the quarter was anchored by a strong December after poor weather slowed operations in the Eagle Ford and Permian at the beginning of the quarter.
CRR sold a company record 1.7 billion pounds of ceramic proppant in 2013. Revenues for fiscal 2013 increased $21.9 million (3%) compared to 2012, mostly due to an increase in proppant sales as a result of heightened demand. Total sales volumes of all proppants reached more than two billion pounds on the year – 348 million pounds more than in 2012 (20% increase). Sales volume in North America rose 29%. International sales in China, Mexico and Africa dropped 19% due to lower-quality Chinese proppants flooding the market. Full net income dropped by $21 million (20%).
Resin-Coated Sands (RCS) Drives Sales
Yearly ceramic proppant sales increased slightly (4%) for fiscal 2013, but the demand for RCS skyrocketed. Sales for RCS ended at 241 million pounds in 2013, more than four times 2012’s sales of 57 million pounds. CARBO said volumes were near capacity levels but expects demand to continue into 2014.
2014 Guidance
CARBO management said it expects Q1’14 sales volumes to exceed those from Q4’13. Despite a competitive market, CRR will not alter its prices. The company was steadfast in its pricing in Q4’13 and sales numbers hit all-time highs. In addition, companies are predicting record-spending rates by exploration and production groups in 2014. North America activity is expected to climb by as much as 8%, and the world’s total expenditures are estimated to reach $723 billion. Barclays forecasts E&P costs will approach $1 trillion by 2017. The Permian Basin is believed to see the greatest exploitation gain in regards to onshore plays.
CARBO is expanding its capacity in anticipation of the growth. The company continues to construct its Millen Line 1 with completion expected in Q3’14. The Millen Line 2 is expected to commence construction in the near-future, with completion expected by Q2’15. The two lines will provide an extra 500 million pounds of ceramic capacity (250 million pounds apiece), boosting total production by 29% to a total of 2.25 billion pounds per year. A total of four Millen lines are approved for construction, and their completion will resulting in total capacity of 2.75 billion pounds – an increase of roughly 58% compared to CRR’s current capacity of 1.75 billion pounds.
The company is placing importance on marketing its proppant to compete with opposing suppliers. The company’s most recent presentation provides plentiful analysis and numerous case studies on product comparisons between itself and its competitors. CRR reiterates the use of poor proppants, most specifically from China, can damage wells and decrease estimated ultimate recovery. CARBO’s presentation says effectively stimulated wells can reduce the need for downspacing and ultimately reduce finding and development costs. WPX Energy (ticker: WPX), one of CRR’s clients, says the additional costs for high-grade proppants are offset by increased, reliable production rates.
Sales of its KRYPTOSPHERE proppant are expected to begin in Q3’14, representing a slight delay due to slower than expected completion rates in the Gulf of Mexico. The technology will be used on existing operations and replacing the technology will result in a shutdown lasting only a few days. The proppant will be CRR’s most conductive product to date and formal qualifications are currently being discussed with clients. CARBO management said initial sales volumes would consist of 10 million pounds. The timing for sales fits in line with CRR’s needs, since the company specifically said the third quarter has historically been its most productive.
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