US Silica Shares Tumble on Smaller Sand Volumes

Shares of U.S. Silica Holdings Inc fell as much as 11 percent on Tuesday after the sand producer reported smaller than expected volume in quarterly sand sales.

 

The company sold roughly 2.7 million tons of sand in its oil and gas division during the second quarter, an increase of 8 percent sequentially versus expectations of 15 to 20 percent growth. The company cited limited railcar availability and "inconsistent demand for core sand" as limiting its sales early in the quarter.

 

U.S. Silica reported $290.5 million in revenue for the second quarter, missing estimates of $315.4 million, according to Thomson Reuters I/B/E/S, but up from $117 million the same quarter last year.

 

Shares of the company were down 8.7 percent at $26.59 on Tuesday afternoon, off an earlier low at $25.91.

 

Stocks of sand companies have fallen in the past month amid growing concerns that the industry is overbuilding.

 

Halliburton Co experienced a decline in average sand volumes pumped per well during the second quarter, Chief Executive Jeff Miller said on that company's second-quarter earnings call last month, largely attributing the decline to design optimization by operators.

 

So far, oil and gas producers and pressure pumpers have provided little commentary in quarterly earnings calls to support Halliburton's claim, analysts from Citi said in a note this week.

 

U.S. Silica said it expects continued strength in the amount of sand per well used going forward.

 

The company said it anticipates U.S. demand for sand proppant to be 70 million tons in 2017 and 90 million tons or more next year. Last quarter, it said demand for sand in 2018 could top 100 million tons.

 

It estimates that 45 percent of 2018 demand will be supplied by sand produced in the Permian Basin.

 

In June, the company announced plans to build a new sand mine and plant in West Texas to feed growing demand in the Permian Basin, where production has picked up since oil prices moved higher this year. That facility will have capacity to produce roughly 4 million tons per year.

 

U.S. Silica increased its capital expenditures plan for 2017 to between $325 million and $375 million, versus a previously stated $125 million to $150 million, the company said in its second-quarter earnings release.


(By Liz Hampton; Editing by Matthew Lewis)