Among the diversified oil-field service companies, Halliburton (NYSE: HAL) boasts the most leverage to the North American market and has built leading positions in many of the key service categories needed to exploit US shale plays.
For this reason, the market pays close attention to CEO Jeff Miller and his team’s comments about the US pressure-pumping market—the horsepower that propels the fracturing fluid into the reservoir rock—and other business lines.
In the first quarter, Halliburton and other services companies faced bottlenecks for silica sand, which is used to prop open the fractures in the reservoir rock. In particular, frigid weather delayed rail shipments of northern white sand from mines in the Upper Midwest to the red-hot Permian Basin in West Texas and New Mexico.
To offset these disruptions, Halliburton bought sand on the spot market at a much higher cost and transported some cargos by truck, resulting in a $0.10 hit to the company’s earnings per share.
Management asserted that growing adoption of sand mined in the Permian Basin should help to alleviate this bottleneck and reduce transportation costs in coming quarters. As to how quickly this transition will occur, Halliburton’s CEO indicated that a profusion of new mines creates a “path to oversupply that market from the Permian.” Management indicated that a similar story has started to unfold in the Eagle Ford Shale and other basins, potentially providing producers with some cost relief in an otherwise inflationary environment.
This news presents a stiff headwind for formerly high-flying sand producers, such as Hi-Crush Partners LP (NYSE: HCLP), Emerge Energy Services LP (NYSE: EMES) and US Silica (NYSE: SLCA). The latter boasts the strongest balance sheet of the bunch and recently opted to diversify into industrial materials rather than consolidate the proppant industry. Investors should continue to stand aside on these names; those who still own these stocks should sell.
Your complete guide to energy investing, from growth stocks to high-yielders.
In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on May. 25, 2022
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.