Quiet week last week, thus a short note this weekend.
First, a reminder that our transition to a new distribution system continues, so expect this exact same note sometime Monday afternoon. If you have not received our note via the new format, we believe the issue is on your end. Several companies have had to reach out to their IT departments so that we won’t be designated as SPAM. Here’s what one industry exec dealt with: “The note was flagged as a phishing attempt and my organization put it into a quarantine folder (not just my junk folder). I had to go to my Outlook 365 Security & Compliance page and release the email, and then add you as a trusted sender.” Hopefully, his remedy will apply to you (if needed)….we’ll end the Outlook distribution this month.
Second, our note is a day early as tomorrow morning the Daniel Energy Partners’ husband/wife team will be heading to Midland to cook BBQ for industry friends. We’ll be in town all week with plans to return in mid-October to host a couple more BBQ’s.
2020/2021 DEP Events: While some financial institutions may be running away from energy, Daniel Energy Partners is going all-in. We love this industry; therefore, in 2021 we are pressing forward with a number of industry events. Some will be large industry gatherings while others will be smaller, more intimate affairs. In some cases, attendance will be a function of one’s DEP subscription level while others will be first-come, first-serve. A few events, meanwhile, may be geared towards our public company subscribers.
The wildcard, however, remains COVID. For several of our 1H’21 events, the venues are suggesting our invites be limited due to current state/local social distancing guidelines. This stinks. That said, should social distancing rules be eased next year, the number of invites will move higher, thereby allowing us to invite more energy friends. We apologize in advance if this creates any issues.
For those who have inquired about sponsorship opportunities, please be patient. We’ll have details available shortly, but yes, we would welcome industry support as some of these events are expensive! At this point our extensive and growing 2021 event list will either lead us into bankruptcy or prosperity. Meanwhile, for those with schedules that fill up quickly, we want to get the dates to you sooner rather than later.
- Kingwood Golf Outing – October 14, 2020 (a couple slots remain open)
- Fort Worth Steak and Wine Social – October 6, 2020
- Christmas BBQ Social – December 9, 2020 – Houston, TX
- Fort Worth Golf Outing – December 2020 (waiting to confirm a date if the golf club would ever call us back)
- Houston Energy Conference & Expo – February 24-26, 2021
- Fort Worth Golf Outing – April 2021
- OTC BBQ Social – May 3, 2021 – Houston, TX
- Whistling Straits Energy Forum – May 25-27, 2021 – Kohler, Wisconsin
- London Energy Day – June 14-15, 2021
- OKC Steak and Baseball Outing – July 2021 (exact date pending release of OKC Dodgers 2021 schedule)
- European Energy Conference – August 31 – September 2, 2021
- Permian Basin BBQ Cook-Off and Energy Forum – September 2021 (targeting mid-to-late September)
- Kingwood Golf Outing – October 2021
- Fort Worth Golf Outing – December 2021
- Christmas BBQ Social – December 2021 – Houston, TX
In between these events, we will sprinkle in multiple field tours which will include regional group dinners. In addition, once COVID fears fade, we will formalize our Houston Energy Day, a day for oil service and capital equipment companies to profile new products/services to our E&P subscribers as well as to institutional investors.
Sand M&A: Interesting news in the world of frac sand as Smart Sand announced on Friday afternoon that it would acquire the mining/processing operations from Eagle Materials for $2M. The Eagle Materials’ assets include: (1) a plant/mine in Utica, Illinois and (2) a plant/mine in New Auburn, Wisconsin. The Utica plant has name plate capacity of 1.6M tons while the New Auburn plant has name plate capacity of 1.9M tons. Both assets are presently idle although during the TTM 3/31/20, the Utica mine sold ~830,000 tons while the New Auburn plan sold ~420,000 tons.
Our supposition is SND likely focuses on the Utica mine given its access to the BNSF. A couple things to consider. First, the purchase price is attractive for SND. It is buying assets that likely cost over $350M to build/acquire. If memory serves correct, Eagle gained exposure to Wisconsin frac sand via its purchase of CRS Proppants in 2014 for $225M. The Utica plant was built and commenced operations in the summer of 2018. We believe the capex to build this plant was just over $100M. If our math is in the ballpark, the purchase price screens really attractive, but again, both mines are idle today, thus this is a bet on an industry recovery, particularly a recovery for northern white sand. Knowing exactly what the upside to SND could be is tough to predict, but SND contends that if it should be able to sell similar amounts of sand as Eagle did for the TTM 3/30/20, the estimated contribution margin would be $5-$10M. That would be a nice return. In the short-term, however, this deal is likely dilutive to shareholders, but given our many proclamations about the necessity of M&A within the U.S. onshore OFS segment, we applaud SND for getting a deal done.
Solaris Q3 Guidance Update: As we expressed in our note last week, SOI is a company which is typically very good with guidance (i.e. they do what they say or better). Our comment was validated on Wednesday when the company updated its Q3 views. Specifically, the company now sees Q3 activity up 60-70% q/q vs. the company’s original proclamation of +35-45%. Wisely, however, SOI also acknowledged the uncertainty of Q4, a point we and others have written about so not a surprise. It’s worth noting the disconnect between SOI’s guidance vs. the likely q/q trend in the U.S. drilling market (tracking down ~35% q/q). The variance crystallizes the discrepancy between completion vs. drilling activity.
Frac Equipment Liquidation: More pumps coming to market. Our good friends at Repforce Equipment are selling 24 frac pumps that are being liquidated by a small private frac company. 2017 vintage equipment with average hours of ~5,000. These pumps are located in West Texas. Also included in the liquidation are other frac-related equipment items.
U.S. Land Rig Count. The BKR U.S. land rig count gained two rigs to 240 (tracking down ~35% q/q). We’ve been hovering around the ~240 mark for nearly five weeks and it’s hard to see this changing materially anytime soon. A recent update with a private land driller again tempers our expectation. Notably, this contact received multiple inquiries months ago for rigs in the Q1’21 timeframe. Presumably, the interest was a function of oil prices which then were comfortably in the mid-$40’s as well as the prospect of new 2021 budget dollars. Now, this company foresees a more tempered recovery with a working fleet that may be 25-50% lower than had been hoped a few months ago. The market, as we all know, can change quickly, but sentiment remains cautious.