Hi-Crush

[hmrckstv]

Dan,

The stock is obviously getting "highly-crushed". Any updates or comments would be appreciated. This is a time for tax loss selling ...but this is extreme. Will the company survive or go BK?

Thanks

[dan_s]

HCLP will survive. I cannot remember a single company that went bankrupt due to one bad quarter.

In the last 3 months, 12 ranked analysts set 12-month price targets for HCLP. The average price target among the analysts is $8.36.
In November, 6 analysts submitted fresh reports on HCLP to Reuters / First Call. The average price target for this group is $6.83. Range of $5 to $10. Most current is the $10 valuation.

MY TAKE:
> Go look at the balance sheet in their Q3 10-Q. Companies do not go bankrupt when their Current Ratio is over 2:1. Their cash on 9/30 exceeded total current liabilities.
> Hi-Crush is the low-cost producer of Northern White frac sand (highest demanded proppant). So ... all of the other sand companies are more likely to go broke first.
> Frac sand demand is down in Q4 primarily because some upstream companies have elected to postpone completions. Some just ran out of capex money and none of the upstream public companies want to report spending more than their capex budgets. Plus, winter weather does hamper completion operations.
> Here is the KEY for this sub-sector: There is NO WAY for U.S. oil and gas production to come anywhere close to EIA and IEA forecasts without using more frac sand year-after-year-after-year. So, upstream companies must drill and complete more wells each year. In fact, we need to complete more wells each year just to hold production flat.
> Hi-Crush is doubling the capacity of their Permian Basin sand mind and all of its production is already spoken for.
> Their recent contract with Chesapeake Energy is a really big deal that should have gotten more attention.
> HI-Crush is #1 in the Marcellus/Utica and the "gassers" should ramp up development drilling there in 2019.

As an MLP, Hi-Crush is a "Yield Investment" as opposed to a "Growth Investment". Yield Investors are 10X more "afraid" than growth investor (IMHO). Yield investors fear uncertainty and this market is giving them a lot. This is why IMO it is long overdue for Hi-Crush to convert to a C-Corp.

If you look at my forecast model for Hi-Crush (under the High Yield tab on our website) you will see that they generated significantly more DCF over the has six quarters than what they distributed to their unit holders. I think they can hold the distribution at $0.225 for two quarters before there is an issue and by that time demand for frac sand will be way up again.

NOW ... Go to their website and take 30 minutes to go through the slide presentation that they spoke from at the Jefferies conference on 11/27. It should make you feel better.

[kayakbob]

HCLP has been so punished I believe a take over is probable at a very low price.
Bob

[dan_s]

A takeover at this unit price would not be approved by the board.

Go look at the forecast/valuation model for HCLP, which you can find under the High Yield tab on our website.
Q4 should be about a break even quarter, but demand for frac sand is going way up in 2019.
Hi-Crush will be fine.

"Activity across the shale patch has also started to slow down. According to the world’s largest oilfield services provider Schlumberger, fracking in Q2 soared, especially in the Permian, then it leveled off in Q3, and is declining in Q4, “which will show up in the first half production numbers for 2019." Schlumberger expects U.S. activity and investment to recover during the first half next year and continues to see the weakening in fracking as temporary. “However, depending on the financial markets, the recovery will likely be measured initially and more closely aligned with cash flow, with the activity surge we experienced in the first half of 2018 unlikely to repeat,” Schlumberger Executive Vice President, Wells, Patrick Schorn said at an energy conference in New York on Wednesday." - cut from the article below.

Read more here: https://oilprice.com/Energy/Energy-General/Oil-Price-Slide-Puts-The-Brakes-On-US-Shale-Growth.html

[dan_s]

A nice analysis of HCLP here: https://seekingalpha.com/article/4228030-hi-crush-partners-lp-compelling-risk-reward-ratio

Q4 results will be break-even or maybe a small loss. Q1 results won't be much better, but well completions and frac sand demand will pick up in Q2. As the article points out, HCLP is not in any financial stress at this point. They will generate positive cash flow from operations in Q4 and Q1 and they have plenty of liquidity.