Hi-Crush Partners LP (HCLP)

[dan_s]

Tudor Pickering Holt morning notes 6-29-2018: "The in-basin Permian sand buildout delays continue due to labor constraints, clay-rich sand deposits, and processing equipment re-design. We (TPH) surmised Permian sand projects would prove more challenging than originally messaged and we are now also convicted that effective production will materially lag nameplate capacity with many mines producing only ~65-75% of what was originally promised (basin wide, not SLCA-specific). Also, all in-basin sands are not created equal...quality is an issue for some (possibly many)."

As Laura Fulton told us at our recent Dallas luncheon, the FEARS of lots of new Permian Basin sand coming to market are greatly over-blown. HCLP is the low-cost producer of the best frac sand, Northern White. Plus, Hi-Crush already has the best sand mine in the Permian Basin at Kermit.

[cmm3rd]

Sand companies, including HCLP, selling off today.

Last quarter, the company announced its quarterly distribution (and a ~ 10% increase) on 4/19. When they announce Q2 distribution (I'm guessing any day now), if they increase it per guidance by ~ 10% to .25, annualized yield at current unit price of 11.15 would be 8.9%. Also, they have guided that distribution will be increased ~ 10% per quarter for remainder of 2018 and into 2019, subject to change, of course.

[cmm3rd]

Also, based on my conversation with IR, I believe the current lockout period for the company's execution of their ongoing repurchase program is about 6/30 to 8/15, meaning that the company will be allowed to repurchase units again starting about 8/16, give or take a few days.

[dan_s]

All of the sand companies are trading way below the high of their 52-week ranges. HCLP is actually holding up better than most of them, primarily because of the high dividend yield and the unit buyback program in place.

My take is that the Wall Street Gang cannot comprehend the massive amount of frac sand that will be needed quarter-after-quarter just to hold U.S. production flat, much less come anywhere close to the production growth that EIA is forecasting.

This country is now "addicted" to shale and other tight formations for oil, gas and NGL supply.

HCLP is the low cost producer of Northern White sand and they have best sand mine in the Permian Basin. They also have the best distribution network.

[ddlopata084]

Anyone on the board have any additional information on their liability relative to the spill expenses and what that level of expense is?

Seems the clean up is going fine, but I have been looking for a statement that some of these costs would be covered by insurance.

Have not seen that statement to date.

Thanks.

[mattreue]

Anyone hearing any rumors (like I have on another site) that HCLP is looking at buying EMES? Dan, do you see any possibility of that happening?

[ddlopata084]

It's also interesting that they are not following their usual dividend announcement timing this quarter. It should have been yesterday after the close (July 19th). This could mean something, or it might not...

[ddlopata084]

Answer delivered this morning:

1) dividend increased to 75c. (This brings idrs into pay zone)
2) Buying FB Industries, a well-based sand silo company
3) Building Kermit 2, incremental 3M tons/yr
4) Expanding Northern white by 0.85M tons/yr
5) major contract with large E&P in Permian
6) Considering conversion to c-Corp (personally I wish they wouldn’t)

This looks like about a 30% increase in per-annum capacity.

[mattreue]

Of course this explains the delay in the dividend announcement. Instead of my July 20th options expiring worthless on Friday, I would have had a profit. Totally believe insiders and market makers trade on this information. Oh well, I have some January 19 options that should be well into the money before they expire.

[ddlopata084]

Yes, the action on HCLP has been interesting in the last weeks.

I have been short a batch of Jan19 leap puts for some time, doubled down shorting Jan20 leap puts on Friday, suspecting the delay meant good news coming...

Let's see how it plays out

[ddlopata084]

And I should add, I can't see how anyone would want to be short this stock right now, even Loeb.