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This is good for EMES in my opinion. Snackman
Crude Oil Heads For A New High In 2017
Nov. 3, 2017 11:41 AM ET|
Andrew Hecht
Andrew Hecht
Commodities, long/short equity, medium-term horizon, long-term horizon
Marketplace
Hecht Commodity Report
(11,707 followers)
Summary
Higher lows and higher highs since June 21.
Brent breaks above $60 per barrel, and the market tightens.
Oil products and inventories continue to provide support.
OPEC meeting could cause volatility.
How high can nearby NYMEX futures rise?
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On Wednesday, November 1 the price of NYMEX nearby crude oil futures traded to a high of $55.22 per barrel and then closed the session at $54.30 disappointing those who were looking for a breakout in the energy commodity. Critical resistance for NYMEX crude was at the 2017 highs established back in January at the start of the year at just two cents above the November 1 highs. The first attempt at conquering technical resistance and putting in a new peak for the year failed.
Crude oil is one of the most closely-watched commodities that trade on futures exchanges around the world. While two-thirds of the world’s crude oil use the Brent price as a pricing mechanism for physical transactions, the most liquid futures market for the energy commodity is listed on the New York Mercantile Exchange (NYMEX) division of the Chicago Mercantile Exchange (CME). The NYMEX contract calls for delivery of West Texas Intermediate crude oil that is a North American product. WTI crude is sweeter oil; meaning it has lower sulfur content than Brent. Meanwhile, the WTI crude tends to be cheaper and easier to refine into gasoline while the Brent oil is more suitable for processing into distillate products. Gasoline is the most ubiquitous oil product and WTI traded on the NYMEX tends to attract the most speculative activity as market participants depend on liquidity when it comes to high levels of volume and open interest. Open interest is the total number of open long and short positions in a futures market, and the NYMEX contract has a history of the highest level of open interest of all commodities futures. Therefore, while WTI oil only accounts for one-third of the world’s pricing, it takes the gold medal when it comes to a trading instrument.
The price of crude oil is a barometer for the health of the global economy, inflationary pressures, and the supply and demand for the world’s energy market. Since June 21, the price of NYMEX crude oil has been moving higher, and market structure in the oil market continues to support strength in the price of crude oil, even at the current highs.
Higher lows and higher highs since June 21
On June 21, the price of NYMEX crude oil violated technical support at the November 2016 lows at $42.20 per barrel. As the price of the energy commodity approached that low, many analysts pointed to an oversupply of the energy commodity and called for the price to fall to $40 per barrel or below. However, while nearby NYMEX futures made a lower low, it quickly turned around and commenced a rally that has lasted for the past four and one-half months.
Source: CQG
As the weekly chart highlights, NYMEX futures fell just 15 cents below the November 2016 low on June 21 and has been making a series of higher lows and higher highs since. On November 1, the nearby contract traded above the $55 per barrel for the first time since the first week of 2017 but it reached just two ticks shy of the high for the year when it traded to $55.22 per barrel.
Technical indicators for the crude oil market, now that it is close to breaking a technical resistance level on the upside, present conflicting data. The trend, as exemplified by the slow stochastic is rising, but it is in overbought territory which means it could run out of bullish steam and a correction to the downside could be ahead. Open interest had increased to 2.528 million contracts as of November 1 which is the highest level in history. While rising price and increasing open interest tend to validate a bullish trend in futures markets, it is likely that there are lots of trend-following speculative longs in the crude oil market given the price action over recent months. Speculators buy a commodity like crude oil to sell it at a higher price, and like in a game of musical chairs when the trend turns many run for exits which poses a danger for the price of the energy commodity. At the same time, while the trend in the oil market appears bullish it looks about as good as it looked bad back on June 21. Crude oil looked like it was about to fall into the abyss back in June, but the price could only manage a move that was 15 cents below support and a new low for 2017. On November 1, the energy commodity only rose to a level that was two cents below resistance and has yet to put in a new high for this year.
On a technical basis, one could make a strong case for a price correction, and perhaps crude oil will decline and spend some time consolidating and building cause for another run at the highs for the year. When it comes to the fundamentals of the energy commodity, its market structure and supply and demand equation continue to provide support for the price.
Brent breaks above $60 per barrel, and the market tightens
While WTI crude has not made a new high for this year on its move on November 1, Brent crude oil has broken out to the upside from a technical perspective.
Source: ICE
As the weekly chart of Brent futures that trade on the Intercontinental Exchange illustrates, the highs for 2017 dating back to early January stood at $58.37 per barrel, and that price gave way back in late September when the price rose to $59.49. However, this past week the price of Brent surged to highs of $61.70 and was trading around the $60.50 level at the close of business on November 1. Brent has strengthened compared to WTI over recent months for several reasons. First, higher oil prices have depressed the price of WTI compared to Brent as selling from U.S. shale producers has weighed on the price of the NYMEX futures contracts. Second, production cuts from OPEC announced late last year have decreased output which has provided support for Brent compared to WTI crude. Third, the geopolitical landscape in the Middle East which uses Brent as its pricing benchmark has caused supply fears. The ongoing conflict between the Saudis and Iranians has resulted in a proxy war in Yemen. The current blockade of Qatar by Saudi Arabia and many of their Gulf State allies has increased the prospects for violent flare-ups in the region. Any increase in tension could impact production or logistical routes for the energy commodity. Finally, China has been on a tear when it comes to buying industrial commodities, and it is likely that the world’s leading commodities consumer has been stocking up on crude oil to increase the level of their strategic petroleum reserves. Chinese buying, from a logistical perspective, is likely to be tied to Brent pricing contracts thus increasing the premium of Brent compared to WTI.
Source: CQG
As the weekly chart of WTI minus Brent nearby crude oil futures shows, the Brent premium stood at around the $2 level at the beginning of 2017 and was trading close to that differential on June 21 when oil hit its low for the year. However, over recent months, the premium for Brent has increased for the stated reasons, and reached a high of $7.15 per barrel in late September and was trading at the $5.83 level on November 2. The increase in the premium caused Brent crude oil to rise to a new high for 2017 while WTI remains below the elusive level, for now.
When it comes to the forward curve for the two crude oils, the term structure has tightened which is often a bullish short-term signal for the oil market.
Source: CQG
The price of December 2018 minus December 2017 NYMEX crude oil futures shows that the spread has moved from a $2.31 contango on June 21 to a $1.60 backwardation on November 1. Forward premiums for NYMEX crude oil have turned to discounts as the price of nearby futures rose. The move in term structure is likely the result of an increase in shale producer hedging activity which serves to depress deferred prices as producers lock-in prices for future output. However, it is also a sign of short-term supply concerns and the action in the Brent forward spreads has been a sign that the market has indeed tightened over recent months. The January 2018 versus January 2019 Brent spread was trading at a $2.93 backwardation as of the close of business on November 2 while the same NYMEX spread was at a $2.07 backwardation. Term structure is just one piece of the market structure puzzle for the energy commodity, but others are also providing bullish signs for the price of crude oil.
Oil products and inventories continue to provide support
Crude oil inventory data has been supportive for the price of the energy commodity in the United States. The move to highs of $55.22 on November 1 was likely the result of weekly inventory numbers from the American Petroleum Institute ((API)) on Tuesday, October which received some degree of validation from the Energy Information Administration ((EIA)) in their release on November 1. The API told markets that crude oil inventories declined by a whopping 5.09 million barrels for the week ending on October 27 and the EIA said the decline in stocks was 2.4 million barrels. Both numbers exceeded market expectations for a withdrawal from inventories. At the same time, there were also withdrawals in the product markets. The API said gasoline inventories fell by 7.7 million barrels and the EIA reported a 4 million barrel decline. When it comes to the distillates, the API said they dropped by 3.11 million barrels while the EIA reported only a 320,000 barrel decline. This was not the first week that inventory reports supported the price of crude oil and triggered buying and economic growth in the United States and around the world continue to be supportive of increasing demand for crude oil and products. While the price of crude oil has been rallying for over four months, products have outperformed the raw energy commodity which is supportive for more gains in the commodity that is the input in their production.
Source: CQG
The trajectory of the December NYMEX gasoline crack spread shows that it has appreciated steadily since May. Even though we have been in the offseason for gasoline demand in the US since September, the oil product continues to outperform crude oil adding support for the energy commodity. The latest price spike on Thursday, November 02 came on the back of an outage at the Wales refinery which has caused Valero to pull gasoline from other regions of the United States to satisfy requirements.
Source: CQG
The trend in the December NYMEX heating oil crack spread which is a proxy for other distillates like jet and diesel fuels shows a similar trajectory over recent months as oil products could be signaling that we have yet to see a high in the price of crude oil. Both oil products have outperformed crude oil at a time when the oil price experienced a significant rally. From the lows on June 21 to the highs on November 1, the price of crude oil has appreciated by over 31%. Over that period, demand for oil products has continued to rise, and the prices have done even better than the commodity that is the input in their production. The bottom line is that oil products continue to support the price of the energy commodity and a new high for 2017.
OPEC meeting could cause volatility
The oil ministers of OPEC will attempt to put aside their individual issues with one and other when they gather in Vienna, Austria on November 30 to decide on production policy for the coming six months. At their last meeting in late spring, the cartel extended production cuts until the end of the first quarter of 2018. It is likely that OPEC will now continue the quotas until the end of 2018 at their upcoming meeting. In a pow-wow in Moscow last month, the King of Saudi Arabia and Vladimir Putin likely agreed to a deal that would extend production cuts. The two biggest oil producing countries are unlikely allies considering Russia’s close relationship with the theocracy in Iran. While not a member of OPEC, Russia had served as an unofficial mediator since last year when they successfully arranged for the cartel to abandon their strategy to flood the market with petroleum and negotiated production quotas for member nations. A higher and stable oil price is a necessity for all parties involved. Russia, Iran, the Gulf States, Qatar, and all other members of the cartel depend on oil revenues. When it comes to Saudi Arabia, the valuation of the coming IPO of Aramco that will capitalize the Kingdom’s sovereign wealth fund depends on the price of crude oil. The IPO is likely to be the biggest in history with a market cap of over $1 trillion, and the Saudis are relying on a successful sale of shares to diversify away from petroleum in the future.
There is likely to be lots of horse trading, threats, and moments of concern leading up to the OPEC meeting at the end of this month. After all, getting the membership to agree on anything is like trying to herd wild cats. During periods of doubt, we could see some violent corrections in the price of oil. However, vested interest is likely to prevail, and a continuation of quotas until the end of 2018 will prove supportive for the current price of crude oil.
How high can nearby NYMEX futures rise?
Crude oil has already reached my target which was the highs of 2017. I consider falling two cents short a victory considering it came from the $42.05 level. When it comes to the future, I could easily see the price rise to the $60 per barrel level given the current state of term structure, inventories, and product prices. At the same time, I have a nagging feeling that the price action when oil made a new low on June 21 could repeat when the price finally rises above the $55.24 per barrel level on nearby NYMEX futures. After all, long crude oil has become a crowded trade and nothing fuels a correction like stale longs heading for exits. It would be ironic if the energy commodity were to rise to just 15 cents above that critical resistance level and then fall back to the sweet spot for WTI light sweet crude oil at $50 per barrel in a mirror image of the price action from June. The bottom line is that anything is possible when it comes to commodities market and the geopolitical landscape is anything but stable these days. I am flat crude oil at this time, but if I had a gun to my head, I would have to remain long even though I would be one of many. I am waiting for the analysts who called for prices in the $30s in June to call for oil in the $60s or higher. When the bulls come out of the woodwork, it will be time to sell and even go short the energy commodity. I still believe that $50 is the pivot point for crude oil. A price that is double the February 2016 low and half the June 2014 high is a number that producers and consumers alike can agree satisfies their desire for stability. However, right now the bulls have the reigns of the market and producers tend to be pigs when it comes to price appreciation. Someone should remind them that in the volatile commodities markets where trends can turn on a dime, hogs are not pets and they go to slaughter. As I write this piece on Thursday evening November, 2 December NYMEX crude oil futures are trading at the $54.80 per barrel level and Brent January futures are at $60.87 per barrel.
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Absolutely fantastic news! However, as I always ask, is this sustainable?
Analyzing Frac Sand Volume Growth for HCLP and EMES
Ruth King
Market RealistSeptember 14, 2017
HCLP, EMES: Are Frac Sand MLPs Currently Attractive? PART 3 OF 9 HCLP’s recent performance Emerge Energy Services (EMES) and Hi-Crush Partners (HCLP) both reported strong 2Q17 results. Hi-Crush Partners sold 2.1 million tons of sand in the quarter, representing a 53.0% rise over the previous quarter. It expects strong results in 3Q17 with a 14.0%–24.0% sequential growth in volumes. The above graph shows Hi-Crush Partners’ volumes sold over the last three years. “Growth in sand demand, combined with increasing prices throughout the quarter, resulted in $23 million of distributable cash flow. Frac sand fundamentals continue to be positive, particularly for fine mesh sand, and execution continues
EMES expects high volume growth
Emerge Energy Services’ frac sand volumes rose 11.3% from 1.3 million tons in 1Q17 to 1.4 million tons in 2Q17. As the above graph shows, EMES projects total volume growth of 93.0% CAGR (compound annual growth rate) over two years.
Strong volume growth contributed to positive DCF (distributable cash flow) for the two MLPs after several quarters of negative flows. Let’s analyze the DCF and capital expenditure trend for Emerge Energy Services and Hi-Crush Partners in the next part of this series.
EMES *technical analysis* http://www.shortmetina.com/hot-stock-picks.html
Emerge Energy Services up 1.25%; Goldman sees 100% upside
via Notable Calls
After spending time with management, Goldman boosts its price target on Emerge Energy (NYSE:EMES) to $28.50, noting a 'very tight' frac sand market is driving pricing higher.
The company, says Goldman, could start making distributions again.
Initiating coverage, Coker Palmer is even more bullish, seeing a possible three-bagger on the upside, and in a bearish scenario, about 33% downside.
Shares +1.25% to $14.44
Emerge Energy Services (EMES)
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks with serious upside potential in the next 12-months. Learn more.
Emerge Energy Services had a strong day on Wednesday, up $2.01, or 18%, to $13.06, on no news. Volume of 698,000 shares was the biggest in about three weeks. The stock reversed off an intraday low of $11.02, right near support, closing near the high for the day on no news, and boding well for a continuation higher. Watch for a test of recent highs around $14.60, and followed by $18.50.
Emerge Energy Services upgraded to Buy at Wunderlich
Sep 29 2016, 15:46 ET | About: Emerge Energy Services LP (EMES) | By: Carl Surran, SA News Editor [Contact this editor with comments or a news tip]
Emerge Energy Services (EMES +0.2%) is upgraded to Buy from Hold with a $15 price target, lifted from $12, at Wunderlich, which believe the sand market should begin to show improvement in H2.
EMES has significantly improved its balance sheet and is developing and testing multiple sand technologies that could become lucrative and differentiated products going forward, the firm says.
While Wunderlich still believes distributions are not likely in the relative near future, the firm thinks EMES' investment potential has improved significantly as the positive catalysts play out.
http://seekingalpha.com/news/3211625-emerge-energy-services-upgraded-buy-wunderlich
Southlake, Texas - September 23, 2016 - Emerge Energy Services LP ("Emerge Energy") today announced that it will conduct a series of investor meetings in New York City on September 27, 2016.
Presentation materials used during these meetings will be posted early on September 27, 2016 to Emerge Energy`s website at www.emergelp.com within the Investor Relations portion of the website under the Webcasts & Presentations section.
About Emerge Energy Services LP
Emerge Energy Services LP (EMES) is a growth-oriented limited partnership engaged in the business of mining, producing, and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells, through its subsidiary Superior Silica Sands LLC.
Forward-Looking Statements
The presentation contains certain statements that are "forward-looking statements." These statements can be identified by the use of forward-looking terminology including "may," "believe," "will," "expect," "anticipate," or "estimate." These forward-looking statements involve risks and uncertainties, and there can be no assurance that actual results will not differ materially from those expected by management of Emerge Energy. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Emerge Energy`s Annual Report on Form 10-K filed with the SEC. The risk factors and other factors noted in the Annual Report could cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, Emerge Energy does not undertake any obligation to update or revise such forward-looking statements to reflect events or circumstances that occur after the date hereof.
PRESS CONTACT
Investor Relations
(817) 865-5830
Emerge Energy Services L.P. Agrees to Sell $20 Million of Convertible Preferred Units
As oil prices go up, so will EMES. Check out below
U.S. Shale Producers Will Not Hold Down Oil Prices
Investors may fear oil prices will be bludgeoned near term if a global glut persists, but concerns over U.S. producers ability to hinder oil's recovery are unfounded, industry followers say.
Tom Terrarosa
Follow
Jul 14, 2016 1:28 PM EDT
Following a week full of potentially disheartening U.S. oil statistics, crude futures were well into the green Thursday afternoon as the dollar eased significantly by midday.
After crashing more than 4% Wednesday, West Texas Intermediate crude contracts for August delivery were up 1.8% to $45.57 by 1 p.m. EDT Thursday, while global benchmark Brent crude futures for September were up 2% to $47.20.
And the markets were gaining with crude Thursday as the Dow Jones Industrial Average was up 0.68% at 1 EDT, the S&P 500 climbed 0.45% and the Nasdaq rose 0.51%.
Everything you want to know about EMES (and HCLP) both sand producers
Check it out.
http://marketrealist.com/2016/07/surge-hclp-emes-2016-indicates/comments
As oil goes up in price so will EMES.
We will see this week
Drop in Crude Oil Inventories Boosts Oil Prices. Good for sand producers like EMES (Above sentence is from me)
US Crude Oil Inventories Fall Again: How Is Crude Oil Reacting?
By Sarah Sands | Jul 4, 2016 11:54 am EDT
US crude oil inventories fell by 4.1 million barrels
According to the U.S. Energy Information Administration’s report on June 29, 2016, US (QQQ) (IWM) crude oil inventories fell by 4.1 MMbbls (million barrels) in the week ended June 24, 2016, compared to a fall of 0.92 MMbbls in the previous week. The Market expected a fall of 2.3 MMbbls. The fall beat market expectations, declining for the sixth consecutive week.
The United States Oil ETF (USO) rose by 2.8%, and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose by 5.3% on June 29, 2016. The higher-than-expected fall in crude oil inventories drove crude oil’s movement on the day.
US Crude Oil Inventories Fall Again: How Is Crude Oil Reacting?
Crude oil inventories fall for the sixth consecutive week
In the last six consecutive weeks, crude oil inventories have shown downward movement. Crude oil’s price has shown a strong rally since February 12, 2016. On February 11, 2016, crude oil (UWTI) (BNO) touched a multiyear low of $26.11 per barrel. Global markets (VTI) (VEU) (ACWI) also recovered from their respective lows on February 11, 2016. The Federal Reserve’s dovish stance was mainly responsible for these market movements.
The fall in crude oil inventories is a welcome sign for crude oil, erasing the fear of a global supply glut. Demand for crude oil is expected to rise in the near future, further driving crude oil’s movements.
Higher crude oil prices will benefit crude oil producers. You can read Drop in Crude Oil Inventories Boosts Oil Prices to know more.
In the next part of this series, we’ll analyze the performance of the US GDP for 1Q16.
In after hours announcement on EMES This was the key paragraph
Emerge Energy Services (NYSE:EMES) +9.9% AH after agreeing to sell its fuels distribution business to Sunoco (NYSE:SUN) for $178.5M.
EMES says the sale will drive substantial debt reduction and simplification of its operating platform, allowing it to become a pure-play business with all of its assets and operations focused on its frac sand segment.
Q1 results released. Loss per share 1.42. Consensus was-.59 revenue came in at 29.7 M. Consesus est was 122M. .. they have basically shuttered their fuel business and put it up for sale which means their business in almost sand based for fracking which is shrinking at a fast clip due to oil price. The sand segment lost 13.5 mil in Q 1 and earned over 24m same q in 2015. The US rig count continues to fall 354 in April to 328 May 6th.
Emerge Energy Services LP Announces Agreement to Divest Fuels Business in Deal Valued at Approximately $179 million
Emerge Energy Services LP 15 minutes ago GlobeNewswire
Transaction Would Drive Substantial Debt Reduction and Simplification of Emerge`s Operating Platform
Southlake, Texas (June 23, 2016) - Emerge Energy Services LP ("Emerge" or "the Company") (EMES) is pleased to announce that it has entered into a definitive agreement for the sale of Emerge`s fuels business (the "Fuels Business") to Sunoco LP ("Sunoco") (SUN), a publicly traded master limited partnership engaged in the wholesale distribution and retail sale of motor fuels. The Fuels Business is comprised of Dallas-based Direct Fuels LLC and Birmingham-based Allied Energy Company LLC, both wholly owned subsidiaries of Emerge, and engages primarily in the processing of transmix and the distribution of refined fuels.
The aggregate purchase price is $178.5 million, subject to working capital adjustments, and the transaction will be completed on a cash-free, debt-free basis. As stated previously, Emerge intends to apply the proceeds, net of transaction related expenses, to reduce its outstanding debt.
Following the sale, Emerge will become a pure-play business with all of its assets and operations focused on its Sand segment, which is engaged in the businesses of mining, processing and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells.
Ted W. Beneski, Chairman of the Board of Emerge, commented, "This agreement with Sunoco is the result of a thorough process undertaken to maximize value for unitholders. We are pleased with the results of this process and could not be happier to be partnering on this transaction with Sunoco, a top operator with a stellar reputation in the marketplace. The Fuels Business will be in good hands."
With respect to Emerge`s use of proceeds, Mr. Beneski continued, "As we have stated on previous earnings calls, we undertook the sale of the Fuels Business to generate proceeds to pay down Emerge`s debt. I am encouraged to say that the cash proceeds from this transaction will allow Emerge to substantially reduce its overall debt levels, and will better position the company to opportunistically execute on strategic initiatives and create long term value as the industry looks to exit the current prolonged downturn."
Read this and take another look at EMES. More sand will be needed. See my Bold
U.S. shale oil's Achilles heel shows signs of mending
By Ernest Scheyder and Terry Wade
HOUSTON (Reuters) - Since the beginning of the U.S. fracking revolution, oil producers have struggled with a vexing problem: after an initial burst, crude output from new shale wells falls much faster than from conventional wells.
However, those well decline rates have been slowing across the United States over the past few years, according to data analysis provided exclusively to Reuters.
The trend, if sustained, would help ameliorate the industry’s most glaring weakness and cement its importance for worldwide production in years to come. It also helps explain shale drillers' resilience throughout the oil market's two-year slump.
While shale oil production revolutionized the oil industry over the past decade, bringing abundance of global oil supplies, high costs and rapid production declines have been its Achilles heel. That is beginning to change thanks to technological innovation and producers' focusing less on maximizing output and more on improving efficiency and productivity.
According to data compiled and analyzed by oilfield analytics firm NavPort for Reuters, output from the average new well in the Permian Basin of West Texas, the top U.S. oilfield, declined 18 percent from peak production through the fourth month of its life in 2015. That is much slower than the 31 percent drop seen for the same time frame in 2012 and the 28 percent decline in 2013, when the oil price crash started.
The change was even more dramatic in North Dakota's Bakken shale, where four-month decline rates for new wells fell to 16 percent in 2015 from almost 31 percent in 2012. (Graphic:http://tmsnrt.rs/292ScGY)
A slower decline means producers need to drill fewer new wells to sustain output, said Mukul Sharma, professor of petroleum engineering at the University of Texas at Austin.
"You can have cash flow without having to expend a lot of capital."
The recent decline rates mark a dramatic improvement from first-year 90 percent declines in the early years of the shale boom that made some investors question the sector's long-run viability.
NEW PHILOSOPHY
There are no 2016 figures yet, but oil executives expect the trend to continue this year and beyond.
Scott Sheffield, chief executive of Pioneer Natural Resources Co <PXD.N>, a top Permian producer, credited improved fracking techniques for helping stabilize production, which shareholders rewarded by lifting Pioneer's shares up about 9 percent over the past year.
"We're exposing more of the reservoir and breaking it up so we don't get as sharp a decline," Sheffield told a recent energy conference.
Slower declines also reflect producers' more conservative approach to operating wells. In the early years of the hydraulic fracturing boom, high crude prices encouraged operators to boost initial production as much as possible.
To do this, they would let wells flow fast by keeping pressure low on the ground's surface. About seven years ago, however, some shale operators in Louisiana found this ultimately hurt production later on by causing rock fractures to shut.
Now, many operators maintain surface pressures higher, which limits initial flow rates and slows a well's decline rate.
"Conventional wisdom has shifted," said John Lee, a professor of petroleum engineering at Texas A&M University.
Sharma of the University of Texas said that while shale well decline rates remained far above a 10 percent first-year decline a conventional well might experience, they marked a radical improvement compared with early years of hydraulic fracturing.
Harold Hamm's Continental Resources Inc <CLR.N>, for example, has told investors its new wells in Oklahoma's SCOOP region are now producing 40 percent more oil six months into their lives than as recently as last year.
Today's production techniques use larger volumes of sand and pressurized fluids to frack more spots along longer well bores, to extract more oil from the wells. (Graphic: http://tmsnrt.rs/296vBtQ)
Pioneer fracks its wells every 15 feet today compared to every 60 feet in 2013. It costs extra $500,000 per well to do so, but its wells produce two-thirds more oil than just three years ago, boosting profitability, Pioneer said.
To be sure, not all producers are seeing slower decline rates and the newer, more stable shale wells make up only a fraction of all producing U.S. oil wells, so their impact on overall domestic output is for now limited.
The Eagle Ford shale in southern Texas has seen decline rates slightly increase, for example, according to NavPort data.
(Reporting by Ernest Scheyder and Terry Wade; Editing by Tomasz Janowski)
Frack Sand Stocks Saw a 2nd Straight Month of Large Gains in June (EMES, FMSA, HCLP, SLCA)
Higher oil and gas prices in June helped propel shares of Emerge Energy Services, Fairmount Santrol Holdings, Hi-Crush Partners, and U.S. Silica Holdings for the second straight month.
Sparta
Image source: U.S. Silica Holdings.
What: After posting large gains in May, frack sand producers followed up in June by avoiding the fallout of the Brexit vote to post large gains. All four of the nation's largest publicly traded producers -- U.S. Silica Holdings (NYSE:SLCA), Fairmount Santrol Holdings (NYSE:FMSA), Hi-Crush Partners (NYSE:HCLP), and Emerge Energy Services (NYSE:EMES) -- gained more than 20%, with Emerge leading the way with a 128% gain.
So What: The big outlier here is Emerge Energy Services. The reason this company saw such large gains this month is that it announced it would be selling its fuels business segment to retail and marketing specialist Sunoco LP. The $179 million deal will allow Emerge to focus exclusively on its frack sand production. Considering how different the two business segments were, it seemed almost inevitable that the company would shed these assets eventually. The proceeds will be used to clean up the company's balance sheet and help fill some of the funding gaps that have come about because of the massive downturn in oil and gas drilling activity.
For the other companies here, much of the gains have to do with oil prices remaining in the range of $45 to $50 a barrel for the month. While this isn't a great price for producers, it's enough that some are starting to think about doing a little work to bring on a few new wells. Considering the large number of wells that have been drilled but not yet completed -- wells that will need frack sand -- there is a large backlog of work that these sand producers will need to fill. The question is how quickly the market will want to bring these wells on line.
This demand couldn't come at a better time, as all of these companies have struggled to make ends meet in recent quarters. Both Hi-Crush and Emerge were forced to suspend their dividends several months ago, and Hi-Crush recently completed an equity offering to raise $48.5 million. Each company has seen its balance sheet deteriorate considerably over the past 12 months. Only U.S. Silica Holdings has been able to maintain a reasonable balance sheet over that time, and a large part of that has to do with its sand sales to industries other than oil and gas.
Company
Debt to Capital
Net Debt to EBITDA
Quick Ratio
U.S. Silica
46.5%
0.43
7.47
Hi-Crush Partners
73.6%
5.71
1.6
Farimount Santrol
100%
14.5
1.41
Emerge Energy Services
79.8%
6.45
1.58
Source: S&P Global Market Intelligence.
Now What: With Hi-Crush, Emerge, and Fairmount all on the verge of insolvency, the smallest gain in oil and gas prices is going to keep sending these shares on big ups and downs, despite the two straight months of gains. Keep in mind that these companies' stocks still have a long way to go to get back to where they were when oil was at $100 a barrel.
Until we start to see some quarterly results with oil and gas prices in this range, it's probably best to take a wait-and-see approach. This is especially important for Emerge because we need to see how much of that asset sale cash goes to paying down debt. With such bloated balance sheets and questionable demand for the time being, there is just a little too much risk in these stocks to make any major purchases.
Emerge Energy deal sparks Buy rating at Seaport, Sell at DA Davidson
http://www.seekingalpha.com/news/3190519
who was the analyst
crudeoil24
Nice to see someone gave us upgrade to a buy
Strong day here amidst the DOW & WTI downdraft.
BOUNCING OFF 13.04
EMES
EMES IS A GREAT $$$$$ OPPORTUNITY.
HIGHER HIGHS IN CHART TODAY
EMES
38.94 is the 52 week high!
SUNOCO PAYS $178M for some EMES fuel assets.
Also crude futures starting to move up @ 48.12
NO STOPPING THE EMES TRAIN===============>>>>
WE HAVE BLACK GOLD!!!!!
EMES >> Yeeee - Hahhhh!!!!! >>> LOL. TEXAS TEA! > BLACK GOLD!
Love it stocks are starting to comeback to green and saying FY to the uk
THEY ARE TRYING TO NOT LET IT PRINT NHOD
EMES
13.26 CLOSING IN ON HOD
#EMES
GEEZ MISSED IT
EMES > I am going to hold for awhile. Crude futures may bounce back, plus too much attention on Brexit etc. EMES may do well next week.
Look away its 13.10 again !
dag it was just 13.10 I looked away now 12.70
EMES
Yes but if they stayed markets would be green and emes would be greener than it it now! Lol and today's news? Oh you mean yesterday's
Brits made a good move. Has nothing to do with today's EMES news. This is a multi-day upside runner.
Talk about bad timing!! Damn Brits
Moving up nicely with today's huge mega-deal. Even with crude futures down.
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