While Jim Cramer went "all-in on oil stocks" in May 2014 [5] (right before the collapse), it was the fracking sand-providers that were the most-loved stocks on many individual investors buying lists last year... until their worlds caved in. As WSJ reports, [6] for many sand producers, this is their first time on the bucking bronco that is the cyclical energy business—and not all of them are ready for the wild ride. As one CEO exclaimed, "there are a lot of wide-eyed people out there right now in the industry."
Sand is an important ingredient in hydraulic fracturing, or fracking, which has pushed American oil output above 9 million barrels a day, rivaling the production of Saudi Arabia or Russia. Sand companies’ biggest customers used to be golf courses and glass manufacturers, but the oil boom brought energy clients to their door and now roughly 60% of business is tied to fracking, according to PacWest Consulting Partners, which forecasts sand demand.
But as The Wall Street Journal reports [6], now that oil prices have fallen, many fracking companies are retrenching—and that is bad news for sand producers.
[7]
“This isn’t our first rodeo” has become a catchphrase among oil-industry executives who are laying off workers and dialing back spending in the wake of tumbling crude-oil prices.
But for many sand producers, this is their first time on the bucking bronco that is the cyclical energy business—and not all of them are ready for the wild ride, industry analysts say.
...
Earlier this fall PacWest projected sand use would grow by 20% each year in 2015 and 2016. But following the plunge in oil prices, PacWest now expects sand demand to stay flat.
...
Meanwhile, new sand mines could add another 10% on top of the existing pile, creating a glut and pushing down prices, said Samir Nangia, a principal of PacWest.
With their revenue threatened, oil drillers and fracking companies are under tremendous pressure to dial down their spending and the companies they buy sand from will be easy targets, said Karen Nickerson, an energy analyst at Moody’s . “They’re going to push on who they can,” she said.
...
Doug Sheridan, an analyst at EnergyPoint Research, said sand companies ought to take their cues from Halliburton Co. , Schlumberger Ltd. and other oil-field-service companies that have announced cutbacks and workforce reductions.
“Sitting on your hands and waiting isn’t what the veterans do,” Mr. Sheridan said. “There are a lot of wide-eyed people out there right now in the industry.”
“Lower oil prices are a concern. This adds a lot of uncertainty to 2015.”
* * *
So not unequivocally good then after all?
