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CARBO Ceramics Announces Financial Results (posted 2/12/09)

February 12, 2009
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Fourth quarter revenues increased 30% vs. last year’s fourth quarter, due primarily to a 19% increase in proppant sales volume.

CARBO Ceramics Inc. recently reported income from continuing operations of $20.5 million, or $0.85 per diluted share, on revenues of $105.6 million for the quarter ended December 31, 2008. The company previously reported that it had sold its fracture and reservoir diagnostics business to Halliburton Energy Services Inc. Because of the transaction, which closed October 10, 2008, the results of this business have been accounted for as discontinued operations. Continuing operations include the company’s ceramic proppant, software, consulting services and geotechnical monitoring businesses.

“I am proud of the success CARBO achieved this year, and want to congratulate our employees for delivering quality products and services to our clients,” said Gary Kolstad, president and chief executive officer. “During 2008, we set several quarterly records in proppant sales volume, revenues and profit. These results are a testament to the success of our Economic Conductivity™ technical marketing effort. This effort, along with the introduction of our newest product, CARBOHYDROPROP™, which experienced overwhelming demand over the course of the year, indicates there is an ongoing awareness and acceptance by the E&P industry of the economic benefits of employing our ceramic proppant. This is particularly evident in an increasing number of reservoirs, including, but not limited to, North American resource plays such as the Bakken and Haynesville shale areas. With oil and natural gas reservoirs becoming more complex, current economics being challenging, and exploration and production companies seeking a greater return on their investment, we believe that CARBO’s ceramic proppant should continue to be in demand, given the fact that it enhances productivity and recovery in wells when compared to using lower performing sand-based proppants.

“During the fourth quarter of 2008, the proppant business generated record revenue, with a global proppant sales volume increase of 19% when compared to last year’s fourth quarter. North American proppant sales volume increased by 30% compared to the fourth quarter of 2007, despite an increase of only 2% in the U.S. natural gas rig count and a 14% increase in the rig count in Canada.”

Revenues for the fourth quarter increased 30% compared to last year’s fourth quarter, due primarily to a 19% increase in proppant sales volume and an increase in average selling price. Worldwide proppant sales totaled 293 million pounds for the quarter. Proppant sales volume in North America increased 30% compared to the fourth quarter of 2007, due to strong demand for the company’s ceramic proppant in resource plays such as the Bakken and Haynesville Shale areas. Overseas proppant sales volume decreased 25% compared to the same period last year, as strong North American demand limited the supply to several of these markets.

Operating profit for the fourth quarter of 2008 increased $13.0 million compared to the fourth quarter of 2007, due primarily to the significant increase in proppant sales volume, product mix and the cumulative effect of pricing increases experienced on certain products. Selling, general and administrative expenses increased as a percentage of revenue for the fourth quarter of 2008 compared to the same period last year, due to higher spending for marketing and sales activities associated with higher proppant sales, information technology expenses associated with the company’s new enterprise resource planning system, and start-up costs resulting from the re-start of the company’s New Iberia manufacturing facility that was previously idled. Income from continuing operations for the fourth quarter of 2008 increased $8.5 million compared to the fourth quarter of 2007.

For the year ended December 31, 2008, revenues increased 29% compared to 2007, due primarily to an increase in proppant revenue. The increase in revenue in the company’s proppant business was primarily the result of a 33% increase in North American proppant sales volume.

CARBO’s worldwide proppant sales volume totaled 1,162 million pounds for the full year 2008. Sales volume in North America increased 33% from 2007 as a result of a 39% increase in U.S. sales volume and a 14% increase in sales to Canada offset by a 6% decline in sales to Mexico. Overseas sales volume increased 5%, primarily due to increased sales volume in Russia offset by some sales volume decreases in other undersupplied overseas markets.

“As we enter 2009, we are cautiously optimistic with respect to our prospects for the year, but also recognize the limited forward visibility of the industry and the challenges our clients face with commodity prices,” said Kolstad. “Although the industry has already experienced over a 27% decline in the U.S. rig count from its peak in late third quarter 2008, analysts forecast the industry will probably experience additional declines over the course of 2009. This downturn in drilling activity, prompted by the continued weakness in the U.S. credit markets, weakness in commodity prices and current global economic uncertainty, poses a serious challenge for all service companies. Although we are not immune to the effects of this downturn, we find ourselves well-positioned with demand for our proppant in North America currently continuing to be strong, especially in the developing resource plays. Additionally, with the sale of our fracture and reservoir diagnostics business, we have built a cash reserve that will allow us to follow through on our near-term capacity expansion efforts and continue to fund our strategic technology development initiatives. Our strong financial position will also allow us to be opportunistic when considering strategic opportunities, including sourcing of our raw materials and acquisitions.”

For additional details, including an archive of a recent conference call discussing these results, visit www.carboceramics.com.

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