CARBO Ceramics’ Revenue Down 55% in 2016 First Quarter
CARBO Ceramics recently reported a GAAP net loss of $24.7 million.
CARBO Ceramics Inc. recently reported a GAAP net loss of $24.7 million (or a loss of $1.07 per share) on revenues of $33.1 million for the quarter ended March 31, 2016. The GAAP net loss includes $5.7 million (or $0.25 per share) of after-tax charges and $6.5 million (or $0.28 per share) of after-tax costs associated with slowing and idling production.
“Continued low commodity prices further reduced industry activity levels during the first quarter of 2016 as the North American average rig count declined 57% compared to the first quarter of 2015,” said Gary Kolstad, CEO. “Given the pressure to reduce costs during this downturn, E&P operators are currently opting for lowest-cost completions, at the risk of compromising production. In some resource plays, E&P operators are also electing not to complete the wells they drilled. These factors negatively impacted our ceramic sales volumes during the quarter.
“As oil and gas activity continued to deteriorate, we witnessed an acceleration in the inventory liquidation of stranded, low-quality Chinese ceramic proppant. Although the near-term impact is negative for our ceramic sales volume, we believe this liquidation benefits us in the long term as the inventory of imported Chinese ceramic proppant is sold off.
“Our efforts to preserve cash and reduce the cost structure of the organization continued during the first quarter. In addition to continued headcount rationalization, we are implementing programs that allow us to further reduce cash compensation.
“We remain focused on our mission to provide technology that increases production and recovery and reduces lease operating expenses. We believe the industry’s bias to lowest-cost completions is a direct result of operators merely trying to survive this downturn. From a long-term standpoint, we are very excited about the increasing value our technology portfolio brings to our clients.”
Revenues for the first quarter of 2016 decreased 55% (or $40.6 million), compared to the first quarter of 2015. The decrease was primarily attributable to a 57% reduction in the average North American rig count, which resulted in a decrease in proppant sales volumes, associated reductions in the average proppant selling prices, and a move to lowest-cost completions. The operating loss for the first quarter of 2016 was $36.1 million, compared to $42.5 million in the first quarter of 2015. The improvement was largely due to a $14.4 million decrease in miscellaneous charges and cost-cutting measures implemented beginning in early 2015. These improvements were partially offset by revenue decline. The net loss for the first quarter of 2016 was $24.7 million, compared to $28.6 million in the first quarter of 2015.
“Given the overall levels of industry activity, the near-term outlook for ceramic proppant remains extremely challenging,” said Kolstad. “In addition, the inventory liquidation of low-quality Chinese ceramic proppant in North America will likely lead to additional pressure on our ceramic proppant volumes during the second quarter of 2016.
“We continue to manage through this downturn with a two-pronged approach. The first focuses on cash preservation and cost reductions across the organization. The second focuses on the advancement of our proprietary technologies. KRYPTOSPHERE LD continues to be engineered into E&P operators’ completion programs, and we see continued client interest for KRYPTOSPHERE HD for deep, high-stress wells in the Gulf of Mexico and international areas. In addition, SCALEGUARD technology provides a break-through scale control solution for deep-water wells, at a lower cost than has ever been possible.
“We continue to stay in front of our clients via our technical marketing team as well as our independent STRATAGEN consultants. Their emphasis is on providing up-to-date production studies which highlight the benefits and value creation of placing high conductivity ceramic proppant in the reservoir. We estimate that over 50% of the wells drilled in the U.S. will have closure stress greater than 6,000 psi, a point at which even the best white sand will start to crush. Using sand in these wells means the production and recovery of these reservoirs will be compromised.
“Given the continuing deterioration in the industry, and with limited visibility on when an industry recovery may occur, we believe it will be necessary to seek additional sources of capital beyond our recently amended credit facility. In addition, we are exploring the monetization of certain technologies to further bolster our cash reserves. During the first quarter of 2016, we reduced debt by $23.0 million and ended with $41.5 million in cash. This ending cash balance excludes the income tax refund of $37.4 million received in late April.
“The industry is navigating through unprecedented times, but we are focusing on areas that are within our control. Many of the decisions we have made have not been easy; however, they are essential to maintaining an enduring company and will position us well for the next upcycle.”
For more information, visit www.carboceramics.com.