CARBO Ceramics Sees Steep Revenue Decline in 2016 Second Quarter
CARBO Ceramics Inc. recently reported a GAAP net loss of $20.3 million.
CARBO Ceramics Inc. recently reported a GAAP net loss of $20.3 million, or a loss of $0.88 per share, on revenues of $20.7 million for the quarter ended June 30, 2016. The GAAP net loss includes $8.7 million, or $0.38 per share, of after-tax costs associated with slowing and idling production.
“The operating environment within the oil and gas industry remained extremely challenging in the second quarter of 2016,” said Gary Kolstad, CEO. “The North American rig count declined 35% sequentially. However, we believe the second quarter likely marked the bottom for activity levels, as both oil and natural gas commodity prices and the North American rig count started to recover. Sales volumes began to improve as the quarter progressed. In addition, with the increasing commodity prices, we have received increasing customer inquiries about procuring ceramic proppant for completions in the second half of 2016.
“Some analysts have pointed out that productivity gains (production/rig) are leveling off in the U.S. Some of this is likely due to the drilling of the better prospects first, and also the leveling off of rig efficiency gains. There are still opportunities to change this trend with technology. The fact remains that over 50% of the wells drilled in the Lower 48 will see stresses that crush the best white sand. Often, the best engineered approach to maximizing EUR will not be to just pump higher volumes of sand, but rather design the fracs with a durable, high conductivity proppant that lasts the life of the well.
“We significantly lowered our cost base in the quarter, and we remain focused on cost reductions and cash preservation. We were able to renegotiate contracts associated with some of our leased railcars and also reduced SG&A expenses sequentially. As announced in May, we bolstered our cash reserves through a $25 million placement of subordinated notes on attractive terms. Maintaining financial flexibility remains essential.”
Revenues for the second quarter of 2016 decreased 72%, or $52.6 million, compared to the same period in 2015. The decrease was primarily attributable to a 53% 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. Operating loss for the second quarter of 2016 was $30 million as compared to $24.9 million in the same period in 2015, primarily due to the revenue decline, and was partially offset by cost-cutting measures implemented beginning in early 2015. Net loss for the second quarter of 2016 was $20.3 million, compared to $17.0 million in the same period in 2015.
“We are becoming more optimistic on the industry operating environment, given recent oil and natural gas commodity price levels,” said Kolstad. “Communications with our clients lead us to believe third quarter 2016 ceramic proppant sales will increase from second quarter 2016 levels. In addition, the third quarter typically sees an increase in industry activity due to coming out of Canadian spring breakup and fewer weather-associated issues in the northern regions. We anticipate an environment where E&P operators gradually step back in to using more durable, high conductivity proppants, likely concentrated on tail-in applications.
“On the technology front, KRYPTOSPHERE and SCALEGUARD continue to see acceptance in this challenging market. We now have wells using SCALEGUARD producing scale-free for over two years. We also believe there is untapped value residing in other areas of our technology suite. We continue to explore ways to accelerate the value of these technologies.
“Efforts to reduce our cost base continue, including the reduction of our railcar lease expense and SG&A costs. In addition, higher natural gas commodity prices provide a cash benefit relating to our excess natural gas commitments as these contracts are net settled. As a result of these cost reduction efforts, coupled with our efforts to further lower inventory levels, we anticipate our quarterly cash burn to improve next quarter.
“We are looking forward to the second half of 2016, which should see improved overall industry activity levels due to the improvement in the commodity price environment from the first quarter of 2016. We will continue our focus on deriving additional value from our technology platforms and strengthening our balance sheet to afford us financial flexibility to capitalize on opportunities during the next up cycle.”
For more information, visit www.carboceramics.com.