Carbo Ceramics Inc.'s share price was slammed on Monday after management said operators were using cheaper alternatives -- sand -- in completing onshore wells, which in turn was hurting the bottom line for its higher priced ceramic proppants.
"While sand demand is increasing, the company believes the conductivity and production benefits of its ceramic proppant are needed in today's reservoirs," the Houston oilfield services provider said. "Nevertheless, these changes are adversely impacting the company's sales volumes."
Carbo shares fell 16.10% on Monday, or $13.61, to end the day at $70.91.
"In an industry where we are only recovering approximately 5% of the oil in the shale plays, we believe there is a need for both our current and future production enhancement technologies," said CEO Gary Kolstad. "The fundamental technical reasons wells need fracture conductivity have not changed. As such, we are committed to moving forward with the technologies we have, and are developing, to increase the estimated ultimate recovery (EUR) of wells."
The commitment, he said, included continuing to retrofit a plant capable of producing its Kryptosphere products, a ceramic proppant. "We plan to manage the current competitive pricing environment, caused by proppant oversupply, by focusing on sales volumes and introducing new technologies," Kolsad said.
Carbo "has experienced increased price competition on ceramic proppant sales from both domestic and international manufacturers, especially in the Bakken" formation. "Some of the company's clients are encountering delays in their well completions. These delays will impact some sales that the company expected to make in September 2014.
"As a result, the company currently expects that its third quarter 2014 ceramic proppant sales volumes will be similar to those sold in the first quarter of 2014."
Kolstad earlier this year warned of "low quality" imported ceramic proppants that were invading the U.S. market and hurting the domestic ceramics industry (see Shale Daily, Feb. 5). Sand was, and remains, the top selling proppant for exploration companies because of its availability and low cost. Resin-coated proppants are the second most-used brand, while the highest priced ceramics are third.
Earlier this month U.S. Silica Holdings Inc. said it was increasing its sand capacity in response to surging onshore demand in the proppant market, with 3.8 million tons of new northern white hydraulic fracturing sand coming online by mid-2016 (see Shale Daily, Sept. 10).
"Based on conversations with our customers, we believe that a step change is occurring with regard to the volumes of sand being used per well, which translates into significant demand for our products,'' said U.S. Silica CEO Bryan Shinn. "These new capacity expansions will enable us to keep pace with the market and ensure that our customers have ample products to satisfy their needs."