On August 2nd, I covered U.S. Silica’s (NYSE:SLCA) earnings miss and how that will affect its long-term prospects. This was a great buying opportunity, as the stock has been on a tear. It is up almost 50% in that short time. Current valuations are stretched and recommend letting SLCA pulling back into the $30 to $31 range before adding or starting a position. I am aware we may not get that, but the stock is too expensive at this point and perfection will be expected at next earnings. Its competitors Hi-Crush Partners (NYSE:HCLP) and Emerge Energy Services (NYSE:EMES) also have excellent prospects going into 2014. The number of rigs drilling liquids rich plays in U.S. basins looks to trend sideways to down going forward. This has led some to believe operators are cutting back, which is not the case. Developmental programs are moving forward to pad drilling as operators have large leaseholds held by production. Pad drilling saves time, which decreases costs. Batch drilling and zipper fracs reduce costs and will allow more wells to be drilled and completed without raising cap ex. The frac sand growth story has less to do with an increased number of wells drilled and more to do with an increase in proppant intensity, and longer laterals coupled with decreased drilling and completion times. Newer completion styles are creating larger fractures closer to the well bore. The greater the void, the larger the volume of proppant needed. Frac sand producers will benefit from this directly, as the larger the fractures the more sand needed to fill the void. These changes could be the start of something bigger, as early results point to much higher production per well for roughly the same cost.
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