Hi-Crush Partners LP (NYSE: HCLP), "Hi-Crush" or the
"Partnership", today announced fourth quarter 2018 operational and
financial updates and provided an updated outlook.
"Well completion activity slowed significantly
in the fourth quarter, impacting sales volumes and pricing
primarily of Northern White sand, and to a lesser extent in-basin
sand," said Mr. Robert E. Rasmus, Chairman and Chief Executive
Officer of Hi-Crush. "While sequential weakness was anticipated and
well-documented across the industry, the level of weakness in
completions was greater than previously expected. We are
proactively analyzing our cost structure and we have made, and will
continue to make, whatever decisions are necessary to navigate
near-term challenges and best position Hi-Crush for the
long-term."
Volume Update
For the fourth quarter of 2018, the Partnership
reported sales volumes of 1,976,805 tons, compared to 2,775,360
tons sold in the third quarter of 2018, below the previously
forecasted range of 2.3 to 2.5 million tons. Volumes sold
during the fourth quarter of 2018 were negatively impacted by
greater than expected weakness in completions activity and timing
of customer demand, as well as typical seasonal slowdowns.
"Our overall volumes were impacted by the
headwinds anticipated during the quarter," said Ms. Laura C.
Fulton, Chief Financial Officer of Hi-Crush. "The reduction in
completions activity, combined with the timing of work by our
customers, resulted in lower than expected sales volumes. Sales
volumes from the Kermit facility were strong, but volumes from our
Northern White facilities faced greater than expected negative
pressures. Our sales volumes improved during December as we
advanced our strategy of selling more volumes to E&Ps,
including the execution of additional contracts for Northern White
sand and our PropStream® services."
Kermit Facility Development
Update
The Partnership announced the completion in
December of construction at its second Kermit production
facility. The 3.0 million ton per year facility is located
one mile west of the first Kermit facility, with sufficient and
separate road access to enable efficient ingress and egress for the
two facilities. Both Kermit facilities produce a single product,
100 mesh Permian PearlTM frac sand, and all volumes produced from
the two facilities are mined from the same reserves. The reserve
life for the Kermit complex is estimated to be approximately 17
years.
"The construction of our second Kermit facility
was completed on time and under budget in December and we
successfully delivered our first volumes from the facility," said
Mr. Rasmus. "Combined with our customer-driven expansion project at
Wyeville, our decision to expand production at our industry-leading
and most efficient facilities in West Texas and Wisconsin,
supported by contracts from new and existing E&P customers,
reflects our strategy of partnering with operators to meet their
individual needs. We furnish a differentiated service offering,
including the ability to supply sand at the minegate or in-basin,
which combined with our last mile capabilities deepens the value we
provide to operators. We expect the Kermit complex to ramp quickly
to reach its combined annual nameplate capacity of 6.0 million tons
in March, supported by contracts with operators for approximately
85% of its capacity. Our previously announced expansion of
the Wyeville facility is fully supported by customer commitments
and is on schedule for completion in mid-first quarter of
2019."
Contract Update
The Partnership also announced new contracts
with E&Ps for Northern White sand and PropStream services
starting in the first quarter of 2019. The contracts executed with
E&Ps to-date support approximately half of currently operating
Northern White frac sand production capacity and commit additional
PropStream systems and crews primarily in the Northeast with
leading operators in the region. In addition, the Partnership
announced the execution of pricing amendments to certain of its
sand supply agreements supporting the Kermit complex.
"We are excited to deepen relationships with
operators that value our reliability, safety record and integrated
last mile services," Mr. Rasmus continued. "At the same time, we
remain in active discussions with our customers, particularly
around the fixed-prices defined in our in-basin sand agreements.
While certain discussions are ongoing, we conservatively expect
more than $100 million in EBITDA annually solely from frac sand
sales from our Kermit complex, before any added contribution of our
logistics services. The in-basin sand contract amendments were
negotiated with a focus on trading value for value and further
strengthening the long-term relationships we target with our
operator customers. With this strategic orientation, and as a
result of these negotiations, we have secured the use of additional
PropStream crews and equipment, increased volume commitments and
extended terms on the contracts."
Operational Update
In support of the expansion of its PropStream
service, Hi-Crush recently completed successful field testing for
the new FB Atlas top-fill conveyor system with an existing E&P
customer in West Texas. This new technology utilizes hopper bottom
trailers capable of delivering 27 tons of frac sand per truckload
to the wellsite, greatly improving the efficiency of transportation
through more tons per truckload, as well as quicker turnaround
times at the wellsite. The FB Atlas is capable of unloading hopper
bottom trailers in 10 minutes, faster than any other solution, and
maximizing the number of round trips made to Hi-Crush’s terminals
or Kermit facilities.
"Customer demand for our FB silos has been
robust and feedback on these systems and our team’s execution has
been tremendously positive," continued Mr. Rasmus. "Customers are
increasingly focused on the last mile value proposition, and
against this backdrop we have explored several ways in which we can
utilize the new FB silo service offering to improve efficiencies
and deliver further value to our customers. We believe our customer
strategy, combined with our Mine. Move. Manage. operational
strategy, is pivotal to long-term success in the frac sand and
logistics sector. We are committed to fundamentally extending our
business beyond the mine, including an increasing concentration on
the logistics of frac sand, and serving customers through unique,
value added solutions."
Distribution Update
The Partnership also announced the Board of
Directors’ decision to suspend the quarterly distribution.
Hi-Crush previously declared a quarterly cash distribution of
$0.225 per unit on all common units, or $0.90 on an annualized
basis, for the third quarter of 2018, which was paid in November
2018.
"As a result of the challenging conditions
experienced in the fourth quarter, the Board of Directors made the
decision to suspend the quarterly distribution, which reflects our
commitment to financial discipline and maintaining a strong balance
sheet," said Ms. Fulton. "Our balance sheet is well
positioned for the challenges facing the industry, supported by our
financial structure with no maintenance covenants, and enhanced by
the Board’s decision to further protect our capital position.
With $114 million of cash as of year-end and no borrowings under
our asset-backed facility, we have more than sufficient funding for
our semi-annual interest payments, our 2019 maintenance capex and
remaining growth capex from our 2018 expansion projects."
Outlook
"We continue to believe some of the market
dynamics that coalesced in the fourth quarter are transitory," said
Mr. Rasmus. "We anticipate improving activity in 2019 as E&Ps
focus a larger share of their capital budgets on completions and
additional takeaway capacity in the Permian Basin becomes
available, but the pace of improvement remains uncertain. Supply
and demand dynamics for frac sand should also improve as more
capacity is shut down, construction of new in-basin supply slows,
and demand fundamentals continue to strengthen. Overall, some
headwinds may prove more persistent than previously anticipated,
continuing the challenging environment for Northern White
sand. Our customer-focused strategy to provide sand and last
mile solutions to operators is benefiting demand for sand from our
Northern White facilities, as evidenced by recent contracts signed
with E&Ps, and we will continue to operate our production to
efficiently meet those customers’ needs."
"We are proactively taking steps to control
costs, including our decision in the third quarter to idle the
Whitehall plant," continued Ms. Fulton. "We are focused on
improving our cost structure from the mine to the last mile, and on
establishing and deepening relationships with operators. Our
balance sheet remains strong and our financial position and
operational priorities are well-aligned to support success in 2019
and over the long-term."
About Hi-Crush
Hi-Crush is a fully integrated, strategic
provider of proppant and logistics solutions to the North American
petroleum industry. We own and operate multiple frac sand mining
facilities and in-basin terminals, and provide mine-to-wellsite
logistics services that optimize proppant supply to customers in
all major basins. Our PropStream service, offering both container-
and silo-based wellsite delivery and storage systems, provides the
highest level of flexibility, safety and efficiency in managing the
full scope and value of the proppant supply chain. Visit
HiCrush.com.
No Solicitation
This communication relates to the Conversion.
This communication is for informational purposes only and does not
constitute a solicitation of any vote or approval, in any
jurisdiction, pursuant to the Conversion or otherwise.
Important Additional
Information
In connection with the Conversion, the
Partnership will file with the U.S. Securities and Exchange
Commission ("SEC") a proxy statement. The Conversion will be
submitted to Partnership’s unitholders for their consideration. The
Partnership may also file other documents with the SEC regarding
the Conversion. The definitive proxy statement will be sent to the
unitholders of the Partnership. This document is not a substitute
for the proxy statement that will be filed with the SEC or any
other documents that the Partnership may file with the SEC or send
to unitholders of the Partnership in connection with the
Conversion. INVESTORS AND SECURITY HOLDERS OF THE PARTNERSHIP ARE
URGED TO READ THE PROXY STATEMENT REGARDING THE CONVERSION WHEN IT
BECOMES AVAILABLE AND ALL OTHER RELEVANT DOCUMENTS THAT ARE FILED
OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE
CONVERSION AND RELATED MATTERS.
Investors and security holders will be able to
obtain free copies of proxy statement (when available) and all
other documents filed or that will be filed with the SEC by the
Partnership through the website maintained by the SEC at
http://www.sec.gov. Copies of documents filed with the SEC by the
Partnership will be made available free of charge on the
Partnership’s website at www.hicrush.com, under the heading
"Investors," or by directing a request to Investor Relations,
Hi-Crush Partners LP, 1330 Post Oak Blvd., Suite 600, Houston, TX
77056, Tel. No. (713) 980-6270.
Participants in the
Solicitation
The Partnership is managed and operated by the
board of directors and executive officers of its general partner,
Hi-Crush GP LLC (our "General Partner"). The Partnership, our
General Partner and our General Partner’s directors and executive
officers may be deemed to be participants in the solicitation of
proxies in respect to the Conversion.
Information regarding our General Partner’s
directors and executive officers is contained in the Partnership’s
Annual Report on Form 10-K for the 2017 fiscal year filed with the
SEC on February 20, 2018, and certain of its Current Reports on
Form 8-K. You can obtain a free copy of these documents at the
SEC’s website at http://www.sec.gov or by accessing the
Partnership’s website at www.hicrush.com.
Investors may obtain additional information
regarding the interests of those persons and other persons who may
be deemed participants in the Conversion by reading the proxy
statement regarding the Conversion when it becomes available. You
may obtain free copies of this document as described above.
Forward-Looking Statements and
Cautionary Statements
The foregoing contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. All statements, other than
statements of historical fact, included in this communication that
address activities, events or developments that the Partnership
expects, believes or anticipates will or may occur in the future
are forward-looking statements. Words such as "estimate,"
"project," "predict," "believe," "expect," "anticipate,"
"potential," "create," "intend," "could," "may," "foresee," "plan,"
"will," "guidance," "look," "outlook," "goal," "future," "assume,"
"forecast," "build," "focus," "work," "continue" or the negative of
such terms or other variations thereof and words and terms of
similar substance used in connection with any discussion of future
plans, actions, or events identify forward-looking statements.
However, the absence of these words does not mean that the
statements are not forward-looking. These forward-looking
statements include, but are not limited to, statements regarding
the Conversion, descriptions of the post-Conversion company and its
operations, transition plans, opportunities and anticipated future
performance. There are a number of risks and uncertainties that
could cause actual results to differ materially from the
forward-looking statements included in this communication. These
include the expected timing and likelihood of completion of the
Conversion, the occurrence of any event, change or other
circumstances that could give rise to the abandonment of the
proposed Conversion, the possibility that unitholders of the
Partnership may not approve the Conversion, risks related to
disruption of management time from ongoing business operations due
to the Conversion, the risk that any announcements relating to the
Conversion could have adverse effects on the market price of the
Partnership’s common units, the risk that the Conversion and its
announcement could have an adverse effect on the ability of the
Partnership to retain customers and retain and hire key personnel
and maintain relationships with their suppliers and customers and
on their operating results and businesses generally, the risk the
pending Conversion could distract management of the Partnership and
that the Partnership will incur substantial costs, the risk that
problems arise that may result in the post-Conversion company not
operating as effectively and efficiently as expected, the risk that
the post-Conversion company may be unable to achieve expected
benefits of the Conversion or it may take longer than expected to
achieve those benefits and other important factors that could cause
actual results to differ materially from those projected. All such
factors are difficult to predict and are beyond the Partnership’s
control, including those detailed in the Partnership’s annual
reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K that are available on its website at
www.hicrush.com and on the SEC’s website at http://www.sec.gov. All
forward-looking statements are based on assumptions that the
Partnership believes to be reasonable but that may not prove to be
accurate. Any forward-looking statement speaks only as of the date
on which such statement is made, and the Partnership undertakes no
obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise,
except as required by applicable law. Readers are cautioned not to
place undue reliance on these forward-looking statements that speak
only as of the date hereof.
Use of Non-GAAP Information
This release may include non-GAAP financial
measures. Such non-GAAP measures are not alternatives to GAAP
measures, and you should not consider these non-GAAP measures in
isolation or as a substitute for analysis of our results as
reported under GAAP. For additional disclosure regarding such
non-GAAP measures, including reconciliations to their most directly
comparable GAAP measure, please refer to Hi-Crush’s most recent
earnings release at www.hicrush.com.
Investor contact:Caldwell
Bailey, Lead Investor Relations AnalystMarc Silverberg,
ICRir@hicrush.com(713) 980-6270
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