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The Simple Secret to America’s Shale Revolution

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The Simple Secret to America’s Shale Revolution


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The Spectacular Success of Shale Drilling In Since 2008, US oil production has climbed by more than 3 million barrels per day to the highest levels in 25 years. Much of that change has been from shale drilling


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The Spectacular Success of Shale Drilling Production in the most popular oil shale plays should increase by another 1.5 million barrels per day by 2020 Does not include shale gas or prospective plays


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Photo Source: NASA Decades of Drilling Left!


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What Has Made it So Successful? Photo Source: NASA Shale drillers have been developing a better understanding of how shale wells produce over time, adjusting their operations along the way. The largest impact on well performance has been the result of more proppant use


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What is Proppant? …SAND!!! The same stuff we used to play in as kids…


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Factors Influencing Proppant Use Photo Source: NASA Photo Credit: Wes Peck via Flickr. com 2014: Wells per rig projected to increase 10% since 2012 Lateral lengths in the Bakken have doubled in past 5 years, similar figures from other basins 2009-2014: Companies have gone from single frac per well to as many as 40 frac stages per well 2013-2014: Average proppant used per well increased from 2,500 tons per well to 8,000 tons


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Proppant Demand Forecast Compounded annual growth rate of >10% for next 10 years Photo Source: NASA


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Who Are the Big Players? Photo Source: NASA


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US Silica Holdings (NYSE: SLCA) Photo Source: NASA


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US Silica Holdings Photo Source: NASA Photo Credit: Wes Peck via Flickr. com What you Need to Know: Biggest sand producer: 8.2 million tons sand delivered in 2013 Contracts with largest oil services companies: Halliburton, Schlumberger, Nabors Industries EBITDA CAGR greater than 33% over past 5 years. Large supplier of industrial silica for specialty products (50% of volume shipped in FY 2013)


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Hi-Crush Partners LP (NYSE: HCLP) Photo Source: NASA


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Hi-Crush Partners LP Photo Source: NASA Photo Credit: Wes Peck via Flickr. com What you Need to Know: Quickly ramping up activity: Contract sales for 2015 at 4 million tons, 166% greater than FY 2013 Long term contracts in place: 5 year agreement with Weatherford, 6 year contract with Baker Hughes EBITDA has grown 4.8 times since FY 2011 (founded in 2010) Strong cash flow: Distribution coverage ratio of 1.15 for Q1 2014 pre- equity issuance


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Emergy Energy Services (NYSE: EMES) Photo Source: NASA


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Emerge Energy Services Photo Source: NASA Photo Credit: Wes Peck via Flickr. com What you Need to Know: Production growing fast: 7.3 million tons of capacity brought online in 2 years, another 4 million awaiting permitting Also has refined fuels distribution segment ( 76% of revenue, but 22% of operating income in Q1 2014, sand business growing faster than fuel segment) Variable rate Master Limited Partnership: gives out 100% of distributable cash flow at end of quarter. Big push into Canadian shale: Of three sand producers on list, only one with rail trans loading sites in Canada


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Carbo Ceramics (NYSE: CRR) Photo Source: NASA Photo Credit: Wes Peck via Flickr. com Oil Services specialist, designs products and services designed to optimize well productivity from hydraulic fracturing Major producer of ceramic proppant Why Ceramic?


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Why Ceramic? Photo Source: NASA Photo Credit: Wes Peck via Flickr. com Works better in high-pressure environments (offshore drilling fields/ onshore depths greater than 10,000 ft) than sand


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Carbo Ceramics Photo Source: NASA Photo Credit: Wes Peck via Flickr. com What you Need to Know: Ceramic use taking off in certain geographies. Ceramic proppant as % of volume in Bakken has increased from <5% in 2008 to >40%. Producing noticeable results in elsewhere. Ceramic wells have 20%-60% better 3 month production per lateral foot in Eagle Ford Growing dividend by 16% annually since 2005 Currently limited by ceramic proppant manufacturing. 625,000 tons of ceramic production awaiting permits


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What does this all mean to me? Better well results from increased proppant use in hydraulic fracturing likely means we will see strong demand for sand and ceramic proppant for several years to come. U.S. Silica, Hi-Crush, Emerge, and Carbo are all growing production fast, but demand is growing faster. This means that there is plenty of room for these companies to grow in proppant industry without too much risk of over capacity. All of these companies have stable, long term contracts in place and have been acquiring smaller players in industry to consolidate, so each are in a unique position to succeed over next several years. Photo Source: NASA


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OPEC’s Worst Nightmare…


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