A writeup on one of the largest suppliers of high quality frac sand, trading for 50% of the liquidation value, and my single biggest portfolio allocation, Smart Sand Inc. (SND)
Higher oil prices might also factor in this equation. That is if oil drops then shale oil output drops in response and inputs (revenue for Smart Sand) also drops.
What are your thoughts on the prices of Nat gas right now. If we assume in a bear/base case that the prices of nat gas stay around this price is there a chance that producers drop out of the market and/or focus less on efficiency and more on cost reductions to weather out the slump in prices? In that case would the higher quality of sand that Smart Sand produces still be a good choice for producers to pruchase?
it's very difficult to say to be honest, but one thing is that although gas prices are at lows right now, management still mentioned "at least 10% higher sales in 2024", so I guess we'll have to just wait and see
Domestic US Nat gas prices will remain low as long as oil prices remain high because high oil prices leads to high oil production in the US and Nat gas is a by product of oil production (in USA). High oil prices leads to high oil supply AND Nat gas supply. High Nat gas supply leads to low Nat gas prices. Hope that makes sense.
Hi Crush was broke, that's one thing, whereas SND has a pristine balance sheet.
Second thing is that HCR operates mainly in the Permian, whereas SND does not really do that. They sit in basins where NWS is the mainly used type of proppant, so they just keep to themselves. I wish good luck to AESI with their acquisition, but it does not really change much for this thesis
Interesting story. Seems that Mr Market continues to ignore it.
Great analysis, my friend. I will consider buying some Smart Sand stock
Thanks for the write-up. Much appreciated.
Higher oil prices might also factor in this equation. That is if oil drops then shale oil output drops in response and inputs (revenue for Smart Sand) also drops.
What are your thoughts on the prices of Nat gas right now. If we assume in a bear/base case that the prices of nat gas stay around this price is there a chance that producers drop out of the market and/or focus less on efficiency and more on cost reductions to weather out the slump in prices? In that case would the higher quality of sand that Smart Sand produces still be a good choice for producers to pruchase?
it's very difficult to say to be honest, but one thing is that although gas prices are at lows right now, management still mentioned "at least 10% higher sales in 2024", so I guess we'll have to just wait and see
Domestic US Nat gas prices will remain low as long as oil prices remain high because high oil prices leads to high oil production in the US and Nat gas is a by product of oil production (in USA). High oil prices leads to high oil supply AND Nat gas supply. High Nat gas supply leads to low Nat gas prices. Hope that makes sense.
Yes, this is very good. Thank you!
got it, thanks. So SND is where mostly? Bakken, Haynseville, Marcellus? What kind of valuation did they pay do you think?
What is your valuation vs Hi Crush takeout?
Hi Crush was broke, that's one thing, whereas SND has a pristine balance sheet.
Second thing is that HCR operates mainly in the Permian, whereas SND does not really do that. They sit in basins where NWS is the mainly used type of proppant, so they just keep to themselves. I wish good luck to AESI with their acquisition, but it does not really change much for this thesis