February 01, 2012 at 15:52 PM EST
Carbo Sand Shortage Results In Abysmal Share Prices
The lowest natural gas prices in decades have also contributed to the increasingly dismal quarterly numbers for Carbo.

As many of you know, sand is an integral part of the fracking process.

It’s mixed with water and chemicals to extract oil and gas trapped in shale rock beneath the earth’s surface.

What you may not know is that much of this sand is obtained from mines located in Wisconsin and Minnesota. And the increased demand has resulted in a major supply shortage.

Disastrous news for America’s only publicly traded sand mining company Carbo Ceramics (NYSE: CRR). 

Carbo stock prices fell 20 percent last Thursday from $131 to $103 after it failed to reach Wall Street’s consensus view.

Analysts had expected earnings of $1.70 per share in the fourth quarter, 38 cents higher than the company's reported earnings of $1.32.

However a sand shortage isn’t the only problem afflicting the mining company.

The lowest natural gas prices in decades have also contributed to the increasingly dismal quarterly numbers for Carbo.

One of the company’s largest moneymakers, the natural gas basins in Haynesville, Texas, has recently fallen out-of-favor with enery and petroleum companies (E&Ps), leaving the area due to the low natural gas prices.

The rig count in Haynesville was down 35 percent at the close of 2011 and experts expect another 40 percent to abandon the area in 2012, in a mass migration to the liquid-rich Bakken region in North Dakota.

Which represents at third problem for Carbo, the company can’t help but to lose money moving the sand that was in Haynesville up to North Dakota. Massive emounts of sand are required to run one fracking well, around 100 truckloads, and hauling it is a rather costly endeavor. Analysts suspect the resulting move will lead to further losses for the company in the first quarter.

Until Next Time

Nate



Carbo Sand Shortage Results In Abysmal Share Prices originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.
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