Emerge Energy Services is Scaling the Frac-Sand Mountain

Michael Teague |

Oil and gas services provider Emerge Energy Services LP (EMES) was trading higher as of the opening bell on Friday with a good deal of help from a ratings upgrade courtesy of Robert W. Baird.

Emerge is as pure a shale play as one can hope to find in the services industry and thus somewhat of an archetype for the direction in which small/niche services industry-plays have evolved in the wake of the US shale boom. The Southlake, Texas-based MLP held its IPO less than a year ago on May 10, and has been steadily gaining ever since, finding success in both of its business segments, fuel processing/distribution, and sand.

Yes, sand. The company is a top-shelf supplier of the various grades of sand that are crucial to the process of hydraulic fracturing.

Extracting oil and gas from low-permeability shale rock requires that drillers blast open formations with a mixture of water, chemicals, and sand, the latter being used as a “proppant” for propping open fissures created during the fracturing process, so that oil or gas reserves can escape through them.

Earlier in the week, the company released an investor presentation in which it made the case for its sand business going forward. With rig counts on the rise, and greater efficiency allowing for more wells per rig, it is no surprise that demand for high-grade sand has been increasing as well. The coarse “Northern White” frac-sand is becoming harder to find these days, and the company sees itself benefitting from the internationalization of US shale production as foreign companies increasingly look to US producers to fill their sand needs.

Emerge’s fuel segment consists of biodiesel refining, wholesale distribution, terminal storage, and transmixing, all of which are segments it is in the process of expanding.
While the major indices were heading lower, shares for EMES were gaining steam ahead of the close, nearing their 52-week high of $71.48 52, hitting $70.71 shortly after 2 pm ET on gains of over 9 percent, and reaching nearly 5 times average volume.

Given that the stock has nearly tripled in price since the last year, the $85 upper range of Baird’s price target does not seem too far off.
 

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Companies

Symbol Name Price Change % Volume
EMES Emerge Energy Services LP representing Limited Par 12.34 -0.16 -1.28 502,647
CUGKF Chugoku Marine Paints Ltd n/a n/a n/a 0

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