Shares of Hi-Crush Partners fell 10.2% Monday and Emerge Energy Services’ shares took a 17% plunge as the entire energy sector fell victim to yet another major sell-off, spurred by a drop in oil prices to $63 per barrel.
Analysts believe that companies supplying frac sand to drillers looking to access shale resources in North America are likely to get stung more than any other.
If today’s prices were to continue for an extended period, many of the potential shale wells will not be economical and will not be drilled, and a lack of drilling activity means less demand for frac sand. Add to that the several other frac sand suppliers that are bringing on new mines to accommodate the recent drilling boom, and many investors are afraid that the sand market will be oversupplied and prices will decline.
With many Wall Street investors in a panic some of this sell-off could be bordering on irrational says some analysts. It could be a good time pick up shares in a strong sand supplier at a steep discount.