Oil prices have fallen 30% since late June and shares of such firms as US Silica Holdings and Hi Crush, which supply sand to US drillers, followed, dumped by investors anticipating 2015 output cuts and a drop in demand.
However, the service companies say business remains as strong as ever. Furthermore, they point out that most of their supply has been bought under long term contracts meaning next year should be good too.
“We have not seen any data or had any discussions that indicate lower demand for our sand,” said Robert Rasmus, co-chief executive Officer of sand producer Hi-Crush after the company reported record third quarter revenues this week.
Hi Crush’s share price has fallen more than 40%since the beginning of September, but Rasmus said almost 90% of the company’s sand output was sold for 2015.
His comments echoed those of other firms that supply sand and other materials to oil drillers.
US Silica Holdings, whose oil and gas sector revenues doubled in the third quarter of this year, remains upbeat about its outlook.
“We are actively engaged in conversations with our customers about their future growth, and none has brought down their estimated requirements,” chief executive officer Bryan Shinn told investors last week.
Analysts say that in contrast to investors who have already priced in a drop in 2015 output because of sliding oil prices, service firms may still hope for a rebound and hold off with cutting their outlooks.
Their optimism could also be a sign that the shale oil boom, which has transformed US energy industry since the end of last decade, has enough momentum to keep output and service firms’ business rising next year and perhaps beyond even as some drillers already start cutting their 2015 investment plans.
Industry experts say existing wells that have been drilled but not yet fracked will keep output surging for months and many have hedged next year’s production well above current prices