Hi-Crush Partners LP (NYSE:HCLP) To Dilute Shares With 6 Million Secondary Offering


Hi-Crush Partners LP (NYSE:HCLP) is preparing to dilute its existing stock by issuing additional 6 million shares. The motive behind the secondary equity offering is to enable the company raise funds to pay the bills. Operations are no longer generating enough cash to keep the company going as fallout in crude oil prices has affected drilling activities. Hi-Crush supplies sand for oil drillers.

The offering of 6 million shares is expected to generate total gross proceeds of about $43.8 million. Hi-Crush Partners LP (NYSE:HCLP)’s growing need for cash saw the company raise the equity offering by $3.8 million from the previous offering size of $40 million. The underwriters in the secondary equity offering can purchase up to 900,000 additional shares to cover overallotment.

Hi-Crush’s woes

Hi-Crush Partners LP (NYSE:HCLP)’s financial woes continued to manifest in 1Q2016. Revenue of $52.1 million for the quarter fell sharply from $72.1 million in the previous quarter and almost halved from a year ago quarter. Coming to the bottom-line, the company posted EPS loss of $1.39.

Hi-Crush’s distributable cash flow for the quarter ended up in the negative territory, thus forcing the company to suspend cash distribution.

Hi-Crush’s financial problems have largely been caused by the fallout in the energy industry. The collapse of crude oil prices has resulted in sharp decline in drilling activities. Because Hi-Crush supplies frackers with sand, demand for its materials has sharply declined amid soft drilling activities. That explains with fall in revenues and profits.

Possible remedies

For Hi-Crush Partners LP (NYSE:HCLP) to survive the current difficult conditions, the company must raise additional funding and at the same time keep a tight lid on costs. The company could also get reprieve if other sand producers cut their output to at least bring back demand and lift prices.

Despite the prevailing challenges, there appears to be light at the end of the dark tunnel. Oil prices have recently ticked up and OPEC members plan to meet next month to discuss possible crude oil production cut. These developments could bring back demand for fracking sand.


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