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Executives

Gary Kolstad – President and CEO

Ernesto Bautista – VP and CFO

Analysts

James West – Barclays

Blake Hutchinson – Howard Weil

Doug Garber – Dahlman Rose

Jeff Tillery – Tudor Pickering

John Daniel – Simmons & Company

John Keller – Stephens

Brian Uhlmer – Global Hunter

Robert Richardson – Buckingham Research

CARBO Ceramics, Inc. (CRR) Q2 2012 Earnings Call July 26, 2012 11:00 AM ET

Operator

Hello, and welcome to today’s CARBO Ceramics Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s remarks, we will conduct a question-and-answer session, and instructions will follow at that time. Please be advised this call is being recorded today, July 26, 2012, and your participation implies consent to our recording this call. If you do not agree to these terms, simply disconnect.

I would like to remind all participants that during the course of this conference call, the company will make statements that provide information other than the historical information and will include projections concerning the company’s future prospects, revenues, expenses or profits. These statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these projections. These statements reflects the company’s beliefs based on the current conditions, but are subject to certain risks and uncertainties that are detailed in the company’s press release and public filings.

Your host for today’s call is Mr. Gary Kolstad, President and Chief Executive Officer of CARBO Ceramics. Mr. Kolstad, please begin your call.

Gary Kolstad

Good morning, everyone. I want to thank you for joining us to discuss CARBO’s Second Quarter results along with an outlook for the remainder of 2012.

Some of the highlights of the second quarter. The sales volume set a new quarterly record despite difficult market conditions, including an oversupply of varying quality Chinese ceramic proppant in North America. We achieved this sales volume record through our continued focus to further expand the use of CARBO’s high-quality, high-conductivity ceramic proppant in the liquids-rich basins, namely the Bakken and Eagle Ford. Although sales volumes were healthy in these basins, infrastructure to support industry activity remained limited.

From a distribution standpoint, we continued to face logistical challenges and higher associated costs during the quarter. Our sand processing plant in Marshfield, Wisconsin became operational later in the second quarter of 2012. Shipments of our high-quality CARBO Northern White sand have started to arrive at our resin-coating facility in New Iberia.

E&P clients’ continued focus on environmental risk reduction led to record quarterly sales for Falcon Technologies. Falcon’s technologically advanced spill prevention and containment systems are widely respected in the industry and provide superior protection for operators of oil and gas well sites.

The board of directors recently approved a 13% increase in the dividend. This marks the 12th consecutive year we have increased the dividend and the board’s decision demonstrates continued confidence in our long-term cash flow outlook.

A brief review of our financial and operational results. Revenues for the second quarter of 2012 increased 19%, or $27.9 million, compared with the second quarter of 2011. North American proppant sales volume increased 17%, while International proppant sales volume increased 20% compared to the same period last year. Operating profit for the second quarter of 2012 increased 2%, or $0.9 million, compared to the second quarter of 2011. The increase in operating profit was primarily the result of higher proppant sales volumes and a greater contribution from some of the company’s other business units, partially offset by changes in product mix and increases in freight, logistics, and SG&A expenses.

Net income for the second quarter of 2012 increased 7%, or $2 million, compared to the second quarter of 2011. Our average selling price declined 4% sequentially and about a quarter of that was due to the selling price decline was due to field trials.

Now turning to the outlook. As we noted previously, 2012 will have its share of challenges due to the shift in activity away from natural gas basins towards the liquids-rich basins in North America. We expect to see a very volatile, competitive environment in the second half of 2012 due to three main reasons: the continued oversupplied proppant market, low natural gas price, volatile NGL and oil prices and a continuation of higher distribution costs.

These three factors will lead to increased pressure on proppant pricing, proppant volumes and margins for the rest of the year. Regarding pricing we will continue to execute field trials in the third quarter of 2012 and although the price concession is limited it will affect our average selling price.

In addition, we will continue to manage the price volume relationship to efficiently utilize our plants and positively affect our financial results. The Canadian activity typically benefits volumes in the third quarter; however, activity coming out of spring breakup has been very slow. We are working to manage distribution cost in today’s fluctuating environment. We are deploying capital and long-term investments which will help us deliver products more efficiently to our clients.

Now looking at some project updates. The construction of our Marshfield resin-coated plant has been deferred at this time. We continue to monitor market conditions and will modify the project timeline accordingly. Work on the Millen, Georgia ceramic manufacturing plant project continues and we estimate the plant could commence production before the end of 2013. Resin-coating production in New Iberia will likely be limited through the third quarter of 2012 as we build a sufficient inventory of CARBO Northern White sand.

Looking at Falcon, we expect Falcon to build upon its success this year and achieve revenue growth of 15% to 20% for 2012 as indicated previously. Before I turn the call over for Q&A, I’d like to emphasize a few points in what we are doing to address the challenges before us.

Just like all past industry cycles, we continued to demonstrate the benefits of economic conductivity and the value of our high-quality, high-conductivity ceramic proppant. Our proppant makes wells produce better and recover more. We are increasing the amount of field trials with E&P operators to prove that our ceramic proppant makes wells produce better. We are focused on demonstrating to E&P operators the increased investment returns they get by using our lightweight ceramic proppant versus the Chinese Intermediate Density proppant.

CARBO’s ceramic proppant provides its clients two important technical advantages over the varying quality Chinese Intermediate Density Ceramic proppant, called IDC. First, our clients achieve superior conductivity due to the consistency of the high-quality proppant we manufacture in the United States. Second, our clients benefit from utilizing CARBO’s lightweight ceramic proppant which provides approximately 20% more proppant volume for every pound purchased. Said differently, users of IDC proppant would have to purchase roughly 20% more Chinese IDC to achieve the same fracture volume as compared to a well that used CARBO’s lightweight ceramics.

We continue to manage the price volume relationship to positively affect our financial results. We continue to invest in product development to both improve our current products performance and develop new products. We have technology that no one else has and expect to continue to be the leader in proppants. We continue to be very prudent on expenses, including capital expenditures. And finally, we have a very strong balance sheet and are financially conservative. Cycles come and go; we continue to build an enduring company.

This completes our prepared remarks. At this time, we’ll be happy to address any questions. Dmitry? Dmitry?

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions) Your first question comes from the line of James West with Barclays.

James West – Barclays

Hey. Good morning, Gary.

Gary Kolstad

Good morning.

James West – Barclays

Gary, you mentioned that pricing is sequentially down about 4% and I think if I heard you correctly about a quarter of that, so I guess 1%, was due to field trials so the net proppant pricing down about 3%. Could you give us some sense of what the exit rate was on pricing? So how we should think about further pricing declines that you alluded to in the second half of this year?

Gary Kolstad

Yeah, I would characterize that as the first part of the quarter was much better than the exit. So we had declining price as the quarter went on.

James West – Barclays

Okay, no numbers or magnitude?

Gary Kolstad

No, I think that we gave you 4%. That’s more than we normally do, right?

James West – Barclays

No. It certainly is, but that’s okay. And then another question about the Chinese oversupplying in the marketplace right now, do you have a sense of how great that oversupply is, I guess number one, and number two, have the Chinese slowed sending proppant into the North American market?

Gary Kolstad

It’s tough for us to gauge the first part there. We know there’s a lot of it sitting around in various warehouses, railroad, yards, everything like that. So that’s difficult for us to measure. There are one or two people that make an effort at judging imports into the U.S. and from the information they show and what we know, we would say that the imports are declining recently and we’ll continue to watch that as well as those people that monitor it. So, we’re probably aware too that some of the excess capacity that’s been built in China is probably being idled right now.

James West – Barclays

And have you flushed – I know you had some Chinese inventory that you were holding. Have you flushed that out of your inventories at this point?

Gary Kolstad

We’ve done a great job of lowering that. We told you in Q1 we’ve stopped purchasing it and...

James West – Barclays

Right.

Gary Kolstad

We’re very pleased with the effort done by everybody by getting our inventories down a good amount in H1. And we’ve done that without having any prior sales or anything like that. And so from this point on, we’re not as concerned as that being such a big focus, so we will now continue to let it, let’s say, lower down to a level. We kind of know what level we want to carry and we’re just pleased with the first half effort.

James West – Barclays

Okay, all right. Thanks, Gary.

Operator

Your next question comes from the line of Blake Hutchinson with Howard Weil.

Blake Hutchinson – Howard Weil

Good morning, guys.

Gary Kolstad

Good morning.

Ernesto Bautista

Good morning.

Blake Hutchinson – Howard Weil

I just wanted to focus on the issue – the ongoing issue here of higher distribution costs and get your thoughts, I guess, if we back up to maybe the first quarter call, you had outlined maybe kind of period expenses in the magnitude of 150 – eating in the margins to the magnitude of maybe 150 basis points and certainly that would continue into Q2. Is it your outlook now that that’s kind of just the run rate that we’re going to have to deal with going forward or do you actually see kind of an alleviation of some of those expenses? And if so, with what sort of timing or visibility do you have there?

Gary Kolstad

I think we were – we continue to see – or we’ll continue to see those higher costs through the second half. We’re still in some decision-making modes on some of the storage products and stuff like that. One of them we’ve started on, and that will Aleve some pressure probably more of middle first quarter type of things. So, it doesn’t really impact this year, but we continue to see that and the railroad still has a lot of issues that are presented to us and other people in the industry. And so the higher costs, I think, are probably going to be here for Q3 and Q4, and we’ll continue to put up the capital expenditures to have a smoother distribution network in the future, but Ernesto, I don’t know if you want to comment on it?

Ernesto Bautista

I think that’s right. I think what we had seen or what we anticipated is going along with kind of the volatility in the market and so that has changed and I think we will continue to see that increased level of cost, as Gary said, at least through the end of the year.

Blake Hutchinson – Howard Weil

Okay, so some stickier costs and then, I guess, the last couple of quarters and into this quarter we’ve obviously been spending some CapEx dollars on more permanent fixes. I usually wouldn’t get into this minutia, but are we going to see a big ramp-up in depreciation and amortization as well that – kind of more permanent fixes that have caused a little bit of a margin hit?

Gary Kolstad

I’d say that the anticipation, once those come online is that over time, there’ll be a net benefit.

Blake Hutchinson – Howard Weil

Okay. And then just curious with regard to your commentary – mix shift commentary in the release, Gary, as we – as a greater portion of the volume moves into the Bakken and Eagle Ford, are you saying that we have kind of the opposite effect of last year whereas we went very lightweight, price points might have gone down, but margins went up. We’re going a little bit up the lightweight spectrum and into intermediate grades price point on that basis might go up, but all in all your mix shift drives margins down a bit. Is that what we should take from kind of your mix shift commentary or is that reading too much into it?

Gary Kolstad

I think that’s reading too much. Both of them need and we are sending lightweights there. What we did in the first half is we’re not going to tell you the percentage, but we had a higher portion of our third-party manufacturing proppant that we are going to reduce the inventory on the one that James West questioned about that. And normally in the second half, you might see a better margin as we slow down that, but the problem is that the pricing continues to decline. So we don’t expect a margin improvement in the second half at all.

Blake Hutchinson – Howard Weil

Okay, just an overwhelming impact from pricing, got you.

Gary Kolstad

Correct.

Blake Hutchinson – Howard Weil

Thanks. I’ll turn it back and re-queue.

Operator

Your next question comes from the line of Doug Garber with Dahlman Rose.

Doug Garber – Dahlman Rose

Good morning, guys.

Gary Kolstad

Good morning, Doug.

Doug Garber – Dahlman Rose

I wanted to ask a little bit about your volume expectations for the core ceramic business especially considering we’re going to have the benefit of the spring breakup and then going into Q3. You think it’s possible that that part of the volume equation just the core ceramics that you produce and sell could be flat to up. I know you gave some color last quarter on that guidance?

Gary Kolstad

Yeah, we would not give the same guidance, and as far as Canada coming out, we really haven’t seen anything yet. So that’s been very slow in coming up. And I should characterize, I think I kind of did a little bit, but as we look at H2, we’re going to continue to see an oversupplied proppant market. You’re going to continue to see the commodity prices, natural gas, NGLs, oil, those – that volatility and low natural gas.

You’re going to continue to have higher distribution costs and so all those three things are going to continue to put pressure on pricing, and pricing is what kind of dictates our volumes, how much we participate in it. So we’ll see a lot of volatility in volumes. We see a lot of that on a monthly basis and it could even be on a quarterly basis. You saw bandwidth of 10% Q1 to Q2. That bandwidth still may exist there up or down. So it will be dependent on us on what we do on pricing will impact our volume as well as our margins, of course.

Doug Garber – Dahlman Rose

Sort of think about that your utilization is up over 90%, now you could be more selective on your price points because you’ve got – your factors are at a healthy rate to absorb the fixed costs. Is that a fair way to think about the back half of the year?

Gary Kolstad

Yeah, but I wouldn’t necessarily quote it in that vein. We still – once again, there is an oversupplied market there and there is some folks out there that appear to be very concerned about the money they have tied up, sitting on the ground in varying quality Chinese IDC. So we’re seeing a lot of volatility in the market on that and that will eventually probably clear itself out on the macro side of slowing imports and all that stuff. But it’s – I just don’t think we want to tell you that any – the market is anything but volatile and uncertain right now for the second half.

Doug Garber – Dahlman Rose

Okay. I wanted to touch on the resin-coated sand, what would it take – what are you looking for as a signpost to say all right, we’re going to ahead and start this project again, and what would your lead time be to get the Marshfield facility up and running at this point?

Gary Kolstad

Well, lead time doesn’t take us very long at all. What we’re looking at is the market and the market’s oversupplied with resin coating of all forms and fashions, it’s oversupplied on sand and there’s an oversupply of Chinese IDC. So at this point in time, it doesn’t make sense for us to invest in that resin-coating facility up there right now.

Doug Garber – Dahlman Rose

Let me just sneak one more in there. Are you seeing the Chinese IDC competing with the high-end resin in terms of a price point?

Gary Kolstad

I actually don’t know that, but my gut tells me no.

Doug Garber – Dahlman Rose

All right. I’ll turn it back; let someone else get in the queue. Thanks, guys.

Operator

Thank you. Your next question comes from the line of Jeff Tillery with Tudor, Pickering. Jeff, your line is open. Jeff, your line is open.

Jeff Tillery – Tudor Pickering

Hi, guys. Can you hear me?

Gary Kolstad

Yeah.

Ernesto Bautista

Yes, sir.

Jeff Tillery – Tudor Pickering

Sorry about that. Just when you think about the transport costs and just logistics costs in the second quarter on a per pound basis, were those higher in the second quarter than the first or consistent? I’m just trying to understand a little more of the attribution of margin decline. Is it much more pricing or does the cost continue to go up in the quarter?

Ernesto Bautista

Yeah, I would say that they were up quarter-on-quarter, Jeff. It’s difficult to say because there’s various factors that go into the supply chain equation, but at least to answer your question specifically quarter-on-quarter we did see that costs creep.

Jeff Tillery – Tudor Pickering

And then as you go forward, would you expect that to further increase or just hold at this elevated level?

Ernesto Bautista

Probably hold at the elevated level.

Jeff Tillery – Tudor Pickering

Okay. And then, with regards to inventory and just where you guys are from a facility utilization standpoint, did inventory of CARBO-produced product build, shrink or stay roughly flat in the quarter?

Ernesto Bautista

I’d answer it at maybe a little higher level and say finished goods inventory actually did decline.

Jeff Tillery – Tudor Pickering

Okay. All right. And then just with the deferral on construction at the Marshfield facility, and what sort of CapEx number are you looking for this year?

Ernesto Bautista

So for the balance of the year – or actually let me rephrase that, our number in the range of $95 million to $105 million. That’s the range. Depending on market condition, we can throw all that back some. Just given the volatility, there is still a bit there that we have some room on, but that’s probably a good range at this point.

Jeff Tillery – Tudor Pickering

Okay. Thank you, Ernesto.

Ernesto Bautista

Welcome.

Operator

Your next question comes from the line of John Daniel with Simmons & Company.

John Daniel – Simmons & Company

Hi, guys. First question on the volumes, Ernesto, how would you characterize volumes in, say, the month of June versus April?

Ernesto Bautista

June...

Gary Kolstad

He said June versus April.

Ernesto Bautista

Yeah, June versus April. So I think I would go back to the comment, maybe base it off of what Gary said earlier. The beginning of the quarter to the end of the quarter, we saw it being tougher as the quarter went on, so maybe declining.

John Daniel – Simmons & Company

So June volumes had been lower than April. Is that safe to say?

Ernesto Bautista

I guess I’m not answering that question specifically, intentionally.

Gary Kolstad

Yeah.

Ernesto Bautista

But from the beginning of the quarter...

Gary Kolstad

What we said about Q2 is that we saw declining pricing as the quarter went on. That’d be the best way to characterize that. Once again, our volumes will get dictated by how much we participate in the pricing situation, correct.

John Daniel – Simmons & Company

All right, fair enough. Okay. Marshfield, real quick. With the plant being deferred, what was – will you going to be using third-party sands for that or from your own stuff? Can you just walk us through?

Gary Kolstad

Yeah, we have our own mines and we’re producing our own sand and we’re running it through Marshfield. We have a – we run it through the – we just didn’t complete the resin-coating part of Marshfield, okay?

John Daniel – Simmons & Company

Okay.

Gary Kolstad

So we are running sand through Marshfield and then shipping it to New Iberia for coating.

John Daniel – Simmons & Company

Okay. Will you sell any of the sand just outright and sand sales?

Gary Kolstad

We haven’t talked too much about that yet, but we’re willing to make money where there’s money to be made. We do the nice thing about our commitment we made and that’s why we were slow getting New Iberia going is that we made a commitment. We’re going to have the highest conductivity substrate and so we stuck by that. There is, like I said, there’s an oversupply of sand in the industry and sand actually has three tiers within itself, with the Northern White being the top tier and then it degrades from there. So we feel good about that from a long-term investment standpoint, and we will see what we do to take advantage of that.

John Daniel – Simmons & Company

At this point, you’re not trying to ramp higher your sand production, is that fair or not?

Gary Kolstad

Well, we’re trying to get New Iberia up and running and get the inventory and feed the system and get the sales going would be the way to characterize it.

John Daniel – Simmons & Company

Okay, just two more from me and they’d be quick, but on the field trials, just forgive my ignorance but how long does the trial the customer take, how long does it take for them to perhaps see the value that you forecast and have any of these guys will do the trials in Q2, are they now placing orders for additional proppant in the second half?

Gary Kolstad

I think we’ve kind of stated in the past that we would expect you need to look at six months’ worth of production. You’ll get some initial indication in 30, 60, 90s and stuff like that, but you really need to be looking at six months and some of those got started, I guess, there’s around the middle of the quarter, if I remember right. And then how fast they get down would be is a client going to follow one rig and do one well after another well and from another well, they’re going to do it on separate rigs? So it’s a mixed bag. We’re just pleased in the areas we’re doing them in and with the operators that we’re talking to.

John Daniel – Simmons & Company

Okay, last one from me, just one of the highlights in your press release talks about the lightweight ceramic sales in Latin America. Can you just elaborate on what – I know you’re not going to quantify anything but just in terms of what has been historically any outlook for Latin American and whether that ceramic is coming from your U.S. operations or international facilities? And that’s it from me.

Gary Kolstad

Yeah, it comes from our U.S. production. It’s the great lightweights and candidly, the same comments that a lot of the service companies make mirror ours, right? So Mexico is a very positive place for us this year.

John Daniel – Simmons & Company

Okay. Thank you.

Operator

Your next question comes from the line of John Keller with Stephens.

John Keller – Stephens

Hey, good morning, guys. Just two quick ones from me, most of mine have been answered, but could you just update us and remind me where the buyback stands and kind of how you think about that going forward?

Ernesto Bautista

Sure, so, buyback, we have approximately 120,000 shares remaining under a 2 million share plan. And our view continues to be that we would be opportunistic in utilizing that plan.

John Keller – Stephens

Okay, no, any thoughts on a go-forward up in that again or reloading that? How should we think about that?

Gary Kolstad

Well, we will complete it before we’ll approach the board to get another authorization. So we haven’t done that yet and, once again, it’s always the same for us, right? One, do the organic stuff; two, you’ve seen our dividend policy and we’re very pleased to raise a 13% again – or 13% this year for the 12th year; and then third, buyback.

John Keller – Stephens

Got it. And then just has the guar issues throughout the industry impacted your business either positively or negatively?

Gary Kolstad

I don’t know. It’s how we see much effect. We put out a technical bulletin to the industry to remind them, that’s why we invented HYDROPROP and actually if you’ve got guar problems in one of your slick water or less viscous fluids, that’s what HYDROPROP was developed for. So, there was some misinformation by one of the – well we’ll leave out who it was, but so we put out a technical bulletin to remind people that that’s actually why it was developed so. No, I don’t think it’s impacted our business.

John Keller – Stephens

Okay, perfect. Thanks, guys.

Operator

(Operator Instructions) Your next question comes from the line of Brian Uhlmer with Global Hunter.

Brian Uhlmer – Global Hunter

Good morning. How are you, gentlemen?

Gary Kolstad

Good.

Ernesto Bautista

Good, thanks.

Brian Uhlmer – Global Hunter

I had a quick question. I’m sorry the operator cut me off for a couple of minutes, so I apologize if I missed this, but you were doing a lot of test trials and I was just curious again, you talked about having excess capacity and being able to expand to some larger customers. Did you update any results on those or whether or not you’re expanding, I mean obviously expanding your pounds still, but was that to just existing customers or do you think you’re expanding your customer base during the quarter?

Gary Kolstad

We really – we target a reservoir. Of course, first and foremost, it’s the geology and geophysics we look at, but secondly we target those, of course, that aren’t using higher conductivity proppant. So I would say the ones we have today are more new clients and in very good plays, some of which are new plays and some of which are just big plays. And we don’t have any results yet, and an earlier person asked that. These just got started like the middle of the second quarter and usually we like to look at production for at least six months before too much discussion on it.

Brian Uhlmer – Global Hunter

Okay. Fair enough. And two quick ones, resin-coating capacity is – with what kind of changes, is 350s – 350 million pounds per year, still kind of an accurate number to use for that and where are we...?

Gary Kolstad

Yeah, we’ve got two lines in New Iberia, one which can produce 100 million and the other one 300 million, so we’ve got 400 million pounds of resin-coating capacity. The one line we generally use as much as we can and the market demands for resin-coated ceramic, CARBOBOND LITE. And then either line will do it, but that’s kind of the way it works. So, we have 400 million pounds of resin-coated capacity and we just kind of for purposes and just one should think about 350 million pounds of that being resin-coated sand.

Brian Uhlmer – Global Hunter

Okay. And then finally, I was a little confused by the Chinese discussion and your inventories discussion, trying to get those two to match up, although it looks like you imported about 90% less than you did in the previous quarter from China, and looking at your current assets and your discussion, it looks like you inventory remained flat. So, does that mean that you’ve got more internal CARBO finished goods, ceramic proppants that theoretically should produce a higher margin currently? Is that the correct way to look at – and amidst the pricing decline, you may be able to hold up margins moving forward a little bit better. Is that the correct way to look at those numbers?

Gary Kolstad

High level, as Ernesto said, our finished goods inventory, you’ll see in the Q, it went down versus Q1. Next level of discussion, we made – as I told to the previous caller, we had a focus on reducing down our third-party ceramics and we’re very successful in that in the first half and you are right on having lightweights with better margin but I told another caller that the pricing declines mitigate that. So we’ve seen pricing declines and we expect pricing declines in the second half as well.

Brian Uhlmer – Global Hunter

Okay. So there won’t be a perfect offset. There’ll still be margin degradation?

Gary Kolstad

Correct.

Ernesto Bautista

Correct.

Brian Uhlmer – Global Hunter

Perfect. Yeah. I’m just trying to put all those data points together. Thank you.

Gary Kolstad

Sure.

Operator

Your next question comes from the line of Robert Richardson with Buckingham Research.

Robert Richardson – Buckingham Research

Good morning, Gary. Thanks for taking the call. Is there any way to kind of quantify how much of catch-up volumes there were in the second quarter from the sort of week sequential in the first quarter and the down in the fourth quarter and you know the logistical problems that hung you up there, I assume some of that stuff moved into the marketplace, any way to do that?

Gary Kolstad

For the most part, if we had to characterize it, we talked about the big shift out of the Haynesville and we said in Q1 we were pretty well done with that. So as we finished Q1, we were pretty well done moving from gas to oil and that impacted us in Q4 and Q1. So that’s to your point and then you get to Q2 and we’re really sitting where we want to sit with the absolute majority of our proppant going into oil or liquids-rich, whichever one you want to call it. So that’s the way to look at that. And we’re very pleased with our progress there on getting that done.

Robert Richardson – Buckingham Research

Thank you. One more if I may, the -refreshed by memory, the Marshfield resin-coated plant, the capacity was going to be what and then the follow-on on that is how completed were you percentage complete on that plant and the investment dollars associated with that plant?

Gary Kolstad

We still – we have a facility. We have a good team up there. We have the sand processing plant up there. So, the backbone, the infrastructure is there. I’ll let Ernesto make a stab at CapEx or whatever, and so another caller asked how long would it take to put it in place the resin coating part of it. That’s perhaps a faster process than what we’ve done already. And what we have the capability of if – when we do that is 600 million pounds of resin capacity. We have the throughput on the sand to feed New Iberia and when we do Marshfield, we have the 1 billion pound throughput at Marshfield today for sand.

Robert Richardson – Buckingham Research

Yeah, got that.

Gary Kolstad

And So Bob, just a comment or two on spend to date generally speaking would have purchased or continued to purchase longer lead time items to be prepared to assemble the resin coating facility when the time is appropriate with respect to what it might look like going forward. It’s going to be relatively small versus what dollars we would have spent this year. We actually – I don’t know that we actually said specifically what the facility will cost, but relatively small dollars.

Robert Richardson – Buckingham Research

And I guess two more questions, but they’re international related, can you update us on your China facility? We read so much about the coming shale drilling in China and – and I assume you would participate in that and then it might also drain off some of the Chinese, I guess, exports to this country, and then last Russia, we don’t hear about Russia from you guys much and that would be very helpful. Thank you.

Gary Kolstad

China, we’re doing extremely well because there are some shale plays going on there, and there are some western operators that value quality and high conductivity. So, we’re doing very well there internally, and that’s a 100 million pound plant and we probably have record sales in China if the things continue on. They’ve overbuilt a tremendous amount in China, normal Chinese patterns right on overbuilding whether it’s steel or you name it. Russia is – has overcapacity today, I would say, and we can export out of there with that plant. That’s a 100 million pound plant as well. So, there we split it between domestic consumption as well as export to other countries around that area.

Robert Richardson – Buckingham Research

Thank you.

Gary Kolstad

You bet.

Operator

You have a follow-up question from the line of Doug Garber with Dahlman Rose.

Doug Garber – Dahlman Rose

Hi, guys. I wanted to follow up actually on the international aspect. We hear a lot of talk about frac companies on the potential in the Middle East and my understanding to this is in the Middle East area, they tend to use just ceramic or more heavier percentage ceramic and it tends to be a lot larger stages. And what have you guys seen in kind of the development phase in the Middle East area?

Gary Kolstad

We have seen a lot of interest there, and we’ve been approached on, let’s say, future development. So, we have people sitting over there that understand that market and are speaking what those clients, so it’s much more what’s to come type of story versus what’s there today and sometimes thing – business in the Middle East moves not at the rate of a North America business development. But we’re very pleased about what the future looks like and we’re very pleased that a lot of people are talking to us about that. You comment on big volume stages, I would temper that a little bit.

Doug Garber – Dahlman Rose

Okay. Thanks, guys. I’ll turn it back.

Operator

At this time, there appears to be no more questions. Mr. Kolstad, I’ll turn the call back over to you for closing remarks.

Gary Kolstad

Okay, thank you once again for joining us. Just a couple of points to summarize, we think the second half will be challenging. We will continue to manage through those difficulties that the market presents and the associated pressures on pricing, volumes, and margins. This isn’t the first time we went through a cycle downturn. We’ll look to reduce cost in our distribution system while delivering a first rate product and service to our clients.

Our focus is always on demonstrating the technical and economic benefit that our high-quality, high-conductivity proppant can achieve for the E&P operators. We have a bias towards the volume, which helps keep plant utilization and costs down. And technology is a very important part of what drives our business and one that we expect to continue advance. Finally, we are financially strong and financially conservative. As I mentioned before, cycles come and go, but we continue to build an enduring company.

And with that, I want to thank you for joining our call today and we look forward to seeing you here in the next quarter.

Operator

Thank you, ladies and gentlemen. We do thank you for your participation. This concludes today’s conference call. You may disconnect your line.

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