Carbo Ceramics: A Long Play On U.S. Drilling

Jun. 11, 2018 10:35 AM ETCARBO Ceramics Inc. (CRRTQ)13 Comments
Kyle Willinger profile picture
Kyle Willinger


  • Proppant is an essential product to the essential oilfield development of fracking, which is here to stay.
  • CRR sells a differentiated and IP protected product in a niche market it created and dominates.
  • Low oil prices have lowered oilfield investment spending, pushing drillers away from more expensive and productive ceramic proppant toward commoditized sand proppant.
  • CRR dominates its niche at the customer level, maintaining strong customer relationships and a preference for their product.
  • This is a high risk/high reward turnaround opportunity.

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Carbo Ceramics (CRR) represents a pure play on U.S. fracking, and higher oil prices make the potential upside for this proppant manufacturer significant if they can capitalize on an increase in drilling in deepwater and high pressure wells. A recent run-up in price has squeezed the margin of error in valuation, but if ceramic proppant volumes can begin to recover I believe upside remains as CRR approaches breakeven EBITDA and positive free cash flow in the next year.

CRR manufactures and sells proppant, a bead-like product used in the hydraulic fracturing process to keep or prop open the induced fracture open and conduct oil and natural gas out of the well. Proppant is one the most significant and essential drivers of oilfield innovation today, allowing for horizontal drilling that can reach deepwater wells and tap the massive U.S. oil reserves of the shale revolution. CRR was incorporated in 1987 and IPOd in 1996 among the rise of fracking.

Proppant comes in multiple different forms, ranging from Northern white sand to forms of ceramic, each with varying degrees of conductivity and crush-resistance. Sand is the lowest quality form of the product, unable to withstand high pressure wells and having the lowest productivity, but it is also readily available and cheap to get, making it a commoditized and undifferentiated product that's far cheaper than its ceramic counterpart.

Source: Investor Presentation

In the chart above, you can see the varying types and qualities of proppant. At the bottom is basic sand, which has the least amount of conductivity

This article was written by

Kyle Willinger profile picture
I'm a finance student at the University of Louisville where I'm the president of the investing club. I currently work as a buy-side equity research intern. My writing is primarily focused on long equity ideas with an emphasis on value and quality of business.

Disclosure: I am/we are long CRR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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