Covia Sheds Light On The New-Look Frac Sand Industry

Todd Akin profile picture
Todd Akin


  • Pricing is at unsustainable levels, according to CVIA. Since they are one of the lowest-cost producers, they will survive while others are forced to idle mines.
  • CVIA reiterated that unit-rail, quality, and proximity (even for trucking) matter down to the last penny.
  • More information on decline rates was given, proving that Northern White will continue to play an integral role in fracking.
  • As a result, investors should remain long CVIA, as a potential double is in the cards from current share prices.

Summary of Investment Thesis:

Frac sand producers have been punished for lower frac sand pricing and threats of debundling by E&Ps. Pricing has even reached unsustainable levels, according to CVIA. But CVIA is providing an opportunity to investors in that they expect pricing to rebound in 2019. This is due to various catalysts such as a resumption in E&P activity, reloaded budgets, and added pipeline capacity. CVIA also believes that debundling is not affecting them. Actually, it is helping, as E&Ps prefer to bundle with someone like CVIA who can offer a full suite of services (Pioneer even showed why debundling won't work for E&Ps on a large scale, which we will discuss further). The most important takeaway, however, is that since pricing has reached unsustainable levels, and CVIA is one of the lowest-cost producers in the market, this means an inflection point has been reached and a bottom may be in for the stock, which represents over 50% upside from current share prices.

Covia (NYSE:CVIA) announced third quarter earnings recently and shed much needed light on the sector. While the company reported a net loss mainly due to goodwill impairments and one-time costs associated with its recent merger, volumes did decline 19% and revenues declined 27% quarter over quarter.

So, the business did, in fact, see a slowdown last quarter from exhausted budgets and lack of pipeline availability and is expected to see continued weakness in the fourth quarter due to bad weather and lower pricing. This, in turn, will be followed by the inevitable bounce in 2019, as that is when E&Ps, with reloaded budgets and improved takeaway capacity, will resume completions activity again.

For the record, CVIA's industrial business also remains strong. It is even growing internationally in places like Mexico and maybe seeing price increases soon as a

This article was written by

Todd Akin profile picture
Graduated from the University of Houston- Downtown with a degree in Finance. My site,, focuses on portfolio management and unique investment opportunities.

Disclosure: I am/we are long CVIA HCLP EMES SLCA. 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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