Solaris Oilfield: Rapid Chemical Management Fleet Growth To Counter A Stagnant Market

Jun. 13, 2019 9:20 AM ETSolaris Oilfield Infrastructure, Inc. (SOI)
Badsha Chowdhury profile picture
Badsha Chowdhury
1.15K Followers

Summary

  • Solaris looks to rapidly grow its mobile chemical management system fleet.
  • The company will not add to its mobile proppant solutions systems until demand improves in the market.
  • The continuation of the quarterly dividend initiated in December 2018 speaks of the management’s confidence in generating sufficient margin.
  • Looking for a community to discuss ideas with? The Daily Drilling Report features a chat room of like-minded investors sharing investing ideas and strategies. Get started today »

Solaris May Not Shoot Up Soon

Solaris Oilfield Infrastructure (NYSE:SOI) provides supply chain management and logistics solutions to the energy industry, including mobile and permanent infrastructure that increases proppant throughput capacity. I do not think the company’s stock price will show positive momentum in the short turn. However, the company continually adapts to the changes in the customer preference by offering innovative products and services, which makes it a steady growth candidate on a medium to long-term.

In Q1, the company has started deploying the mobile chemical management system on trial. Its top line will grow in 2019 if it can accelerate the chemical management systems deployment as planned. It made designs to integrate the Last Mile trucking with the well site rental equipment, which can be its next growth catalyst. Solaris’s margin is expected to improve through the application of the fully delivered systems.

The crude oil price volatility and the decline in the upstream companies’ capex budget can undo some of the progress expected from SOI. The company will not introduce any more mobile proppant system anytime soon, which will help reduce capex in FY2019 to generate positive FCF. It has initiated dividend payment recently, which shows its efforts in making shareholders’ return.

Revenue, Margin, And Utilization

In Q1 2019, Solaris Oilfield Infrastructure’s top line declined 4% compared to Q4 2018. During Q1 2019, SOI removed seven mobile proppant management systems from the fleet. A little insight into the industry tells us that some of the company’s customers had believed during Q4 that they could bring some of the frac fleets back during 2019. However, from Q4 to Q1, the average West Texas Intermediate (or WTI) crude oil price declined by 7.5%, while the completion activity slowdown continued in many unconventional resource Basins. So, these companies ended up keeping the frac count relatively flat early in Q1 2019.

The Daily Drilling Report

We hope you have enjoyed this Free article from the Daily Drilling Report Marketplace service. If you have been thinking about subscribing after reading past articles, it may be time for you to act.

Good news for new subscribers! In May we are offering a 10% discount off the annual subscription rate of $595.00

Give it some thought, and act soon if you are interested. A 2-week free trial is applicable, so you risk nothing. Hope to see you in the DDR as we look for bargains in the oil patch!

This article was written by

Badsha Chowdhury profile picture
1.15K Followers
I have more than 14 years of experience in analyzing and writing on stocks. I write on both long and short sides in an unbiased manner. I have been covering the energy sectors for the past 7 years, with the primary focus on the oilfield equipment services sector. I also cover the Industrial Supply industry. I occasionally co-author with Seeking Alpha contributor Thomas Prescott.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Recommended For You

Comments

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.