Solaris Oilfield Infrastructure: Placed On A Tough Ground With A Robust Balance Sheet

Badsha Chowdhury profile picture
Badsha Chowdhury
1.15K Followers

Summary

  • A steep fall in fracking activity will reduce Solaris’s mobile proppant solution fleet utilization, while the chemical systems fleet will remain unutilized in Q2 2020.
  • It will reduce FY2020 capex further to improve free cash flow.
  • The company has no debt, which is a significant advantage when the fracking market is going through a crisis.
  • The stock’s current EV/EBITDA multiple is at a steep discount to the past average.

Solaris Is Still On A Sloppy Ground

The steep fall in hydraulic fracturing and completions activities will set Solaris Oilfield Infrastructure's (NYSE:SOI) proppant and chemical systems performance tumbling in Q2. Its proppant management system fleet utilization can significantly suffer, while there will no demand for chemical management systems in Q2, leading to a drop in the top-line and profitability. In the current scenario, only the small-pack silos are gaining market share. I think there are enough headwinds to press the stock price downward in the short-term.

SOI is integrating various technologies with the well site rental equipment as well as slashing operating costs to reduce its overall cost structure. It will also reduce capex significantly in FY2020 to improve free cash flow. With no debt and sufficient liquidity, it is more likely to survive a market shake-out and take advantage of the fracking activity recovery in the medium-term.

How Will SOI Deliver Value In A Tight Market?

In 2020 so far, the energy prices have plunged, causing many operators to continue to slow completion activity. SOI's management expects to see the U.S. onshore completion activities to decline by ~80% in Q2 from Q1 levels. To counter the market loss, the company will continue to offer innovative products that improve data and automating processes by redesigning its proppant and chemical management systems and removing workforce requirements at the well sites. It will focus on keeping the environmental and socially conscious perspective. As efficiency improves, we see that continued throughput daily of sand leads to the question of wellsite safety.

In general, SOI's mobile equipment drives supply chain efficiencies in the completions market. The company offers its services is the primary U.S. Basins. Higher usage of its proppant delivery services can help the producers to lower prices through cost reductions. As the company binds its ties with

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.

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