The continuing slowdown in shale oil fields has prompted Carbo Ceramics Inc. (NYSE: CRR) to mothball its proppant manufacturing facility in McIntyre, Ga.
The company’s McIntyre plant has an annual production capacity of 275 million pounds, or about 13.8% of Carbo’s total capacity, said Agata Bielicki, analyst, Simmons & Co. International.
Gary Kolstad, CEO, said that in January he announced the company was slowing production to assist in managing cash and inventory levels.
“The company's actions were in direct response to a depressed commodity price for oil and the resulting negative impact on industry activity levels, which is having a negative impact on demand for ceramic proppant,” he said. “Unfortunately, we have not seen improvement in demand for ceramic proppant, nor do we anticipate any change in the near term.”
Energy Information Administration Administrator Adam Sieminski said on March 10 that U.S. commercial crude oil inventories are at their highest levels since 1930 and are expected to continue growing during the next two months.
“The increase in oil inventories is expected to moderate as refineries ramp up their processing of crude oil into petroleum products in the second quarter and domestic oil production slows,” he said.
U.S. crude oil storage capacity is now 62% full compared with 48% a year ago.
The McIntyre plant will remain shut until market conditions warrant bringing it back online, he said. Carbo provides proppant throughout North America and in locations in South America, Africa, Europe, Australia, Russia and China.
The company has said that given current business conditions, it expects to idle its plant in China during the first quarter of 2015.
The company said in late January that its capex would be less than half of 2014 spending and would primarily focus on the retrofit of a plant with the new proppant technology. The company deferred the completion of a second ceramic proppant manufacturing line at its Millen, Ga., facility.
Kolstad added that the company continues to manage the collective output of our other proppant facilities, which includes slowing down and idling production as deemed necessary.
“These decisions are difficult due to the impact on our employees and their families, to whom we owe much of our success over the last 36 years," he said.
Bielicki said the closure doesn’t come as a complete surprise because Carbo had already been trying to manage its money and inventory through slowdowns.
“Demand for ceramic proppant is expected to remain weak in the near term,” she said.
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