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On Thursday, 20 March 2025, Smart Sand Inc. (NASDAQ: SND) participated in the Sidoti Small-Cap Virtual Conference. Led by CFO Lee Bekelman, the presentation highlighted the company’s strategic positioning in the frac sand market, emphasizing its integrated business model and robust logistics network. While showcasing strong financial performance and growth prospects, Bekelman also addressed potential challenges, such as tariffs on Canadian exports and capital allocation strategies.
Key Takeaways
- Smart Sand reported a 17% increase in total tons sold in 2024, reaching 5.3 million tons.
- EBITDA rose to nearly $39 million in 2024, up from approximately $33 million in 2023.
- The company initiated its first dividend in 2024 at $0.1 per common share.
- Strategic focus on terminal investments in the Marcellus and Canadian markets.
- Anticipated growth in natural gas demand driven by LNG capacity expansion and AI-related power needs.
Financial Results
- Record volumes in Q4, reaching just under 1.5 million tons.
- Total tons sold in 2024 increased by 17% compared to 2023.
- EBITDA for 2024 was just under $39 million, compared to roughly $33 million in 2023.
- Shareholder returns included an 11% share buyback in 2023 and the initiation of a $0.1 dividend per share in 2024.
- Fixed debt stands at approximately $12 million, with capital expenditure projected between $13 million and $17 million for the current year.
Operational Updates
- Total processing capacity is 10 million tons, with major facilities in Oakdale, Blair, and Ottawa.
- The Marcellus market accounts for 40% to 50% of volumes, with Bakken at 25%.
- Focus on growing the industrial sand business from 3% to 10% of volumes in the next 2 to 3 years.
Future Outlook
- LNG capacity growth could add up to 15 BCF a day of demand for U.S. natural gas.
- U.S. power demand is expected to grow by almost 3% annually for the next five years.
- Natural gas demand in the U.S. could increase from 100 Bcf a day to 120-130 Bcf a day over the next five years.
- Activity in the Marcellus is expected to rise in the second half of the year, with full benefits by 2026 and 2027.
Q&A Highlights
- Tariffs impact: Less than 10% of volumes went to Canada last year, with Northern White sand remaining essential.
- Maintenance capital typically around $10 million annually.
- Future investments focus on strategically targeted terminals to enhance market penetration.
For a more detailed understanding, readers are encouraged to refer to the full conference call transcript below.
Full transcript - Sidoti Small-Cap Virtual Conference:
Steve, Sidoti Representative, Sidoti: here. So I’m pleased to welcome Smart Sand.
The ticker is SND. CFO Lee Bekelman. I think it’ll be a informative half hour. With that, let me turn it over to you, Lee.
Lee Bekelman, CFO, Smart Sand: Thanks, Steve. I wanna thank Sidoti for giving us the opportunity to present and for those that are joining us today. I am Lee Bekelman, the CFO of Smart Sand. I’ve been with the company since 02/2014. Smart Sand is a public company and it trades on the Nasdaq.
We’ve been public since November 2016, and, and we’ll go through and tell you what Smart Sand is about. Smart Sand is a fully integrated provider of mined to well sized solutions for Northern White Sand. We are 100% provider of Northern White Sand. We have three facilities in mines, two in Wisconsin, one in Illinois. And our business model is that we mine, process, and transport the sand from our locations on class one railroads to all the operating basins in The US and Canada through terminals we either control directly or third party terminal partners, which ultimately that same gets delivered to delivered to the well site to be used to to frack oil and gas wells in US and Canada.
And we also provide well site storage solutions at the well site that helps pressure pumpers and E and Ps, exploration production companies, manage their sand as it flows into the pressure pumping equipment. Our company’s string service, first of all, we have the right operating model. We have, almost 400,000,000 tons of high quality Northern Wright reserves in three locations. We have the processing capacity of up to 10,000,000 tons at those three locations. Those locations all have very large infrastructure logistics that allow us to ship our sand in very large unit train basis on 100 to 150 cars per shipment from our location directly to terminals, and in the operating basins on a very efficient basis.
We also have the right sand. Our sand today is 70% plus in our reserves of fine mesh sand. We there’s four main products of of frac sand in the market. There’s what’s called twenty, forty, 30, 50, fortyseventy and 100 mesh. Twentyforty and thirtyfifty are what’s called core sand versus fortyseventy and 100 mesh is fine mesh sand.
The market today, 90 of the demand going into fracking oil and natural gas wells in The U. S. And Canada is fine mesh sand, either forty, seventy or 100 mesh. And our reserve base, 70% plus of our reserves is in that quality of sand. So it allows us to be very efficient in meeting the market needs over time.
And then we also have what we believe is the right capital structure and ownership structure, to really support long term shareholder value. We keep very low leverage levels. We have a lot of variability in our business because we are driven by, ultimately, the amount of wells being drilled in The U. S. And Canada and completed is driven by oil and natural gas prices, which can fluctuate pretty dramatically from quarter to quarter year over year.
So we maintain very low leverage levels so that we can manage our business through those operating cycles. And then we have, you know, very strong ownership within the company. Today, collectively, insiders own 33% of the stock of Smart Sand. Chuck Young, who’s our founder, who founded the company in 02/2008 to 2010 and ultimately led to building with Smart Sand is today. He owns 20% of the business.
His family is in the business as well. So we’re really a family business that’s focused on generating long term value for our shareholders by growing the business, growing our cash flow and ultimately providing value back to our shareholders in the form of either distributions by dividends or shareholder buybacks. In 2023, we bought back 11% of our shares. And in 2024, we did our first dividend at $0.1 per common share. Looking at our summary financials, you can see this is the last five quarters.
In the fourth quarter this year, we reached an all time high of volumes of just under 1,500,000 tons. That led to strong revenue and contribution margin per ton that led to EBITDA of just under $12,000,000 From this, you can also see that we do have variability quarter to quarter. And that’s really driven by our customers and how they operate today. Most of the exploration production companies today drill on a pad basis where they’ll set up at a pad with a drilling rig and pressure pumping equipment and frac crews, And they may complete two, three, four, five, six wells at that pad, and then they’ll have downtime as they shift that activity to another area. And so you can see that typically when we have a strong quarter, we may have a little bit of drop in activity for the next quarter or two as activity shifts, and then that activity picks back up.
But overall on an annual basis, we continue to show strong growth. In 2024, we sold 5,300,000.0 tons in total. That was a 17% increase, over 2023 levels of 4,500,000 tons. And then our EBITDA went up to just under $39,000,000 for the year in 2024 versus roughly $33,000,000 in 2023. In terms of the market, one of the drivers that we think is very positive for the oil and gas industry in The US and Canada and for smart sand in particular is the long term fundamentals that are strong for natural gas demand.
In the chart to the upper left, you can see kind of natural gas production currently in The U. S. Has been relatively flat the last two years and 100,000,000,000 to 105,000,000,000 cubic feet a day. But there’s some really strong drivers are looking to drive the need for that supply to grow pretty dramatically over the next five years. And one of the key drivers is LNG capacity growth in The U.
S. As well as Canada. The chart on the upper right just shows you U. S. LNG capacity growth potential.
And these are all projects that are already being built and or commissioned or in the process of being brought online over the next five years. And this incremental LNG capacity could add up to 15 BCF a day of incremental demand for supply for U. S. Natural gas. That’s coupled with power generation needs are exploding, particularly around data center demand for artificial intelligence data centers.
You can see the chart on the lower left. This shows that power demand in The U. S. Has been relatively flat, growing at less than 1% of the year over the last twenty years or so. But that’s expected to grow almost 3% a year for the next five years plus, and that’s being driven by the need to build data centers, to support AI, you know, Internet activity.
And a lot of those a lot of that electric capacity is expected to be supplied with natural gas and that’s leading to incremental gas demand to support AI data center growth. And the chart in the bottom right, you can see potentially that adds another potential eight to 10 BCF of incremental demand for natural gas in The U. S, in particular to support the needs of the LNG and this data center demand. To add that all up, over the next five years, natural gas demand in The U. S.
Could grow from roughly 100 Bcf a day to potentially 120 to 130 Bcf a day, which will require significant amount increase in drilling and completion activity to add new wells to meet that supply need. The reality is that at Smart Sand today, 60% to 70% of our sand volumes go into natural gas basins. Our biggest basin is the Marcellus in the Northeast, which is a dry natural gas basin. And then we are also growing our demand, and our supply into Canada, into the Montney and Duvernay shells, which are also very strong natural gas basins. Another driver in the business, which is good for frac sand overall and good for smart sand is that, the demand for sand per well continues to increase.
One of the key efficiency drivers for exploration and production companies are they are increasing their lateral links of their horizontal wells. You know, five or ten years ago, a lateral length might be 5,000 to 10,000 feet. Today, lateral lengths are typically getting to 20,000 to potentially 25,000 feet, so you’re getting up to five mile laterals. And with that longer lateral, they’re also increasing the intensity of the fracs by adding more stages per per lateral foot and more sand per stage, which is leading to increasing demand for proppant or frac sand per foot of lateral being drilled and increasing amounts of sand per well being completed. So even though, you know, people look at frac spreads as one leading indicator of the activity of completions activity in U.
S. And Canada, and frac spreads have been relatively flat over the last two years. But the reality is that while they’re getting, you know, due to the efficiencies of the industry, each frac spread is completing more wells per spread per year. And those wells are having longer laterals, which is acquiring more sand, for each completion. And so on the chart on the far on the right of this slide, you can see that frac sand, per frac sed per quarter has been growing pretty dramatically over the last ten years, and we expect this growth potential to continue, which is a positive in terms of what we expect to be demand for frac sand and for Northern White sand in particular.
And then in terms of this potential growth opportunity, being driven by natural gas demand and supply growth as well as increased intensity per well for the need of increasing profit per well to complete the wells, Svart Sand is very well positioned to take advantage of that. Last year, we sold 5,300,000 tons. We currently have 10,000,000 tons of capacity. We believe we’re the second largest provider of natural northern white sand in in North America. So we have the assets, we have the reserve base of over 500,000,000 tons, the processing capacity of 10,000,000 tons.
So we have the ability to grow with the market without having to have a lot of incremental growth capital to capture that incremental, increasing utilization and demand for for Northern White Sand. In terms of our offering operating model, we are in a commodity business, and so we’re very focused on being a low cost producer. And so all three of our minds are very, very efficient in terms of we built our model wanting to have very large reserve bases that we can mine the sand, process the sand, and have the capability to ship the sand in large quantities, to our customers in the basins through terminals. So we focus on getting asset bases that had very large reserves today. Our Oakdale facility has almost two fifty million tons of reserves.
Our Blair mine has over 100,000,000 tons of reserves, and our Ottawa facility in Illinois has approximately 125,000,000 tons of reserves. Each of those facilities, Oakdale’s has 5,500,000 tons of operating capacity. Blair has 3,000,000 tons of operating capacity, and Ottawa has 1,600,000 tons of operating capacity. And we’re connected to, each of those facilities, Oakdale is connected to the Canadian Pacific and UP directly, Blair is connected directly to the CN, and Ottawa has, you know, access, on the Burlington Northern. So we’re connected at all three of our mine sites to multiple class one railroads that allow us to efficiently ship our sand to any basin in The US and in Canada.
Also because of how we operate, we mine at the facility and, you know, process the sand at the facility and ship that facility that allows us to be able to get a very low operating cost. And this next slide kind of shows that. Again, our process is that we extract the sand from the mine at the location. It’s delivered to our wet plant that processes the sand into the feed that goes into the dry plant. The dry plant makes the four different products.
Those products are then delivered onto railcars. And from that location at the plant, those railcars are filled up typically in unit trains of a hundred to a 50 cars per shipment. And then we ship those, those shipments directly to the terminals in the operating basins. All our facilities have very low royalty rates. So this all combines to give us a very low cost structure to be able to manage through the operating cycles and the ups and downs of pricing in the frac sand business.
This is an overhead picture of our Oakdale facility. Again, it’s our largest facility, you know, almost 500,000,000 almost two fifty million tons of reserves at Oakdale. It’s 1,300 acres, plenty of room to continue to expand at this location as activity grows. We have five dryers and two wet plants, 11 miles of of rail track, and plenty of opportunity to grow in, this facility. We believe this is, if not the largest one of the largest, sand mine processing facilities in North America, and we believe it’s a very efficient facility because of the scale of our operations.
This is just a picture of some of the rail assets that we have at the Oakdale facility. Going on to Ottawa, Ottawa’s facility that we acquired, you know, very cost effectively in the downturn. It was an idle facility that was owned by Eagle Materials. We bought it along with another plant in New Auburn, Wisconsin that we’ve kept idle. This facility is in in in Illinois about an hour and a half outside of our actually, a little less than an hour and a half outside of Chicago market.
So it’s in the, it’s close to metropolitan market. So this facility not only allows us to get on the Burlington Northern to feed into frac sand markets in The Western United States as well as other areas. It also gave us an opportunity to get into the industrial sand business. The industrial sand business is more regionalized and draws the sand closer to where the activity, for the sale of the sand is. And so Ottawa is well positioned to compete for industrial sand activity and markets in the metropolitan areas of Chicago and St.
Louis and other Midwestern markets. Then our Bel Air facilities are, latest facility we we acquired. We this this asset was idle and owned by Hi Crush. Hi Crush went through a bankruptcy in your organization, and this is a facility that kept idle, and we were able to acquire it very cost effectively In March 2022, we brought it back online in March of last year. And this facility was very attractive for us, first of all.
It’s a very efficient operation, very similar to Oakdale in terms of scale. But also it got us on to the Canadian National Railroad, which allows us to get access into the Montney and Duvernay shells, which we believe is going to be a very important growing market for Northern White Sand. And this gave us an entree to get into that market. Talked a lot about logistics already. This kinda just highlights the fact that we we’ve built a very efficient logistics network today.
We own four terminals or control four terminals directly. We have a terminal in Van Hook, North Dakota that serves the Bakken market. We have a terminal in Waynesburg, Pennsylvania that serves Southwestern PA and West Virginia, portions of the Marcellus. And then last year, we acquired two terminals in Ohio, in Denison and Minerva, Ohio that gives us access to the Utica Shell as well as the Northeastern parts of the Marcellus. Again, we’ve always been very focused on logistics.
We’ve always believed this is a bulk commodity business that has to be, you know, needs to be shipped on rail very efficiently. So we’ve always focused on unit train shipments work. We made sure we we had large, infrastructure at our plant sites to allow us to handle multiple unit trains at a time so we can load trains of hundred to 50 railcars while, you know, empties are coming in. Those cars then, that unit train of a hundred and a 50 railcars then get shipped, to each of our terminals or third party terminals that we access to access to on a direct basis. There’s no stops in between, but leads to very efficient, delivery of that sand typically in less than five days in the market.
We can then unload that train in one or two days and ship that train back very efficiently on a single haul, you know, without any stops back to our plants. That allows us to be very efficient, get good utilization of our railcars, also allows us to negotiate and get very competitive rates with the rail carriers because they like to have that efficiency of movement. Also, by being on multiple class ones and having three mines on different railroads, that allows us to also create competition there because we have the ability of one railroad is not you know, providing us the best pricing or service. We have the option to be able to deliver in into some of the markets in a different railroad that allows us to have that competition to always ensure we’re getting the best logistic value, that we can provide to our customers. This is just a picture of the Van Hook Terminal.
Our focus on terminals typically is to get large acreage that we can put a lot of rail track on so that we can manage unitrains and not really need, the investment for fixed storage. And we can use the the rail capacity in our railcars as storage as needed while we’re filling the orders. And so this is the model we built at all of our facilities today. This is at Van Hook in North Dakota. The Marcellus is our biggest market today, and depending on the month, it can be 40% to 50% of our volumes.
But the Bakken is a very strong market for us. Depending on the month, it can it can typically, on average, the Bakken is about 25% of our volumes on an annual basis. This is our Waynesburg terminal that we developed and started operations in 2022. It’s really allowed us to expand our market presence in the Marcellus, and we’ve been able to, you know, we started with an anchor customer here, and we’ve been able to expand to multiple customers at this facility. So this has been a very good investment for us into growing our business into the Marcellus markets.
And then last year, we acquired two terminals that were idle. So we bought them at a very efficient price and and brought them online in August of last year to really get access to the Utica shell. The Utica shell is a liquids play. It does have some natural gas, but it’s primarily being driven by oil and natural gas liquids, that they’re drilling for in that area. And there’s been a very strong increasing activity there and the returns there look promising for E and P.
So we expect that market to continue to grow. And these two terminals really allowed us to be able to get access into that market that we really didn’t have good access before through third party options. Our final piece two other pieces of our business that are relatively small today, 90 plus percent of our volumes and our revenues are generated by selling sand, directly to the customers, either E and Ps or pressure pumpers. But we also do provide the additional service of well sized storage solutions where we have silos and portable, transloading equipment to be able to manage the sand when it gets to the wellsite. So sand is delivered to the well sites by trucks.
That sand can be processed and stored in our well site storage solutions that can that then feeds that sand into, the pressure pumping equipment at the wellsite. This is a small part of our business, less than 5%, but we see some potential good growth opportunities in this business and are looking for it to grow over time in the markets that we serve. And then the final area that I talked about a little bit earlier is industrial products. Again, this is a small part of our business today as well. It was about 3% of our volumes last year, but we expect, and are looking to really kind of grow this business over time.
Industrial products are are sold on much smaller volumes, and and it takes a while to build up your customer base because, each customer has specific requirements for their products, and you gotta go through a testing period. And and, basically, in order for them to get comfortable, you can deliver their product at the specs they want. So the last two years, we’ve been building up that kind of presence in the market. We’ve been, getting in front of the customers, and we we expect, and, you know, to start seeing some benefit of that in 2025 and hopefully grow from there. Again, today, this business is less than 5% of our sales, but we would hope over time that we could get this to grow up to maybe 10% of our total volumes in the next two or three years.
And while we will sell some industrial sand products from our Blair and and Oakdale facilities, Wisconsin. The key driver of this business is for Ottawa. Ottawa is well positioned to compete for that, and we’ve been really trying to grow our base out of it. It’s also the Ottawa sand. It’s very wide in color, and and it works well for industrial applications.
So it’s proximity to the markets and it’s quality of sand, and we think leads bodes well for us to be able to build this business over time. And then finally, again, these are the key drivers for the business. First of all, we believe we have the right model, and it’s a sustainable model. You know, almost 500,000,000 tons of reserves, three you know, 10,000,000 tons of capacity, three very efficient, you know, facilities where we can prop mine, process, and ship the sand at a low cost basis to our customers, access to all class one railroads in The US that allows us to get access to all operating basins, and and the ability to efficiently and sustainably supply the sand to our customers, to meet their really growing demand for sand per well. That coupled with our very prudent capital structure, today we have about $12,000,000 of fixed debt that’s amortizing over the next few years.
I think we’re comfortable having debt levels in the $10,000,000 to $15,000,000 basis on a fixed basis, but we’ll always keep that at a pretty low level, again, because we have a lot of variability from month to month and quarter to quarter. So we want to avoid that fixed cost of debt. So when times get tight, we can manage through it, and then have the ability to get the benefit when times are are are, you know, in a much better position. And then finally, we have a a management team that’s committed to to the company and the long term shareholder value. Again, Chuck Young, our CEO, owns 20% of the business.
Insiders, including myself and others collectively, own another 13%. Our management team has been together for, you know, over ten plus years, and we are very focused on increasing our free cash flow, increasing our utilization of our assets to generate more profit and cash flow over time, and looking for ways to continue to deliver that value back to our shareholders and firms in terms of dividends and buybacks in the future. And that’s all in my prepared comments. So I think we got a few minutes that we can address some questions.
Steve, Sidoti Representative, Sidoti: Thanks so much, Lee. Really informative twenty, twenty five minutes. We have about five minutes or so remaining. There are already several questions in the queue. But as a reminder, if you do have a question, press that Q and A button bottom of your screen, and we’ll get to, as many as we can with time remaining.
Not gonna surprise you, Lee, that, the topic du jour is coming up in the in in the queue. Tariffs, you you talked about the Ottawa facility. I think everybody expected there was some tariffs coming with this new administration. I don’t think anyone expected the prime target would be Canada. What’s the potential impact?
Lee Bekelman, CFO, Smart Sand: Well, there is some potential impact for us in that some of our volumes are going to Canada today, not necessarily it’s really from the Blair facility, not from the Ottawa facility. But, Canada is a long term growth market for us, and some of our volumes are going to that market. It’s still relatively small, so the impact today, I don’t think is going to have a big impact on us. Less than 10% of our volumes last year went into Canada.
Steve, Sidoti Representative, Sidoti: And that’s primarily the gas plays, which shouldn’t have the same impact as, say, an oil play in terms of activity in Canada, I would think.
Lee Bekelman, CFO, Smart Sand: That’s correct. Where are where are gas where are volumes are going, I apologize, are into the Montney and Duvernay show where they’re drilling for natural gas primarily to feed LNG export capacity on the West Coast Of Canada. So the need for that drilling should continue, albeit they may they’ll have a higher price for their sand to the extent that tariffs are imposed on that and they stay imposed for, you know, a long period of time. The other positive is that, over two thirds of the sand used in Canada is, is delivered is Northern White sand from The US. And Canada, while it does have some regional sand, it could try to develop incremental, regional volumes.
It doesn’t have the capability to displace Northern White and its supply chain. And so while they may have higher cost, they still ultimately need Northern White to support that growth. So it could, in my view, again, this is just Lee Buckland’s view, if we do have tariffs on the long term, it could slow down the growth of the activity and be in a little more measured pace, depending on how it affects producers’ budgets. But overall, we think there will still need to be need for growth, for natural gas drilling and completion in Canada to support the LNG capacity, which may even become more of a priority in terms of Canada looking to create other markets for their products. And and so that should continue to lead for demand for Northern White to help meet that gas supply.
Steve, Sidoti Representative, Sidoti: Excellent. Do have a couple of questions around you talked about positive cash flow. We have questions around maintenance CapEx, working capital, how they may contribute over the next couple of years and also possible additional uses of cash, I. E. M and A?
Lee Bekelman, CFO, Smart Sand: Yeah. So that’s multiple questions. I’ll try to check it more here. But in terms of maintenance capital, and we’ve said this in the past, our maintenance capital, depending on the year and really how much we’re investing in mining to increase, you know, basically as a mining company, once you deplete one area, you have to make investment into the next area, which for us typically means we’re stripping over the overburden to get access into to be able to get access to the sandstones that we’re processing. And so, but normally our kind of maintenance capital to support the business and its current kind of operations is, let’s say, around $10,000,000 And then depending on the year, we may have incremental capital to support mining and or growth initiatives.
So this year, we last year, we spent $7,000,000 So we were very didn’t really have a lot of growth capital we spent last year and really focused on just maintaining the business. This year, we guided $13,000,000 to $17,000,000 for capital expenditure. But of that $13,000,000 to $17,000,000 as we said in our earnings release, $8,000,000 of that is related to either incremental mining investments to expand new areas and or potential investments and new terminals. And where I would say in terms of incremental growth capital and where that would be, well, we’ll never say never. And if there’s a quality assets that we can get an attractive price that really allows us either to get better access onto a Class one rail carrier or allows us to get entree into a new market.
That’s where we might do acquisitions around buying additional reserves or plant facilities. But our real growth initiative over the next, you know, next few years is really gonna be around strategically targeting areas that we can get in and invest in terminals to allow us to penetrate the markets we serve better. Right. That makes sense. We have proven over the last five years when we have our own terminals and and typically we strategically place those very close proximity to the where most of the activity has so they can efficiently supply that sand to producers, we’ve been able to dramatically increase our market shares in those markets.
Bakken is an example. In 2018, we invested in Van Hook. Less than five of our volumes are going into the Bakken before we had our own terminal today, 25% of our volumes, which is a, you know, it’s worth selling at a much higher rate today as well, going to that market. Waynesburg, we’re able to expand our activity into the Marcellus very rapidly and strong over the last three years by having that Waynesburg terminal. So we’re always looking for opportunities for another terminal either by getting it connected into that market onto another rail line or getting us further into the market and closer to the activity by having another terminal.
Those will be the areas I think will be our primary focus. And I would, right now, expect those incremental investments in terminals to likely be in markets where we expect the greatest growth potential, and that’s going to be in the Marcellus and in the Canadian markets. The Marcellus is a very large basin, so having multiple terminals there can really increase our value. And then Canada is one market. We don’t have terminals today.
We do have good third party relationships there for terminals. But ultimately, we want to have and control our own terminals in that market as well.
Steve, Sidoti Representative, Sidoti: Let me ask, and I know we’re running out of time. You talked you touched on the Marcellus. You ran through the reason the catalyst for a recovering activity, which was LNG export capacity. I feel like I’ve been talking about that for two years, but it feels like it’s finally here. A lot of the capacity is coming.
We finally had a cold winter after two warm winters. Plus, we have expectations of rising domestic power consumption. When do we see that impacting in your view the Marcellus? I’ve heard anecdotally some pickup of activity in the Haynesville. What are you seeing in the Marcellus?
What are your customers saying? What’s your take right now? Which I know can change and move.
Lee Bekelman, CFO, Smart Sand: Yeah. Based on what we’re seeing today and kind of where gas prices are, we would hopefully again, we can’t necessarily control the spending timing of our customers. And most E and Ps today are still being very disciplined. So you gotta remember, coupled on all this growth is the E and Ps are still saying are being driven by their investors and wanna give capital back and to understand their cash flow. So they’re gonna grow their budgets to the extent that they can grow their overall cash flow and still deliver the same amount of more value to their shareholders.
So that may limit and kinda have it be more measured in terms of the growth potential while still growing over time. But right now, gas prices right now are $4 plus for, I think, $4.5 going out of the winter, which is, you know, double where gas prices were a year ago. I think if and producers, the the back end of the curve is starting to pick up, and I think producers, as they see more confidence, the gas prices are gonna be at higher levels. We would expect activity hopefully and and particularly in the Marcellus to start picking up in the second half of the year. And I don’t think we’ll see the full benefit of this incremental natural gas in ’twenty five, but I think getting into ’twenty six and ’twenty seven, we could really see that starting to ramp up.
Again, if we stay on the environment today where, the incremental demand for data centers and a lot of that LNG capacity is coming online, you know, the latest figures I’ve seen is that the, you know, demand for LNG is up two or three BCF a day on average versus where it was a year ago. So So that’s already starting to happen. And so, I think second half of the year, we should start seeing it. We hopefully start seeing it, but I would expect 2026 as people go into and plan for their budgets into 2026 that we could see, you know, a bigger increase going to that year if we continue to see these kind of strong fundamentals and see the the gas prices. So, again, gas prices above $4 in my mind.
Key but the counter that, if gas prices run to $6 or $7 in MCF and people say they’re gonna stay there, that can lead to some demand destruction. So the $4 to $6 MCF gas price is really kind of the sweet spot that I think if gas prices can stay in that over the next couple of years, I think it’s going to be very good for gas, natural gas development in The U. S. And Canada. And that should bode well for Smart Sand over time.
Steve, Sidoti Representative, Sidoti: And really, I mean, that’s Marcellus, so market you’ve been gaining market share. If that were to start coming back, that’s potentially a very good catalyst for your stock if we start seeing it, see clear signs Marcellus is picking up.
Lee Bekelman, CFO, Smart Sand: Yes. It should be. Again, we’re well we believe we’re, if not the largest, one of the largest providers of frac sand in the Marcellus market. We have north, in our opinion, a 20% market share there. So if we do nothing else but grow at the market, we’re gonna have significant value.
But we’re not just focused on growing with the market. We wanna continue to increase our share in that market. And in the same vein, we have a very low market share in Canada. If we could get if over time, we could get approach the market share that we have in the Marcellus and in the Bakken over the next three to five years and move our way up, to those levels, you know, that bodes very well for us having incremental growth on top of what we can capture in the Marcellus.
Steve, Sidoti Representative, Sidoti: Yeah. It’s a great way to wrap it up. We did go a little bit over, but we did have a lot of questions. So a lot of interest today, Lee. So Lee Beckleman, CFO of Smart Sand.
Thanks so much for being here today, and hope everyone found it as informative as I did. Thanks, Lee.
Lee Bekelman, CFO, Smart Sand: Thanks, everybody, for your time. Really appreciate it.
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