The Chinese were in a position to force U.S. exploration companies to sign long term supply agreements. Those deals still are being worked off. The surge in natural gas production, combined with weak GDP growth in the U.S., caused natural gas selling prices to plummet. So new natural gas drilling ground to a halt. That situation has continued and may persist in light of the the latest economic statistics.
Carbo has been able to replace some lost business with oil related fracking in North Dakota. Demand remains elevated in that sector, which is affected to a lesser extent by Chinese competition because it's new business for the most part. But Carbo has had trouble delivering the goods due to infrastructure problems -- where was that infrastructure stimulus money spent anyway. There just aren't enough railroads and depots to support the business potential out there.
The combination of higher costs and residual Chinese competition is likely to wear on profits over the next few quarters. Production of proppants in China is believed to be declining, because U.S. operators have learned the technology better and realize now that Carbo's products deliver superior returns on investment no matter what the Chinese price is. Some of the earlier Chinese contracts are lingering, though. And the infrastructure build up out West probably will take a while, since the Obama Administration basically remains opposed to fossil fuel development.
These shares have tremendous potential. The natural gas side of the business is essentially dormant for the moment. But that segment holds exceptional opportunity for the United States of America. It could give us the lowest fuel costs in the industrial world. Production is virtually certain to rebound. The oil market has great potential, too, since 60% of the oil we use still is imported. Much of that comes from Mexico and Canada, which is fine. But plenty of room exists to replace OPEC imports.
Will Wall Street crush the stock when Carbo reports lower than expected Q3 results? Answer that question, and be on your way. Buy the stock here and don't worry if a sell off materializes. Or play the market, and try to get a better price. This is a great company. You can't really lose either way.
( Click on Table to Enlarge )