A class-action lawsuit has been filed against Houston-based CARBO Ceramics (NYSE: CRR) on behalf of investors who bought the company’s stock between Oct. 27, 2011, and Jan. 26, 20-12. The complaint, filed in US District Court in New York, alleges that CARBO Ceramics issued false and misleading statements during that time period.
CARBO Ceramics manufactures and supplies ceramic proppants primarily used in hydraulic fracturing of natural gas and oil wells. In January Carbo revealed during a conference call for its fourth quarter and year-end financial results that it had seen a 70% decline in proppant sales in the Haynesville region. The company’s common stock price then fell from $130.72 to $103.76.
The stock was trading at $103.18 on March 27. The 52-week high for CARBO stock was $183.24 on July 24, 2011, and the 52-week low was $85.68 on Feb. 13, 2012.
In a report dated Feb. 24, 2012, analysts at Dahlman Rose & Co. revised their ceramic supply-and-demand model to reflect lower 2012 demand forecasts based on “cyclicality in the gassy Haynesville” shale play.
Dahlman Rose analysts added, “We expect global ceramic proppant capacity utilization to decrease to 63% in 2012 from 78% in 2011 and 83% in 2010. We have revised our 2012 ceramic demand forecast to 0.3 billion pounds growth from 1.3 billion lbs previously due mainly to reduced demand in the Haynesville, as operators switch to cost saving/lease holding from production optimization in light of lower natural gas prices.”
Gary Kolstad, president and CEO of CARBO Ceramics, noted in a Jan. 26 press release that 2011 was a record year for CARBO with proppant volumes increased 19% year-over-year. Revenues and net income increased 32% and 65%, respectively, year-over-year. The company increased its quarterly dividend to shareholders 20%.
“Notwithstanding this solid performance, the fourth quarter had its challenges beyond typical seasonality,” said Kolstad. “The severe decline in natural gas prices during the quarter led E&Ps to reduce capital spending in natural gas basins and increase capital spending in liquids-rich basins. The largest impact associated with this shift in capital spending was a reduction of approximately 70% in our Haynesville proppant sales volumes from the third quarter of 2011, which was partially offset by growth in the liquids-rich plays and international markets.
He continued, “The growth of activity in liquids-rich plays contributed to logistical issues in the industry. These logistical issues burdened our distribution network. From our perspective, the industry’s response to the decline of activity in the Haynesville, reallocation of proppant supply and demand, and adjustment to natural gas fundamentals will take some time to work out. During the fourth quarter 2011, we accelerated several distribution infrastructure investments to address the logistical challenges we faced.”
Kolstad added, “The economic success our clients achieve by utilizing our high conductivity proppant in their oil and natural gas wells continues to give us confidence in the long-term demand for our proppant.”