U.S. Silica Holdings, Inc.SLCA has agreed to divest three transload terminals to CIG Logistics for $75 million in cash. The facilities, located in the Permian, Eagle Ford and Appalachian Basins, comprise roughly 70,000 tons of storage capacity. These terminals serve as critical logistics hubs for the oil and gas industry.
The deal is expected to consummate by the end of March 2018, pending financing. Under the agreement, U.S. Silica will continue to service customer requirements through the transloads that CIG Logistics will now own and operate. Simmons & Company International, Energy Specialists of Piper Jaffray, acted as financial advisor to U.S. Silica on the transaction.
U.S. Silica noted that the divestment is a continuation of its strategy to utilize partners such as CIG Logistics to manage its transloading operations. The transloads are expected to serve as the basis for a broader strategic relationship between U.S. Silica and CIG Logistics, under which the latter will serve as the preferred transload provider to U.S. Silica in the Permian Basin and Eagle Ford shale play.
U.S. Silica has underperformed the industry it belongs to for over a year. The company's shares lost around 40.9% over this period, against roughly 19.7% gain recorded by the industry.
U.S. Silica's fourth-quarter earnings missed the Zacks Consensus Estimate while sales beat. The company, in its fourth-quarter call, said that it expects flat pricing and volumes in its Oil & Gas segment in the first quarter of 2018 on a sequential comparison basis. According to the company, severe winter weather has resulted in delay in completion activities and also caused disruptions in the customer supply chain.
Nevertheless, U.S. Silica continues to evaluate opportunities for greenfield expansions in the fast-growing Permian Basin. The purchase of logistics solutions provider, Sandbox Enterprises, has also enabled U.S. Silica to offer customers significantly improved transportation and operating efficiencies and meaningful cost savings relative to the existing delivery systems. The acquisition is expected to make a meaningful contribution in 2018.
U.S. Silica currently carries a Zacks Rank #3 (Hold).
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