CARBO Ceramics Inc. on Second Quarter 2008 Earnings and Construction of New Proppant Manufacturing Capacity

CARBO Ceramics Inc. has recently reported that the company has reported second quarter net income of $13.5 million, or $0.55 per diluted share, on revenues of $103.0 million for the quarter ended June 30, 2008. For the six months ended June 30, 2008, the company reported net income of $27.8 million, or $1.13 per diluted share, on revenues of $204.9 million. The company also announced that its Board of Directors approved the construction of a third production line at the company’s Toomsboro, Georgia proppant manufacturing facility.

President and CEO Gary Kolstad commented, “Our proppant business showed excellent growth with sales volume increasing 36 percent compared to last year’s second quarter. North American sales volume increased by 35 percent compared to last year’s second quarter despite an increase of less than 1 percent in the U.S. natural gas rig count. Overseas proppant sales volume increased 38 percent compared to the second quarter of 2007 based on increased sales in Russia. Pinnacle Technologies continued its strong performance in the second quarter, posting an increase of 57 percent in revenue and more than doubling pre-tax income compared to last year’s second quarter.

“I am excited about the increasing recognition of the value-creating opportunities of our ceramic proppant and the acceptance of the new technology in CARBOHYDROPROPTM. The rapid growth in demand for our products has resulted in our North American manufacturing facilities operating at full capacity. In order to respond to the needs of our customers, we are continuing our plan to expand manufacturing capacity with the addition of a third production line in Toomsboro, Georgia. The new production line will increase capacity by an additional 250 million pounds per year or approximately 20% from our current level. We anticipate completion of this new production line in the first half of 2010 at an estimated cost of $70 million.

“We believe the market for all proppant is relatively tight, and we have recently implemented price increases and applied energy surcharges in some markets. We are experiencing inflationary cost pressures in raw materials and energy, and our near-term focus will be on improving margins in the proppant business as well as the continued growth potential of overseas sales volume and Pinnacle Technologies.

“Looking forward, we remain committed to developing new technologies and adding the manufacturing capacity necessary to support the growing needs of our clients. Our confidence in the future is further reflected in the previously announced approval by our Board of Directors of a 21 percent increase in our quarterly dividend.”

Second quarter results

Revenues for the second quarter increased 32 percent compared to last year’s second quarter due to a 28 percent increase in proppant revenue and a 57 percent increase in revenue from Pinnacle Technologies (”Pinnacle”). The increase in revenue in the company’s proppant business segment was due to increased sales volume in both North America and overseas markets. While the average selling price of the Company’s proppants declined 5 percent compared to the prior year, this was due to the rapid growth of CARBOHYDROPROPTM, and increased sales volume in Russia where the average selling price is lower than in North America. Consolidated revenues for the second quarter of 2008 included $16.7 million from Pinnacle compared to $10.6 million for the second quarter of 2007. Pinnacle’s growth was driven by increased demand for fracture mapping and reservoir monitoring services, software products, and consulting services.

CARBO’s worldwide proppant sales totaled a record 281 million pounds for the quarter. Sales volume in North America increased 35 percent compared to the second quarter of 2007 due to increasing acceptance of the company’s ceramic proppant in reservoirs that had previously used sand-based proppants. Overseas sales volume increased 38 percent compared to the same period due primarily to increased sales volume in Russia.

Operating profit for the second quarter of 2008 increased $0.7 million, or 4 percent, compared to the previous year’s second quarter. An increase in operating profit at Pinnacle was partially offset by a decline in operating profit in the Company’s proppant business segment. Despite an increase in sales volume and revenues compared to the same period a year earlier, proppant operating profit declined due to increased costs for high-strength raw materials imported into the U.S., outbound freight and natural gas. Selling, general and administrative expenses for the second quarter of 2008 increased $2.5 million compared to the same period last year but declined to 11.6 percent of revenue compared to 12.2 percent in the previous year. The largest increases in selling, general and administrative expenses were related to increased sales activity and increased growth in international operations.

Net income for the second quarter of 2008 increased $0.6 million compared to the second quarter of 2007, primarily due to the increase in operating profit discussed above and a reduction in the Company’s effective tax rate for the second quarter of 2008 due to a refund of prior year’s state income taxes. These increases were partially offset by a $0.1 million loss on foreign currency exchange compared to a foreign currency exchange gain of $0.3 million in the second quarter of 2007.

Technology highlights

Technology highlights for the second quarter included:

– An updated analysis of a West Texas field trial incorporating a year’s worth of production data showed that the use of CARBOECONOPROP® lightweight ceramic proppant increased initial production rates over 20 percent versus wells fractured using conventional sand.

– Following positive results from recent field studies and the publication of a technical paper through the Society of Petroleum Engineers (SPE 110679), demand for CARBO’s family of lightweight ceramic proppant has seen significant growth in the Bakken formation of North Dakota. The Company has supplied ceramic proppant for several wells in the emerging play in the Haynesville Shale formation in East Texas. Although it is too early to estimate demand in this region, the deep, high-pressure characteristics of this formation favor the use of ceramic proppant.

– Pinnacle increased microseismic hearing distance by approximately 20 percent while using a stacked tool string to perform fracture mapping in the Northern part of the Jonah Field for EnCana.

As previously announced, a conference call to discuss the company’s second quarter and year-to-date results has been scheduled for today at 10:00 a.m. central time (11:00 a.m. eastern). To participate in the call, please dial 877-836-3879 and refer to the “CARBO Ceramics Conference Call” or conference ID #53872923. International callers should dial 706-679-7469. The call can also be accessed live or on a delayed basis via the company’s Web site, http://www.carboceramics.com.

CARBO Ceramics Inc., based in Irving, Texas, is the world’s leading manufacturer of ceramic proppants and supplier of fracture diagnostic services for use in the hydraulic fracturing of natural gas and oil wells.

Source: CARBO Ceramics Inc.