ATLAS ENERGY SOLUTIONS INC. 
By 
Proppant is essential for the recovery of hydrocarbons from oil and natural gas wells. All sand reserves are located in Winkler and Ward Counties, Texas, within the Permian Basin, with operations including proppant production and processing facilities near Kermit and Monahans, Texas which are strategically located to maximize reliability of supply and product quality. As of December 31, 2023, the Kermit and Monahans facilities have a combined annual production capacity of 16.5 million tons.
The Permian Basin market has strong fundamentals. The total proppant demand in the Permian Basin has grown from 14.1 million tons in 2016 to a projected 78.6 million tons by 2025. The Permian's share of the total US proppant demand has also increased, from 34% in 2016 to an estimated 61% in 2025. This growth is driven by the basin's prolific oil and gas production and the adoption of advanced drilling and completion technologies.
In 2021, there were about 63 frac fleets in the Permian Basin, each using around 225,000 tons of proppant per year. By 2025, these numbers are projected to rise to approximately 111 frac fleets, with each fleet using about 706,000 tons of proppant annually. This trend reflects the increasing drilling and completion activities within the basin, driven by the need to enhance hydrocarbon recovery rates through more intensive fracturing techniques.
There is a steady increase in the amount of proppant used per well, from 4,939 tons in 2017 to a projected 10,638 tons per well by 2025. This trend demonstrates the adoption of enhanced completion practices, such as longer lateral drilling and increased stage density, aimed at maximizing hydrocarbon extraction.
From 2016 to 2024, the basin's oil production has grown from 2 million barrels per day (bpd) to a projected 5 million bpd. The Permian's share of the total US rig count has also increased, from 35% in 2016 to an estimated 50% in 2024.
Atlas Energy Solutions' strategic advantages include an extensive resource base with a projected 75 years of resource life and significant control over prime dune areas. The company's operations are enhanced by cost-effective water access, enabling efficient and environmentally sustainable electric dredge mining. Atlas's plant designs incorporate automation and remote operations, which streamline processes and reduce labor needs, ensuring high utilization rates and effective inventory management. Additionally, their logistics infrastructure, including high-capacity trailers and a remote command center, allows for efficient transportation and reduced emissions, with their geographic proximity to customer wells further optimizing logistical efficiency.
The comparison between Atlas Energy Solutions' electric dredges and traditional diesel-powered equipment highlights significant operational efficiencies and environmental benefits. Atlas's use of just four electric dredges requires only four operators, compared to the 38 pieces of diesel equipment and 34 operators needed for traditional methods. This shift results in over 50% emissions reduction and eliminates the annual use of approximately 2.5 million gallons of diesel fuel.
There is an important efficiency of bulk material conveyor systems, showcasing their extensive use in transporting various materials like coal, gold, iron, and copper over long distances. Atlas Energy Solutions' Dune Express is featured as an innovative application of this technology for transporting proppant in the Permian Basin to enhance logistics efficiencies significantly.
In March 2024, Atlas completed the acquisition of Hi-Crush, thereby becoming the largest proppant producer in the country with a combined annual production capacity of approximately 28 million tons. This acquisition also expanded Atlas’s logistics capabilities with the addition of Pronghorn, a prominent multi-basin provider of proppant logistics and wellsite services. The integration of these logistics offerings is expected to drive significant operational efficiencies.
In 2023, Atlas completed its IPO, achieved total sales of $614.0 million, with sales volumes of 11.0 million tons. The net income for the year was $226.5 million, reflecting a 37% net income margin. Adjusted EBITDA reached $329.7 million, representing a 54% adjusted EBITDA margin. Net cash provided by operating activities was $299.0 million, and adjusted free cash flow amounted to $291.1 million, or a 47% adjusted free cash flow margin. The construction of the Dune Express remained on schedule and within budget. Additionally, the new Kermit facility was fully commissioned in December 2023, and the quarterly dividend was increased by 5% to $0.21 per share.
In Q1 2024, Atlas reported total sales of $192.7 million and a net income of $26.8 million, with a 14% net income margin. Adjusted EBITDA for the quarter was $75.5 million, reflecting a 39% adjusted EBITDA margin. Net cash provided by operating activities was $39.6 million, and adjusted free cash flow was $71.1 million, or a 37% adjusted free cash flow margin. The construction of the Dune Express continued to stay on schedule and within budget. Additionally, Atlas declared an increased quarterly dividend of $0.22 per share.
The company operates in a highly competitive energy-market, and the demand for its proppant production and logistics operations is highly dependent on the level of activity in the oil and natural gas industries, which are subject to substantial volatility. Fluctuations in oil and gas prices significantly impact exploration, development, and production activities, thereby affecting the demand for proppant. When prices decline, there may be a reduction in these activities, leading to decreased demand for proppant and related logistics services, potentially resulting in lower market prices for proppant if supply is not adjusted accordingly. Conversely, an increase in demand for proppant may not lead to higher prices or increased usage of Atlas's products, which could adversely impact the company's business operations, financial condition, and overall results.
Atlas Energy Solutions has established itself as a prominent player in the proppant and proppant logistics industry, with a strategic focus on the highly productive Permian Basin. The company's extensive resource base, advanced operational capabilities, and innovative logistics infrastructure, such as the Dune Express and electric dredges, position it well to meet the growing demand for proppant in oil and natural gas exploration and production. The acquisition of Hi-Crush and the integration of Pronghorn's logistics services further bolster Atlas's market leadership and operational efficiency. However, the company operates in a highly volatile market, where fluctuations in oil and gas prices can significantly impact demand and financial performance.
