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UPDATE 2-Ashland's energy clients seek cheaper guar gum substitute
July 26, 2012 / 10:55 AM / in 5 years

UPDATE 2-Ashland's energy clients seek cheaper guar gum substitute

* Q3 adj EPS $2.04 vs est. $1.74

* Q3 sales $2.1 bln vs est. $2.22 bln

July 19 (Reuters) - Chemicals maker Ashland Inc said it is working on developing products that can replace expensive guar gum as its energy customers seek an alternative to the commodity, which is used in oil and natural gas drilling in shale fields.

Soaring demand for the powder-like gum, made from the seeds of guar, or cluster bean, led to a three-fold jump in prices of guar in the first five months of 2012.

Halliburton Co, the world’s No. 2 oilfield services company, said on Monday that rising prices for guar accounted for about two-thirds of its margin depression in North America.

“Given the recent price of guar, we’re seeing huge requests for substitute materials,” John Panichella, president of Ashland’s specialty ingredients unit, said on a conference call with analysts.

“We’re pursuing other technologies which could compete well based on cost and performance.”

Ashland’s alternative cellulose gum products are already used by the food industry in making sauces and ice cream, and the company said it is well positioned to meet demand from energy customers as well.

ENERGY DEMAND

Ashland, which makes a wide range of specialty chemicals, including Valvoline oil and materials for the packaging and water purification industries, has seen demand through July in line with its expectations, said Chief Executive James O‘Brien.

Income from continuing operations more than doubled to $160 million, or $2 per share, in the third quarter. Adjusted earnings of $2.04 per share comfortably beat analysts’ forecast of $1.74.

Revenue rose 24 percent to $2.1 billion on demand from its energy customers. Analysts had expected $2.22 billion, according to Thomson Reuters I/B/E/S.

The Covington, Kentucky-based company’s shares, which have risen 17 percent this year, were down less than a percent at $66.18 in late morning trading on Thursday on the New York Stock Exchange.

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