Calgary Herald

Trican shares tumble in spite of debt deal

Calgary-based firm has agreement with lenders for relief of covenants

- DAN HEALING dhealing@calgaryher­ald.com Twitter.com/HealingSlo­wly

Shares in Trican Well Service Ltd. plunged by 27 per cent Friday to a near-52-week low after it reported reaching an agreement with lenders for relief of debt covenants it was about to breach.

The Calgary-based oilfield company also said Friday it will report much better than expected results for the quarter ending next week — still a loss, however — because it has pared down its employee head count and cost structure to match its smaller footprint reached by selling its Russian wellfractu­ring operations and closing up shop in Colombia, Saudi Arabia and Australia.

In an overnight note, analyst Dan MacDonald of RBC Dominion Securities said he expected the market to welcome the news, perhaps even bidding shares higher to close Trican’s 40 to 50 per cent discount to fellow Calgary oilfield services firm Calfrac Well Services Ltd.

But they did the opposite, sending Trican as low as $1.02, down 40 cents, in heavy trading on the Toronto Stock Exchange. That’s just seven per cent of the company’s 52-week high of $13.62. The stock closed at $1.04.

The sell-off came despite an upward jerk in volatile world oil prices Friday.

In an interview, Trican chief executive Dale Dusterhoft speculated the market reaction was because shareholde­rs want more certainty.

“Most people would like to see covenant relief all the way through 2016, the full year,” he said.

“We have a covenant waiver for a period of time but we do have some covenants that we still have to be within, kind of by mid-next year. But we’re comfortabl­e we’ll make those.”

Trican’s covenants required it to report certain debt-to-market-capitaliza­tion and interest-coverage ratios as of Sept. 30. It had previously warned it would likely be in default on both measures.

The deal with lenders removes Trican’s covenants for the rest of the year but cuts its available credit facility by $165 million, from $575 million to $410 million. Its interest rates have been reset at higher levels and it has agreed to make certain payments at certain times.

It also pledged to leave suspended distributi­ons to shareholde­rs until at least the second quarter of 2017 and restart them only under certain circumstan­ces. “Although securing covenant relief is clearly a positive step, we believe Trican has no margin for error and will require additional liquidity to remain onside with its revised covenants,” said analyst Jeff Fetterly of Peters & Co. in a note Friday afternoon. Trican also reported Friday that its financial results for the current quarter will be much better than the first half of 2015, mainly due to lower costs. Its head count is down 2,400 to 2,500 people compared to a year ago, mostly in North America. It laid off about 1,600 staff earlier this year and had another 30 reductions at head office recently.

The job reduction numbers don’t include its Russian workforce. Trican closed the sale of the well-fracturing business there to giant Rosneft Oil Co. for $182 million and has put the entire proceeds minus costs to debt paydowns.

“The third quarter is coming in ahead of our expectatio­ns,” said Dusterhoft. “We were able to get our costs down in both U.S. and Canada and generate some positive cash flow. That’s really the key to our business.”

Trican said its average monthly revenue in Canada in July and August fell 15 per cent compared with the first quarter of 2015 but its operating income is expected to be “substantia­lly higher,” not bad considerin­g the industry rig count in Canada was down 33 per cent.

It said it expects September activity to be slower leading to further declines in October and November and “a pronounced seasonal slowdown ... in December due to customers slowing their activity at year-end.”

In the U.S., meanwhile, revenue and operating income improved in July and August compared to the second quarter but there has been a “meaningful slowdown” this month linked to scheduling issues in the Marcellus formation in the U.S. Northeast. Combined with one-time costs, the situation will likely lead to an operating loss in the third quarter, Trican reported.

“The operationa­l update should help alleviate concerns surroundin­g the level of losses and resulting cash burn rate in its U.S. business,” said analyst MacDonald in his report. “As while the U.S. division will have negative operating income in 3Q, TCW pointed to positive operating income in August.”

 ?? COLLEEN DE NEVE,/ CALGARY HERALD/ FILES ?? Trican Well Services CEO Dale Dusterhoft suggested the negative market reaction was because shareholde­rs want more certainty.
COLLEEN DE NEVE,/ CALGARY HERALD/ FILES Trican Well Services CEO Dale Dusterhoft suggested the negative market reaction was because shareholde­rs want more certainty.

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