Trican warns it may park unprofitable fracking crews

Trican Well Service Ltd., which warned July 4 it would report a second-quarter loss, confirmed it Tuesday and added it may have to park unprofitable U.S. fracturing crews this summer.

The Calgary company’s stock fell seven per cent or 96 cents to close at $12.04, while cross-town rival Calfrac Well Services Ltd. was off three per cent or 80 cents at $23.70.

Trican reported a net loss of $51 million or 35 cents per share for the three months ended June 30 compared with a profit of $30 million or 21 cents a year earlier.

Revenue fell one per cent to $418 million and cash flow was a negative $49 million versus a positive $61 million in the same three months of 2011, it said. “Our second-quarter results reflect Canadian results that were affected by an extended second-quarter breakup, results in the U.S. that were below our expectations and international results that were slightly below our expectations,” said chief executive Dale Dusterhoft on a conference call with analysts.

He said lower rig counts in Canada and the United States due to producer spending cuts and increased competition allowed customers to demand lower rates for Trican’s pressure pumping crews who complete oil and gas wells with hydraulic fracturing.

Pricing is expected to average 10 per cent less in the third quarter in Canada versus the first quarter, while second-quarter pricing was 11 per cent less year-over-year in the United States, Dusterhoft said.

In Canada, where four new fracking crews are to begin work in the second half and demand is expected to remain strong, the net result is expected to be flat returns compared with a year ago.

But in the United States, Dusterhoft said prices in dry gas regions such as the Barnett shale in Texas have actually fallen below profitable levels and, if negotiations with clients don’t result in increases, crews will be moved or parked. “Our immediate goal is to maximize efficiency of our (U.S.) operations, maintain our head count and operating capacity and return to positive operating income as soon as possible,” he said. “Our last resort will be to shut down crews.”

A boom in unconventional drilling throughout North America resulted in tremendous expansion by service companies last year, but most have announced cuts in capital spending this year as oil and gas prices retreated.

Following Trican’s July 4 warning, several analysts cut its 12-month target price forecast. A Bloomberg survey showed little change Tuesday — only nine of 18 rate it a buy and the consensus target price is $15.77.

Trican has about 2,500 employees in Canada, up 400 from last year, and will likely add 100 more this year, Dusterhoft said. In the U.S., it has grown to 1,500 staff, up 700 from a year ago, and that number will be flat or reduced.

The second-largest cause of the quarterly loss, Trican reported, was the higher price for guar, derived from a plant grown mainly in India which is added to liquids in fracking to better deliver sand throughout the fractured well. The sand enters the cracks in the tight rock to keep them open and allow oil and gas to flow.

Trican said guar prices are falling as fears of a shortage dissipate and it is having good results from new guar alternatives it is developing.

Calfrac is to report secondquarter results on Aug. 10. It said after Trican’s warning that it too has been affected by the slowdown but would not need to issue its own warning.

Both have cut their spending plans for 2012, Trican by $132 million in May and Calfrac by $96 million in February.