Tough times for frackers could inspire Calfrac
CALGARY • Calfrac Well Services Ltd., one of Canada’s largest fracking companies, all but ruled out making a large, market-changing acquisition on Wednesday at the same time as it revealed better than expected financial results for a period when its competitors have been among the hardest hit by collapsed oil prices.
“While Calfrac recognizes this is going to be a challenging year, we continue to believe there will be some positives to take from this downturn,” Calfrac president and CEO Fernando Aguilar said on a secondquarter earnings call.
Like all companies that have benefited from the widespread adoption of hydraulic fracturing techniques in North American shale oil and gas plays, Calfrac’s revenues and earnings dropped precipitously in the quarter as demand for its services declined sharply. Most analysts, however, believe the company is well positioned to acquire its smaller, more heavily indebted competitors.
“Calfrac anticipates that there will be a significant amount of pressure pumping equipment retired and that consolidation will occur amongst the pressure pumpers,” Aguilar said.
He added that his company would look for smaller deals rather than larger ones, partly because Calfrac doesn’t need to acquire more hydraulic fracturing equipment, given that the company has an excess of unused equipment.
“Smaller companies — with the right culture, the right geography, the right personnel and the right customer bases — is what we’ll be looking into,” Aguilar said.
Calfrac announced that it had idled 44 per cent of its Canadian fracking equipment and 40 per cent of its American fleet in the second quarter as a result of a drop in demand, and prices, for its services.
The company posted a $43-million net loss in the second quarter, which is significantly larger than the $12-million loss it posted in the same quarter last year. At the same time, the company’s revenues fell 36 per cent, to $319 million for the quarter, from $503 million last year.
AltaCorp Capital analyst Dana Benner praised Calfrac’s financial performance for its “impressive margins in a tough time,” in a Wednesday research note. He noted that Calfrac’s $0.45 net loss per share was not as bad as the $0.54 loss per share numbers his firm expected.
Despite the difficult quarter, Calfrac made an acquisition on July 8, buying GASFRAC Energy Services Inc.
GASFRAC announced that its creditors had agreed to sell the company to Calfrac for an undisclosed sum. GASFRAC had been under bankruptcy protection in Canada and the U.S. The company, which many analysts describe as a sector outperformer, is widely expected to make further acquisitions of distressed fracking companies.
“Calfrac has a good balance sheet, not a great balance sheet, but a good one,” National Bank Financial analyst Greg Colman said.
He added that Calfrac was in a position to make smaller tuck-in acquisitions of up to $100 million, depending on how the next six-to-12 months play out for the company.
On the conference call, Aguilar said Calfrac was particularly interested in making an acquisition that would allow the company to expand into Texas’s Permian basin. He added that there are many small pressure pumping companies in the U.S. that have lost market share following Halliburton Co.’ s blockbuster US$34.6billion merger with Baker Hughes Inc.
That merger means that the combined Halliburton now controls 30 per cent of the American fracturing market, in which Schlumberger Ltd. is also a dominant player.
“What’s interesting about this is that customers realize the viability of these competitors for the longer term is basically at risk,” Aguilar said. He said the company is “always considering” opportunities.