Calfrac opts to restructure under CBCA
CALGARY • Calfrac Well Services Ltd., one of Canada’s largest fracking companies, has fended off “undervalued” offers for its U. S. operations and said it plans to restructure.
The Calgary- based company announced Tuesday that an Alberta Court of Queen’s Bench judge allowed it to restructure its debts through the Canada Business Corporations Act (CBCA).
A CBCA restructuring is different from a Companies’ Creditors Arrangement Act ( CCAA) or Business Insolvency Act ( BIA) as it’s not a bankruptcy or insolvency process. Companies are solvent when they begin CBCA processes and no receiver is appointed to manage the assets.
“There is no admission of insolvency,” said Scott Treadwell, Calfrac’s vice-president, capital markets and strategy.
The company was also in a U. S. court Tuesday filing under Chapter 15 of the bankruptcy code, asking the U. S. courts to recognize the Canadian CBCA process, the executive said.
Calfrac has been under considerable pressure as oilfield drilling and hydraulic fracturing activity has declined sharply after the COVID-19 pandemic and an oil price showdown between Saudi Arabia and Russia triggered a market collapse earlier this year.
There were 18 active oil and gas rigs in Canada by the first week of July, compared to more than 250 in February. The Petroleum Services Association of Canada expects a 37- per- cent drop in oilfield activity by next year.
Last month, Calfrac said it would defer an interest payment due June 15 on notes with an 8.5-per-cent interest rate. The company had 30 days to make the payment or be in default.
Several analysts lowered their price target for the company’s shares at that time and expected the value of Calfrac’s equity to become worthless as the company tried to strike a deal with its creditors.
“We continue to target Calfrac at $ 0.00 with an underperform rating on the risk that there may be no going concern value in the Calfrac equity,” Raymond James analyst Andrew Bradford said in a June 25 research note.
Calfrac tumbled 17 per cent Tuesday to close at 14 cents on the Toronto Stock Exchange following the restructuring announcement.
Treadwell said the company doesn’t comment on analyst reports or its share price, but said the CBCA process is “absolutely a better outcome” than expectations of a CCAA process or Chapter 14 filing.
As it moved toward filing for the CBCA process, however, the heavily indebted fracking company received offers for its U.S. business.
Cisco, Tex.- based holding company Wilks Brothers LL C, which owns roughly 19 per cent of Calfrac’s shares, made offers on June 22 and again on June 29 to buy the company’s U. S. business division. Wilks Brothers also owns Profrac Services Ltd., which competes with Calfrac in the U.S.
Calfrac disclosed the two offers in its announcement Tuesday but said the board, led by executive chairman Ronald Mathison, “firmly declined” both offers because they undervalued the business and the transactions would have left Calfrac owing “a vastly disproportionate amount of debt.”
The company disclosed $ 947 million in long- term debt when it reported its first- quarter financial results on June 25. Net loss for the quarter stood at roughly $ 123 million, considerably more than the $ 36 million net loss it posted at the same time a year earlier.
Despite the challenges, the company is not looking to sell its U.S. business.
“It would take a very, very compelling financial offer or strategic offer to even consider splitting up the North American businesses,” Treadwell said. “North America is the foundation of Calfrac. I don’t see that view getting altered.”
The company does not see its overseas business in Russia and Argentina as core assets, but the company is not contemplating selling those units either. “In times of industry distress, that’s probably not the best time to monetize the assets,” Treadwell said.
North American drilling activity this year could be half of what it was in 2019 and likely hit a 20- year low, according to Oslo- based energ y advisor y Rystad Energy.
“Both new wells and drilling lengths will be pared down as E& P’s scale down investments, affecting the entire supply chain associated with these services,” Rystad Energy oilfield services analyst Reza Hassan Kazmi said in a report published Tuesday.