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A tale of two frackers

Trican and Calfrac both reported their second quarter results this week - but one's looked far better than the other's

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at

Aug 1, 2013

by Max Fawcett

Calfrac Well Services (TSE:CFW) and Trican Well Service (TSE:TCW) both reported their second quarter results this week, but one looked substantially better – to FirstEnergy analyst Kevin Lo, anyways – than the other. Trican came in with revenue below forecasted levels and a negative EBITDA of $10 million. All told, the company lost $0.38 per share, and while its U.S. and Canadian operations underperformed in the quarter (in Canada, that was almost entirely due to the wet spring) it was its international unit that really missed the mark. “We had been too aggressive in modeling an increase in margins for Russia, which again struggled with costs. Cost inflation in Russia continues to outweigh pricing gains negotiated earlier in 2013e,” Lo wrote in a note. “In Algeria, the cementing business has been shut down while the coil tubing business remains active. In Australia, activity is slower than the company anticipated. As a result, Trican had to write down $4.1 million in goodwill this quarter which negatively impacted EPS.”

Calfrac, on the other hand, had a much better quarter. It beat expectations on its top line number, with higher than anticipated revenue in both Canada and the U.S. Its EBITDA was also ahead of expectations – and, equally important, a positive number: $16 million. In Canada, the company signed a multi-year deal with Progress Energy for three fracturing spreads, with the right of first call on another spread for Progress’s non-Montney assets. “This should provide Calfrac with additional confidence to staff its equipment appropriately,” Lo wrote, “which in our view is the most important factor leading to equipment utilization today …. The outlook for Calfrac remains positive in Canada given its long-standing relationships with Progress, and its ability to remain active throughout the basin.”

Its U.S. division, meanwhile, continues to shine. “While many competitors cited lower 2Q13 profits compared to 1Q13, Calfrac grew its revenue by 15 per cent q/q to $146 million and its operating margin by 40 per cent q/q to $25 million,” Lo wrote. “This equated to an operating margin of 17 per cent, higher than 14 per cent achieved in 1Q13 and only slightly lower than 19 per cent y/y. Strong activity in the Marcellus and Fayetteville, plus positive developments from the Niobrara provided higher utilization. Plus, the company was able to move equipment and people from Canada during the seasonally weak Q2 to the Marcellus.” FirstEnergy has an outperform rating and a $35 price target on Calfrac’s shares, and a market perform rating and $16 price target on Trican.

Brickburn Asset Management’s Bill Bonner weighed in on Market Call today, and his top picks were all – no surprise here – Alberta energy companies. First up was Twin Butte Energy (TSE:TBE), a company that’s struggled to get much traction with its new dividend-oriented model but one that Bonner thinks will surprise to the upside. The problem, he says, isn’t so much the dividend but its assets in the Primate play, which have been besotted by water intrusion problems that the company hasn’t been able to get a handle on. As such, they’ve reduced their expectations for that play and the production that comes from it.

Bonner thinks that’s a buying opportunity. “When you look back at what they’ve done, they invested $50 million in capital in the play and already taken out $100 in cash flow. The play owes them nothing, and all they’re saying is that they can’t forecast what’s around the corner with confidence. We think the market’s got this one wrong.”

He also picked Legacy Oil and Gas (TSE:LEG), a company that he thinks is close to being self-sustaining on an operational basis. “Legacy is at a point where it has enough cash flow to sustain their capital spending program, and they’ve even talked about introducing a dividend. Of all the small intermediates, I think the value proposition here is unmatched. You just can’t buy these quality assets for three-times cash flow, which is what you can do today with Legacy.”

Finally, he tabbed Pengrowth Energy (TSE:PGF), a long-time hold for him (one that he’s bought at higher prices, he admitted) that offers up a secure dividend and a fully-funded heavy oil play that could increase the company’s production by as much as 75 per cent. “I think the market’s going to gain confidence in this story over the next 12 to 24 months. The pilot project there has delivered incredible results, and in the context of the pilot expanding, look out.”




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