Calfrac takes loss in Q2
Higher costs, competition cited as factors
Higher costs and price competition translated record second-quarter revenue into a net loss and lower operating earnings for Calfrac Well Ser
vices Ltd.
Calgary’s second-largest well completion company by market capitalization reported Friday that revenue climbed to $336 million versus $270 million in the comparable quarter of 2011, as its expanded pressure pumping fleet found plenty of work completing unconventional oil and gas wells in Canada, the United States and Latin America.
But costs rose — especially for guar, a product derived from beans grown mainly in India used in hydraulic fracturing of tight oil plays — and spot market margins fell in the U.S. due to competitors moving equipment into oil-prone basins from gas basins to follow commodity price-fuelled activity.
Wet weather slowed activity in Canada in the quarter, Calfrac reported, adding the market isn’t expected to match last year’s activity levels in the rest of the year.
“The recent volatility in the price of crude oil combined with increasing differentials for Canadian crude oil production has reduced the cash flows of the company’s customers,” said chief executive Doug Ramsay on a conference call with analysts.
“The company does expect some short-term pricing erosion which will result in lower Canadian op- erating margins compared to the first quarter.”
He added later that spot market margins for Calfrac through the rest of the year are expected to be down eight to 10 per cent in Canada and 10 to 20 per cent in the United States, while pointing out that work performed under contract will continue to command stable prices.
Calfrac reported a net loss of $11.9 million or 27 cents per share versus net income of $12.1 million or 27 cents in the second quarter of 2011. Stripping out foreign exchange affects, the net loss was $4.3 million versus a net profit of $10.5 million or 24 cents a year ago.
Operating income was $30 million, a 38 per cent decline from $48 million in the year-earlier period.
Analyst Brian Purdy of Global Hunter Securities said Calfrac is better positioned than some competitors to deal with a downturn because it has established bases and customer relationships in oily U.S. basins.
“(The quarter) was a little below expectations on the margin side but overall it was not bad,” he said. “We had a pretty clear idea that markets were tough from other companies that have reported.”
Last week, Calgary’s largest well completion company, Trican Well Service Ltd., warned it may have to park unprofitable U.S. fracturing crews this summer after noting a net loss of $51 million or 35 cents per share for the three months ended June 30.
Ramsay said Calfrac has no current plans to “lock the gate” on crews or regions, adding the company remains committed to a $271-million capital budget this year and is going ahead with the deployment of a fifth pressure pumping crew in the busy North Dakota Bakken region in the third quarter.
After a day of choppy trading in Toronto, Calfrac stock closed down 27 cents at $24.69.