Trican Profit to Surge as Fracking Glut Wanes

Photographer: Julia Schmalz/Bloomberg

The Canadian market for hydraulic fracturing, a technique that pumps water, sand and chemicals underground to break oil and gas from rock, is expected to lead the U.S. in a recovery, PI Financial said. Close

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Photographer: Julia Schmalz/Bloomberg

The Canadian market for hydraulic fracturing, a technique that pumps water, sand and chemicals underground to break oil and gas from rock, is expected to lead the U.S. in a recovery, PI Financial said.

Trican Well Service Ltd. (TCW) and Calfrac Well Services Ltd. (CFW), Canada’s largest frackers, are seen as the biggest beneficiaries from a rebound in oilfield work during the next year after a glut of equipment sapped profits.

The Canadian market for hydraulic fracturing, a technique that pumps water, sand and chemicals underground to break oil and gas from rock, is expected to lead the U.S. in a recovery, PI Financial said. Trican and Calfrac are forecast to more than double adjusted earnings per share next year, compared with expected growth of 27 percent or less for the largest U.S. fracking providers, Halliburton Co. (HAL) and Schlumberger Ltd. (SLB), according to data compiled by Bloomberg.

“It’s a much more disciplined business in Canada because of the customer, the size of the market and the number of qualified competitors here,” Doug Ramsay, chief executive of Calgary-based Calfrac said in a phone interview on June 20. “You can’t just show up with a pump and a promise in Canada.”

Demand for fracking in Canada should grow an estimated 16 percent in 2014 as development ramps up in a few plays requiring more intense oilfield services, according to a report last month from Houston-based PacWest Consulting Partners. Trican and Calfrac are the two largest Canadian frackers by horsepower available. Demand in the U.S. is expected to grow 6 percent.

Shares of Trican, based in Calgary, surged 27 percent in the year through June 21 while Calfrac gained 28 percent. That compares with an average 3.3 percent drop for the country’s eight largest oil producers, including Suncor Energy Inc., and a 9.1 percent gain for the broad 58-company Standard & Poor’s Energy Index.

LNG Exports

Trican was little changed at C$14.75 at 4:10 p.m. in Toronto today for a market value of C$2.2 billion ($2.1 billion). Calfrac fell 0.2 percent to C$30.04, for a C$1.37 billion market value.

Natural gas pockets in northern British Columbia and Alberta are leading that turnaround, said Brian Purdy, an analyst at Global Hunter Securities in Calgary. The number of wells in the Montney, Horn River and Duvernay plays are growing, he said.

Large projects planned by Royal Dutch Shell Plc, Apache Corp. and Malaysian state-owned Petroliam Nasional Bhd. in western Canada will help boost future activity levels as the country looks to export liquefied natural gas to Asia and other parts of the world, Ramsay said.

Exxon Mobil Corp., the world’s largest energy company by market value, asked Canada for permission to export 30 million metric tons of LNG annually from British Columbia starting in 2021 in a June 20 export-license application filed with Canada’s National Energy Board June 19.

Montney, Duvernay

“Those are real projects,” Ramsay said. “It’s not somebody dreaming when you have Shell, Petronas, and Apache, the bigger players stepping in.”

Progress Energy Resources Corp., the Canadian gas and oil company bought last year by Petroliam Nasional Bhd, pumps gas in the Montney shale. Progress goes after tight gas, lodged in rocks that need heavy fracking before it can be removed.

“Not everything works for the Montney and Duvernay,” said Progress CEO Michael Culbert. “You need certain-sized equipment to actually facilitate fracking.”

The machinery Progress uses to get at the gas is being heavily used, said Culbert, and it will stay that way.

Fracking equipment in Canada exceeded demand last year by about 18 percent while the U.S. market was oversupplied by 31 percent, PacWest said.

‘Very Cheap’

A wet spring pushed back pressure pumping schedules, but there’s a lot to be done, said Purdy. “It’s probably going to be late June by the time they get going but I expect them to be very busy after that.”

As activity increases, the cost of fracking services will climb in Canada over the next two quarters, he said.

“In the U.S. it may take a little longer for pricing to get better, but it looks like they’re moving in that direction as well,” Purdy said.

Profits for oil service companies will gradually improve over the rest of the year, said Brian Youngberg, an analyst at Edward Jones in St. Louis. They probably won’t reach peak margins this year, he said, but service companies are definitely moving in the right direction.

“They’re very cheap, and as things get better here I think investors will really see that even more,” he said.

Sold Out

Trican is expected to triple adjusted earnings per share next year to C$1.24, and Calfrac is forecast to more than double earnings to C$2.66, according to the average of 16 analyst estimates compiled by Bloomberg. Halliburton, based in Houston, is projected to increase profit 27 percent while Houston and Paris-based Schlumberger is slated to grow 21 percent.

Trican’s operating income from Canada and the U.S. dropped 57 percent to C$283 million last year compared with 2011 while Calfrac lost 34 percent. Halliburton’s operating income fell 26 percent to $2.9 billion in Canada and U.S. during the same time frame as Schlumberger slipped 10 percent to $2.7 billion.

Joao Felix, a spokesman at Schlumberger, declined to comment on future prospects in the fracking markets. Beverly Stafford, a spokeswoman at Halliburton, didn’t return a phone call seeking comment.

Trican’s available fracking equipment in Canada is sold out for the third quarter, partly due to bad weather in the second quarter, Dale Dusterhoft, CEO at Trican, said June 21 in a phone interview.

Incremental Activity

“Canada will be stronger growth than the U.S. will in the next 12 months,” Dusterhoft said.

The price for natural gas has climbed 47 percent during the past year, helping to push up demand for more fracking jobs as projects become more economic to the producers, Dusterhoft said. “It’s not a boom, but it’s certainly helping our clients,” he said.

Bennet Vig, executive director at Dallas-based Round Rock Capital, whose fund owns an undisclosed number of shares in Halliburton and Schlumberger, said he’s in no hurry to buy up Canadian service stocks.

“There’s incremental activity that’s coming, but how fast that activity comes will be the big question,” Vig said. “These stocks are very cheap. I think you could wait a while to own them.”

The limited size of the Canadian fracking market, at roughly a tenth the size of the U.S. supply of equipment, is one advantage to the pumpers north of the border growing quicker, said Roy Ma, an analyst at PI Financial in Calgary.

“The Canadian market has always been, through this downturn, healthier than the United States,” he said. “We can get into a more balanced and under supply market quicker in Canada than in the U.S.”

To contact the reporters on this story: David Wethe in Houston at dwethe@bloomberg.net; Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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