Trican Well Service Ltd. fell to the lowest in 15 years after saying there’s a risk it won’t emerge from the oil slump, even following a $140 million deal to sell its Russian unit that brings the company closer to an agreement with lenders.
Shares of Canada’s largest fracking service provider fell 32 percent to close at C$1.35 at 4:45 p.m. in Toronto, the biggest-ever slide. The stock erased an earlier surge on Friday’s announcement of the sale of Calgary-based Trican’s pressure-pumping business in Russia to a subsidiary of state-backed OAO Rosneft.
“Despite the sale of its Russian operations, we still have concerns about Trican as a going concern in the absence of material asset sales or significant improvement in financial performance,” Michael Mazar, an analyst at BMO Capital Markets in Calgary, wrote Friday in a note.
He lowered his stock recommendation for Trican to the equivalent of a sell. “With the Russian announcement behind us, we struggle to see what other positive catalysts could be on the horizon.”
Trican might breach a covenant with lenders by the end of September, triggering its debt to become due on demand, the company said Friday in its second-quarter earnings statement. Weak business from an oil-price slump “may cast significant doubt with respect to the ability of the corporation to continue as a going concern,” the company said, reiterating a message from earlier this year.
The Russian unit’s sale is a positive step and the company is optimistic an agreement with lenders will be reached, it said.
Trican’s per-share adjusted loss for the quarter of 57 cents a share was worse than the 46-cent loss forecast by an average of 15 analysts’ estimates compiled by Bloomberg.
The company’s net debt has ballooned to 8.7 times its earnings before interest, taxes, depreciation and amortization, compared with 1.8 times Ebitda in the financial crisis of 2009, Dana Benner, an analyst at AltaCorp Capital Inc. in Calgary, wrote in an Aug. 10 note.
To cope with the oil price slump, Trican has scaled back operations, parking 35 percent of its Canadian pressure pumping equipment and reducing its headcount in the country by about 40 percent, according to the company statement.
Pressure pumping, also known as hydraulic fracturing or fracking, blasts water, sand and chemicals underground to release trapped hydrocarbons. Trican is the largest fracking provider by horsepower in Canada.
Frack pricing that service companies charge producers in the U.S. and Canada is expected to fall 35 percent this year, according to IHS Inc., as contractors suffer through a glut of pumping gear while customers pull back on spending during a yearlong oil market crash.
Canada is the world’s third-largest fracking market with a supply of 2.08 million horsepower in pumping equipment. The U.S. and China have the most pressure pumping gear.
Trican is also continuing to negotiate the sale of its Kazakhstan pressure pumping business to another subsidiary of Rosneft.
Morgan Stanley Canada advised Trican on the Russian deal, which is expected to close in the fourth quarter.