Calfrac Weighs Entering Oil Regions Such as Saudi, Permian

  • CEO says company wants to be present in important markets
  • Expansion into Saudi Arabia is ‘an idea, a project’: Aguilar

Calfrac Well Services Ltd., the Canadian oilfield services provider, is considering expansion opportunities into two of the world’s largest producing regions, as the company faces heightened competition in existing markets.

Saudi Arabia and the U.S. Permian Basin are attractive to Calfrac for potential investment, Chief Executive Officer Fernando Aguilar said on Tuesday. The Calgary-based company wants to be in important markets where output is around 10 million barrels a day, he said by phone after a Bloomberg TV Canada interview with Pamela Ritchie.

“Saudi is an idea, a project,” Aguilar said. “We continue exploring those markets with potential for us to be present where we are not operating today, like the Permian, like Saudi Arabia.”

Calfrac provides services including hydraulic fracturing, also known as fracking, in parts of Canada, the U.S., Russia, Mexico and Argentina. Analysts have raised concerns about the company’s elevated debt levels, as drilling activity remains muted and prices for services low in a North American market oversupplied with equipment more than two years into a crude market slump.

“If there’s a way to move equipment out of Canada, out of the U.S. and into a jurisdiction where it’s going to work and generate earnings power, it’s probably a great opportunity,” Jason Tucker, an analyst at Paradigm Capital Inc. in Calgary, said in a phone interview. The Permian is “the place to be” with regards to U.S. oil industry activity, he said.

Texas Foothold

Calfrac would face competition from larger incumbents including Halliburton Co., Schlumberger Ltd. and Baker Hughes Inc. and it would be unwise to spend additional capital to build out a fleet, Tucker said. Canadian service companies have also struggled to grow their foothold in Texas against local competition, he said. For example, Strad Energy Services Ltd. stopped offering rental equipment there after setting up while Trican Well Service Ltd. recently pulled out of the U.S. entirely.

North American oilfield services activity won’t increase materially until U.S. crude prices consistently trade higher than $50 a barrel, Kurt Hallead, an analyst at RBC Capital Markets in Austin, wrote last week in a research note, lowering his price target for Calfrac’s stock. Calfrac has five buy, 10 hold and two sell recommendations from analysts, according to data compiled by Bloomberg.

West Texas Intermediate crude has risen about 70 percent since a February low and closed at $44.90 a barrel on Tuesday. Aguilar expects global oil market supply and demand to balance later this year, he said in the TV interview.

“We are interested and exploring those possibilities as we continue moving forward with the options for the company,” Aguilar said. “But, of course, that’s going to take some time.”

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