Canadian fracer rivalry heating up amid plunging share prices
TORONTO (Bloomberg) -- The outlook for Canadian fracing companies is up in the air.
Shares of Calgary-based STEP Energy Services Ltd. and Trican Well Service Ltd. are down more than 63% this year, while Calfrac Well Services Ltd. has lost about 36% amid activity slowdowns on both sides of the border. Battles for customers and concerns on lower producer spending levels are at the forefront.
"In the absence of a materially improved outlook, we expect that competitive pressures will intensify in 2019 and we are bringing our fourth-quarter 2018 and 2019 estimates down as a result," TD Securities’ oilfield services analyst Aaron MacNeil told clients in a note.
STEP told investors in late October that the company has been "deliberate in aligning itself with clients who are expected to have active work programs throughout 2019," adding that it has been "successful in this strategy and has secured firm commitments for over half of its manned fracturing fleets in 2019."
"In some way, STEP’s competitive maneuvers have been brilliant, whether fully intentional or not," Scotiabank analyst Vladislav Vlad said in a note. "Two of TCW’s past key customers are now using STEP as a service provider (which is not atypical in a commoditized business). As a consequence, TCW’s profitable outlook has quickly eroded on lower utilization as it seeks pricing discipline in 2019."
Shortly after STEP’s statement, CIBC said, "We believe some of these larger longer-term contracts include work programs for Seven Generations and Encana and comes on the back of STEP having engaged in more active relationships with these entities over 2018."
Still, third quarter earnings from STEP and Trican this week were met with share weakness and downgrades. Trican was lowered to hold at TD, while STEP was cut to the equivalent of hold ratings at TD, BMO and National Bank.
BMO Capital Markets prefers Calfrac given the company’s operating outperformance over the past few quarters.
