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Trican Well Service in deep trouble CIBC analyst says cyclical downturn could be worse than 2009; RBC analyst says full impact of cutbacks in E&P spending felt in April Gary Park For Petroleum News
The greatest reverberation in Canada’s service and supply sector from the slump in oil prices has hit fracking specialist Trican Well Service as its clients have slashed capital spending, forcing the fracking company to cut 2,000 jobs - more than one-third of the payroll - and cancel dividends.
With operations in Canada and the United States, as well as Australia, Saudi Arabia, Russia and Kazakhstan, Trican issued a dire warning that it’s at risk of breaching conditions of its debt, which endangers its ability to keep operating unless it can obtain relief from lenders.
The company took a C$19 million operating loss in the first quarter even after idling more than one-third of its equipment.
“It’s a very, very difficult time for frackers and Trican’s leverage is exacerbating the situation for them,” AltaCorp analyst Dana Benner said.
Trican indicated there could be some help on the way from talks with an undisclosed suitor to sell its operations in Russia and Kazakhstan, which analysts estimated could fetch C$50 million to C$200 million.
Chief Executive Officer Dale Dusterhoft said those operations have taken a downturn as relations between Russia and the West have soured and the ruble has tumbled.
He told a conference call that industry activities in Canada are expected to take an even greater hit in the current quarter compared to last year.
Significant staff cuts Dusterhoft said Trican will cut 35 percent of its Canadian staff and 58 percent of its U.S. positions. The Canadian reductions are lower because Trican reduced salaries to retain as many employees as possible.
Jon Morrison, an analyst at CIBC World Markets, said the biggest difference between Trican and some of its U.S. peers is that the Calgary-based company did not fare well from a geographic and customer positioning standpoint, experiencing a greater pullback by its customers.
Dan MacDonald, an analyst at RBC Dominion Securities, said the “full impact of throttled back E&P spending was felt in April, with wells drilled and completions down 62 percent and 74 percent year-on-year, respectively.”
Ensign Energy Services, another Calgary-based firm, said the upcoming summer in Canada will be “very tough,” limiting the use of its equipment to one quarter.
Meanwhile, Precision Drilling, the largest land driller in Canada, has negotiated relief for two covenants of its revolving credit facility.
“We are entering a cyclical downturn that will parallel and in some cases be worse than 2009,” said Morrison, noting the second half of 2015 will depend on a recovery in commodity prices.
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