Canada’s Largest Pressure Pumper Throws In The Towel On US Shale
On Tuesday, Trican Well Services announced that it has entered negotiations to sell its US pressure pumping business. Trican is the largest Canadian frac company and has 16 frac spreads (645,000 horsepower) in the US. Only 6 of Trican’s 16 US spreads are currently active – the rest have been parked due to the downturn. The company has been hard hit by the downturn, its stock falling from a pre-crash high of $18 per share to under 50 cents per share.
The potential buyer is Keane Group, and up and coming US onshore service company with 300,000 horsepower and operations in the Marcellus, Bakken and Texas unconventional plays. If Keane pulls off the purchase, it would move into the top ten US frac companies in terms of fleet size. Final conditions for the transaction have not yet been agreed upon nor has the timing. However, Trican management likes the price offered (not yet disclosed), and expects to move forward with the sale.
This deal could be the beginning of more extensive consolidation in the US frac business. With margins at or below breakeven, smaller players are under severe pressure. The price point will be closely watched as a fair value marker for frac horsepower post-collapse. Raymond James analysts pegged $175mm as the fulcrum point where the deal makes sense. If the Trican assets moved for this price, they’d be selling for about $270,000 per thousand horsepower, which is only about a quarter of what these fleets cost to build new at the cyclical peak in 2014.
Frac pricing has broadly stabilized down about 30% from peak. Over half of all US frac horsepower has been stacked, and a large portion will be retired this year, which will help to tighten the market even if there is less demand on a normalized basis going forward. At this point in the cycle, one could argue Trican is selling near the bottom. That said, Trican’s strategy is to retreat to its core, which is the less competed Canadian market (6 players vs. 30+ in the US) where it offers full services and has many long-term clients. In that context, the US exit at this point in the cycle finds some justification.
Trican has some contract coverage that is attractive to Keane. 5 of of the 6 working crews are committed to Q2 2016, the other is working in the Marcellus spot market. And 4 of the 6 crews are committed to 2017.
Furthermore, Trican is one of the few players that has committed to full R&M spending for its parked fleet. Its repair costs have not declined on a $/horsepower basis as the company has parked equipment ring fenced and available to go to work immediately. This is key to the sale Trican is negotiating, and it means Trican may get a better price than other sellers in this market. Much of the 8.5mm horsepower stacked in the US has been raided by its owners for spares to keep the remaining active fleets running. Parked spreads that are field ready are likely in the minority.
Last August, Trican sold its Russian pressure pumping operation to Rosneft for $197mm and negotiations were underway to sell its Kazakhstan business as well. Trican suspended operations in Australia, Saudi Arabia, and Colombia last year. Its headcount has been reduced by some 2,500 during the downturn.
Wall Street praised the deal with some analysts calling it transformative and lauding the debt reduction and EBITDA improvement the transaction will bring. Trican’s stock moved 31% higher on Tuesday, +$0.12 to $0.51.