Calgary-based CalFrac Well Services Ltd., which has one of the largest hydraulic fracturing businesses in the world, reported a big gain in revenue from a year ago, fueled mostly by surging activity in the United States.

Based on horsepower, Calfrac is one of the largest global fracturing companies with a combined fleet of 1.3 million hp. Besides fracturing, it also provides coiled tubing, cementing and other well stimulation services to companies that work in Western Canada, the U.S. onshore, Argentina and Russia.

Since the end of June 2017, CalFrac said it has reactivated 72,000 hp and two deep coiled tubing units were transferred from the United States. Through a “combination of this broader operating scale and better pricing,” revenue increased by 18% year/year (y/y).

“The number of fracturing jobs increased by 13%, mainly due to a more active and efficient customer base versus the same period in 2017,” management said. “The number of coiled tubing jobs increased by 37% from the second quarter in 2017, primarily due to higher equipment utilization and larger operating scale.”

CalFrac’s financial results are reported in Canadian currency. Revenue climbed 67% y/y to $544.6 million, while the fracturing job count increased by 33% mostly on the “larger scale of operations and higher activity in Canada and the United States,” management said. CalFrac began working in the Permian Basin, both Texas and New Mexico, beginning in 3Q2017.

During 2Q2018, Calfrac pumped 560,000 tons of sand in the United States, a 56% jump y/y, and it pumped another 227,000 tons in Canada, which was 6% growth. Consolidated revenue per fracturing job increased by 31% from a combination of better pricing, larger job sizes and job mix.

Canadian activity began slowly as spring breakup conditions impacted operations in April, but activity escalated in May and June. Cost inflation has continued to dog the operations, however, driven mainly by higher product and fuel costs, but management is working with customers to share in the cost increases, management said.

In Canada, revenue decreased by 30% sequentially to $131.9 million because of the slowdown in activity during April. Operating income as a percentage of revenue was 8% versus 17% in 1Q2018 mostly because of lower equipment utilization combined with higher costs for diesel fuel, rail transportation and sand.

“Continued strength in oil and liquids pricing should support strong activity levels through the third quarter and early into the fourth quarter across CalFrac’s Canadian client base,” management said. With increasing intensity across existing plays and meaningful acceleration in the East Duvernay oil play, Calfrac expects demand for fracturing services to grow.

“Based on current visibility, the company anticipates a slowdown in the fourth quarter, albeit with a more typical pattern than the sharp decrease experienced in 2017.”

In the United States, conditions continued to improve as fleets were reactivated, “aided by improved productivity and no material impact from the industry sand network challenges that occurred in the first quarter,” it said. Sand supply chain issues also were resolved in the quarter by Superior Energy Services Inc.

CalFrac’s U.S. growth “was tempered by some breaks in completion schedules in Texas and New Mexico,” it said. The company reactivated a 17th fracturing fleet in San Antonio, TX, which is now expected to begin work in August because of customer scheduling changes.

“Of the 17 fracturing fleets active in the United States, 14 are large fleets while the remaining three fleets are approximately half the size of a standard fleet,” management said.

Like its peers in recent months, management also discussed potential issues from takeaway capacity, with CalFrac specifically addressing how that might hinder completions in the U.S. market.

“With recent commentary surrounding the impact of production takeaway capacity on the fracturing market in the United States, the company continues to work closely with its clients to manage any issues that may arise,” it said.

“Calfrac expects that up to three of its fleets may experience lower utilization during the third quarter due to changes in client well completion schedules resulting in possible redeployments of fracturing crews into different operating districts. A number of opportunities for short- and long-term work exist in most of CalFrac’s U.S. operating districts, and the company will seek to balance risk and growth when looking at any asset reallocation.”

Meanwhile, cost inflation in the U.S. market continued in the second quarter, with products and fuel experiencing the largest increases. CalFrac’s work in the United States is covered by agreements that provide “regular opportunities” to pass through cost increases to clients, and the company manages them as part of the normal course of business.

“In the U.S., the horizontal rig count has increased by over 15% since the beginning of the year, and with continued improvement in oil prices, the company’s outlook for fracturing fundamentals remains optimistic, despite the short-term issues related to takeaway capacity in the Permian Basin.”

Revenue from U.S. operations more than doubled y/y to $342 million from $153.9 million. The company also recorded a 62% increase in the number of fracturing jobs completed. Revenue per job increased 41% on improved pricing combined with the impact of job mix as the “operations in Texas and New Mexico resulted in the completion of larger overall job sizes.”

U.S. operations generated operating income of $69 million, versus $25.2 million a year earlier, primarily on improved utilization and pricing in Colorado, North Dakota and Pennsylvania, as well as the addition of operations in Texas and New Mexico that did not begin until 3Q2017.

Argentina operations also showed significant improvement during 2Q2018, as several exploration and production companies are developing leaseholds in the Vaca Muerta formation in the Neuquén Basin.

Profits in the Argentina business gained “in spite of a high level of variability in client work programs during the quarter,” management said. “Internal cost control and a focus on field productivity remain central to short-term improvements, and should be aided by an expected increase in activity levels through the remainder of the year” as producers ramp up activity.

Meanwhile, Russian operations experienced ”continued challenging operating conditions,” impacting activity through May. Most of the work not executed in the second quarter has been rescheduled through the summer months and into the autumn.

Net losses totaled $32.8 million (minus 23 cents/share) in 2Q2018, versus a year-ago net loss of $20.3 million (minus 15 cents). Losses included largely unrealized foreign exchange losses of $32.5 million in 2Q2018 and $16.3 million in 2Q2017.