Calfrac Well Services Ltd., a Calgary-based specialist in hydraulic fracturing that works in Canada, as well as Argentina, Russia and the United States, said a revival in drilling last year and commodity prices provide momentum, but there is uncertainty on the horizon.
“A prolonged period of underinvestment in the upstream sector, in combination with a rebound in demand as Covid-19 related restrictions have been reduced, has resulted in a significant increase in crude oil and natural gas prices,” management noted.
“This stronger commodity price environment provides the foundation for higher demand for Calfrac’s services moving forward. The company’s positive momentum from the third quarter continued into the fourth quarter of 2021 but paused toward year-end due to normal seasonality combined with customer budget exhaustion.”
Russia’s invasion of Ukraine has injected “risk and uncertainty” into prospects for the recovery continuing through this year, the oilfield services contractor said in reporting its fourth quarter and 2021 results. The firm is “currently evaluating the options for its Russian operations” and expects to make a decision about how to move forward by May.
Russia risk surfaced initially in December as a supply chain issue, the company noted. Operating income was eroded by an 11-day work interruption because a customer was unable to deliver fracturing proppant needed to complete wells.
Looking Beyond Russia
Beyond Russia, COO Lindsay Link said Calfrac’s outlook “continues to progress, especially in North America.”
The Canadian division is expecting a “strong first quarter for its four large fracturing fleets. The high level of activity is expected to continue into the second half of the year, after the seasonal break-up, leading to improved year/year financial performance.”
Calfrac anticipates that a tightening services market in Canada could provide the opportunity “to significantly increase its prices in order to reflect the appropriate value of its services.” The company recorded “modest price improvements during 2021, but upward pricing pressures for trucking, fuel, chemicals and sand were significant and continue to persist.”
Calfrac’s U.S. operations “experienced a delayed start to 2022 in one of its operating districts, but still expects to deliver improved sequential performance during the first quarter,” management said. “While the company continues to pass along inflationary cost increases, Calfrac has been successful in improving utilization as well as net service pricing during the past few months.”
The Argentina operations benefited last year “mainly due to strong equipment utilization in the Vaca Muerta shale play,” management said. “The company expects the operating cadence that was achieved in the second half of 2021 to continue throughout 2022 and drive strong levels of financial performance.”
The company, which reports in Canadian dollars (C$100/U.S. 79 cents), reported losses in 4Q2021 of $28.3 million (minus 75 cents/share). In 4Q2020, net income was $125.8 million ($2.19/share). Calfrac reported 2021 losses of $82.8 million (minus $2.21 /share), reversing 2020 losses of $324.2 million (minus $76.28).
Carolyn Davis contributed to this story.
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