Trican shares plunge as company seeks debt relief, hints at asset sales

Share

The collapse of oil prices walloped Trican Well Service Ltd. in the first quarter as customers slashed capital spending, prompting the fracking company to cut 2,000 jobs and cancel dividends.

Trican, which has operations in Canada, the United States and elsewhere, warned it's at risk of breaching conditions of its sizable debt, which could threaten its ability to keep operating. It is seeking relief from its lenders. The shares tumbled 14.5 per cent Wednesday.

Like the rest of the drilling and well-completion business, demand for Trican's services plummeted in the quarter – normally the busiest of the year – as producers whittled down drilling plans. Trican suffered a $19-million operating loss even after opting to park more than a third of its equipment.

"It's a very, very difficult time for the frackers, and Trican's leverage is exacerbating the situation for them," AltaCorp Capital Inc. analyst Dana Benner said. "Other service companies have cut their dividend … so Trican is not unique in this respect. But if you look at its ratios, the leverage is very high for the company. I think the market is looking at the leverage, the fact that they were not able to obtain covenant relief from their lenders yet."

However, Trican also revealed it is in talks with an undisclosed suitor to sell its operations in Russia and Kazakhstan, which would help improve its financial position. It gave no indication of the terms or potential timing of a deal. Mr. Benner estimated the unit to be worth $100-million to $150-million.

Chief executive officer Dale Dusterhoft said the company has soured on its operations there as relations between Russia and the West have worsened and the ruble has skidded.

"We see divesting our Russia business at a fair price as a positive move for our company and in the best interest of shareholders," Mr. Dusterhoft told analysts.

Trican specializes in hydraulic fracturing, well-servicing and cementing – all aspects of the shale-type drilling and production that has boomed in Canada and the United States over the past decade. Such service providers ran flat out until energy markets started to crater at the end of 2014.

Since then, the sector has shed thousands of jobs in North America as rig counts plunged with oil and gas prices – at times falling below the costs of drilling and completing wells in regions such as the North Dakota Bakken and Eagle Ford in Texas.

Mr. Dusterhoft said Trican has cut 35 per cent of its Canadian staff and 58 per cent of U.S. positions. Job reductions in Canada are lower because salaries were reduced to retain as many employees as possible.

In the first quarter, the company had a net loss of $36-million, or 24 cents a share, compared with a year-earlier loss of $8.5-million or 6 cents a share. Revenue fell 26 per cent to $426-million.