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The small number of Canadian energy-services companies that provide drilling or hydraulic fracturing equipment in Russia are rushing to get out.

Most of the companies in the sector chose never to enter the Russian market in the first place, citing poor economics, or got out some time ago. However, that makes the ones who continued to operate in Russia up until its invasion of Ukraine stand out even more, particularly Calgary’s Calfrac Well Services Ltd. CFW-T

While many Canadian energy-services companies not in Russia have seen their share prices jump by double-digit prices since the war began, Calfrac stock has fallen nearly 8 per cent.

In the year ended Dec. 31, Calfrac reported $122.1-million in revenue from Russia, up more than 20 per cent from 2020. That was just over 12 per cent of the company’s sales last year. It says it has three contracts in the country all slated to expire sometime in 2022.

Operating profit in Russia was $14.4-million, up 31 per cent from 2020, representing 17 per cent of the company’s profits by geography. (The company also operates in Canada, the United States and Argentina.)

When Calfrac reported its 2021 results on March 17, it said it was “evaluating its options for its Russian operations” with the expectation that it would have more information in May along with its first-quarter earnings.

However, Mike Olinek, the company’s chief financial officer, responded to The Globe and Mail’s e-mailed questions Thursday by saying “the company is planning to provide a further update on its Russian operations by early next week, at the latest.”

The Globe used the financial-intelligence platform Sentieo to search corporate filings, investor conference-call transcripts and news articles to identify Russian exposure in the sector among the 15 most-valuable Toronto Stock Exchange energy-services companies, by market capitalization.

Unlike Calfrac, the few who acknowledged having Russian customers said sales in the country represented a small single-digit percentage, or less, of company revenue. And those who did say they have halted sales or have actively been exploring an exit.

Calgary-based Computer Modelling Group Ltd. CMG-T, which makes software to evaluate underground oil and gas reservoirs, generally received 1 per cent to 1.5 per cent of its annual revenue from Russia in recent years, the company said in response to The Globe’s questions.

In an e-mailed statement, Computer Modelling said it does not have a Russian office, instead using an independent sales agent. “We have suspended all operations (customer support and engagement) in Russia and are in the process of winding down the relationship with our agent.”

Toronto’s Shawcor Ltd. SCL-T, which provides pipeline products and storage tanks, said in a March 10 investor call that its gets less than $5-million of its $1.14-billion in annual revenue from both the Russian and Ukrainian markets combined.

In an e-mailed response to Globe questions, spokesperson Meghan MacEachern said the company’s Russian and Ukrainian business “has been stopped.” Shawcor had no physical presence in either country, Ms. MacEachern said.

In 2021, the Russian division of Calgary-based PHX Energy Services Corp. PHX-T represented 3 per cent of revenue and less than 1 per cent of profits. The company released earnings on Feb. 23 – hours before Russia launched its invasion – and president Michael Buker said in a statement that his company was “seeing improved activity levels” and “expect to strengthen profitability” in Russia this year. (Mr. Buker did not reply to an e-mail seeking fresh comment.)

PHX has been trying to sell the Russian operation, called Phoenix TSR LLC, and had a deal in place last year for its disposition. That transaction fell through, and the company said in its annual report filed Feb. 24 that “discussions are continuing with the interested party to reach an alternative agreement.”

Any energy company that operates globally has to pick and choose among a number of unsavoury jurisdictions. Robert Geddes, the president and chief operating officer of Ensign Energy Services Inc., articulated the idea 13 years ago in a conference call when asked if the company would consider expanding into Russia.

“Well, as you know, we operate in a lot of interesting countries around the world – Venezuela, Libya, Oman, Qatar, places like that. So nothing about Russia scares us,” he said in 2008.

“We are always very interested wherever they drill, and Russia is a very interesting place where they are doing a lot of drilling and will continue to in the future.” (Ensign currently says it operates “internationally” but does not say it ever began doing business in Russia. The company did not respond to an e-mailed request for comment.)

Marc Rossiter, the CEO of Calgary’s Enerflex Ltd. EFX-T, told investors Feb. 24, the day after the invasion, that his company stopped doing business in Russia after the Crimean invasion in 2014. “And at that point in time, the Canadian and U.S. governments … pretty much had stopped doing business in Russia, and we did.

“And so we’re following the letter of the law and the spirit of the law. Since 2014, we haven’t spent any real business development efforts trying to grow our businesses in Russia.”

The company operates in Canada, the United States, and 15 other countries including Kuwait, Oman and the United Arab Emirates.

Others cite economic and business reasons. Carey Ford, the chief financial officer of Calgary’s Precision Drilling Corp. PD-T, said in an e-mail to The Globe that his company wants its customers to “pay for performance and compensate Precision for the value we create. … We have never operated in Russia because we view the opportunity for success in that region to be limited.”

“Russia has a large domestic drilling industry, which generally operates at much lower performance levels and standards than we are accustomed to and it would be very difficult for us to be competitive based on price in that market.”

Many companies that have limited their geographic reach to more stable locales have seen sizable share-price gains in recent weeks.

John Gibson, an analyst at BMO Nesbitt Burns Inc., said North American oil field activity was increasing even before the Russian invasion, and “the recent conflict has accelerated the need for service equipment in the face of a potential supply shock, particularly over the longer term.”

However, labour and supply chain constraints remain a key challenge for adding equipment, Mr. Gibson said in e-mailed comments. While that could limit the pace of activations of new equipment, he sees the creation of “very strong pricing power for the contractors, something we have not seen for several years.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/04/24 0:58pm EDT.

SymbolName% changeLast
Calfrac Well Services Ltd
Computer Modelling Group Ltd
Phx Energy Services Corp
Enerflex Ltd
Precision Drilling Corp

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