The activist investor who has forced a wholesale change of the board of directors at Gasfrac Energy Services Inc. wants the company to expand its offering of waterless rock-fracturing technology beyond North America.
The trick will be to pique the interest of national oil companies and other players in regions where water shortages make it difficult to employ traditional fracking for oil and gas production, said Julien Balkany, chief investment officer of Nanes Balkany Partners LLC.
Gasfrac has equipment that is not being used, and it can be quickly deployed to help with the expansion, Mr. Balkany said in an interview. As Streetwise reported earlier, his New York-based firm has amassed a sizable stake in Gasfrac in recent months. It now has 5.4 per cent of the stock.
"The company has a way right now to attract new clients without raising financing … and has the right equipment to clearly double its revenues," he said. My personal opinion is that the company will also need to explore some kind of partnership, joint venture or franchise agreement."
Gasfrac, known for its unique technology that involves using propane – rather than water – for fracking hydrocarbon-trapping rock deep underground, said on Tuesday that it had reached an agreement with Nanes Balkany to nominate six new directors, including two named by the activist investor.
The stock had languished as Gasfrac struggled to sign up new customers and failed to meet quarterly targets. It surged 14 per cent to $2.10 on the Toronto Stock Exchange early Tuesday, its highest level since early January.
"We believed there was a major disconnect between the depressed share price and the value of this very exciting technology," Mr. Balkany said. "Our objective is to try to start closing this gap."
It is the French-born energy investor's first foray into the Canadian sector. His move follows a handful of other activist gambits at Canadian energy companies recently, most notably Carl Icahn's accumulation of Talisman Energy shares. That also resulted in an agreement on new board members before it erupted into a proxy fight.
"We believe this technology is quite unique and we see a lot of opportunities to start broadening the implementation, to enter into new geographic territories facing water scarcity, where the company might have a natural competitive edge," he said.
He mentioned Saudi Arabia, Algeria, Libya, Mexico and China as potential targets for the technology to be used to tap shale reserves.
Mr. Balkany will be a director, and his other nominee is Pierre Jungels, who is also on the board at Baker Hughes Inc., the multinational oil field service company.
Other new board members are Dale Tremblay, former chief executive officer of Western Energy Services Corp.; Larry Lindholm and Mark Williamson, principals of EnQuest Capital Corp., a private-equity firm; and James Hill, who is due to retire later this year as Gasfrac's CEO.
Under the settlement, seven current directors will step down at the annual meeting on May 27.
Mr. Hill said he believes the outcome is good for the company and its shareholders. The board is being restructured as the industry is undergoing a rebound due to a combination of strong oil and gas prices and increased flow of capital.
"I think there was a good positive dialogue with Julien and a number of others, and it's resulted in a set of directors that offer skills to move us through this next phase," he said. "The guys that we had did a tremendous job in moving from an idea through development and into commercialization."
There could be other opportunities for Nanes Balkany in the Canadian oil patch following the Gasfrac investment, Mr. Balkany said. To date, he has concentrated on junior oil producers in the United States and Europe.