Big News from GasFrac Energy Services

I often write about Canadian company GasFrac Energy Services (symbol GFS in Canada or GSFVF on the Pink Sheets). Gasfrac performs well completions in competition with hydrofracking; the company uses liquid propane rather than water. As a result, the wells produce at higher rates with better total recovery since no water is in the reservoir to interfere with extraction. There is also no need for water and no need to dispose of water after it has been used. Thus, the chance of pollution of the local acquifer is greatly reduced and in areas, like Texas, with poor water supplies, the work can continue without interruption.

Tonight, GasFrac released some very big news. It has signed a contract with Husky Energy for the performance of services for three years with an option for a two year extension. Husky is a large company (market cap is in excess of 20 billion dollars), so the contract is a guarantee of substantial work from a very well funded source. For the first time, GasFrac has provided investors with some clear visibility for continuing earnings into the future. This is the kind of news that we have been waiting for with regard to GasFrac. (For a copy of the press release, click on the title to this post.)

On the other hand, GasFrac also used to the announcement to make clear certain information that was mentioned in the last conference call. The third quarter results are not going to be that good. GasFrac put it this way: "With the combination of the wet second quarter and less than anticipated fracs completed in the third quarter under this contract, GASFRAC's 2011 revenue and earnings will be less than originally anticipated. However, given the continued customer diversification, adoption of the propane fracturing technology and backlog of work required under this contract, GASFRAC expects 2012 to be a year where significant growth in revenue, cash flow and earnings are realized."

In the last conference call, the company had made clear that the wet weather in Canada had continued well into the third quarter with the effect of preventing work from going ahead as scheduled. Since two thirds of the company's work currently comes from the affected area, it was clear that the impact on the third quarter results would be substantial. Now that impact has been confirmed.

Overall, this news is a big plus for the company. The days of high revenue and profit may be off by another quarter or two, but the likelihood that such days will arrive has gone up substantially. A vote of confidence such as a long term contract from a large company like Husky says more about the prospects for GasFrac than any short term blip in earnings due to bad weather.

Disclosure: I remain long GasFrac. It is a substantial holding.