The GasFrac third quarter conference call

The investor conference call held by GasFrac Energy Services (GFS:CA in Canada and GSFVF on the Pink Sheets) just ended. Here are the key points:

1) The new management is just starting, so some of the usual color that is available on these calls was missing. Zeke Zeringue began work yesterday as CEO, so he necessarily was short on some of the more esoteric details. One thing that was clear from his comments, however, was that he his well aware of the relative advantages of the GasFrac process over conventional hydrofracking and that he has plans in the work to leverage those advantages into more work.

2) Gasfrac is going to increase its focus in the USA. Right now, two thirds of the equipment works in Canada with the remainder in and around Texas. No figures were given for where the new equipment will be placed, but it was made clear that the percentage in the USA is going up.

3) Equipment utilization both in the USA and on the long term contracts should be higher than previously achieved. Until today, the company has suggested that a 45% utilization which translates into about $65 million per year per equipment set is the proper rate to use. While this number was not changed during the call, management made clear that an annual run rate in the USA of over 50% could be achieved quickly and that the same was true for equipment used on a long term contract basis like the one the company has with Husky. This is a key difference. Think of it this way: the company will soon have 10 equipment sets. A higher utilization rate could easily change the expected revenue from those sets from $650 million to $750 million or more.

4) Revenue in Canada during the third quarter was not as good as appeared from the earnings report. About 40% of the total revenue in Canada was due to a sale to Husky Oil rather than for fracking services. On the other hand, while the contract with Husky was being finalized, no work was being done by Gasfrac for Husky. The company did indicate that moving forward, however, a utilization of about 40% in Canada seemed reasonable. To put this in perspective, at that rate the revenue generated from Canada alone for the current equipment would be in the area of $55 million per quarter, a big increase from even the levels reported for the quarter just ended.

5)Capital expenditures will be about 35 million in each of the fourth quarter of this year and the first quarter of 2012. These expenditures are fully funded. During the last quarter, the company arranged a $100 million credit facility but has yet to draw down at all on that agreement.

6) The company plans to continue to grow rapidly. Cash flow from operations should be able to fund an annual growth rate of about 30%. Additional growth over that rate will need to be funded from other sources of capital. Interestingly, management said that it was open to signing agreements with future customers in which the customer's balance sheet could be used to help with this funding of capex.

7) The propane recovery system continues in development. From the sound of the discussion, this system seems more important for work in Canada or in remote locations in the USA than in more developed areas in the USA. In those places, however, the recovery system can greatly reduce the price differential between hydrofracking and the GasFrac system.

Nothing was said during the call about the status of patent applications. It would have been nice to hear further confirmation about these patents. Still, the conference call did indicate that the new management seems to know what they are doing.




DISCLOSURE: I am long Gasfrac. It is one of the larger holdings in my accounts.