Great News from Gasfrac Energy Services

GasFrac Energy Services Inc. (GFS:CA in Canada and GSFVF on the Pink Sheets) is out with a great earnings report this morning together with a very interesting appointment of a new president and CEO.

First let’s look at the earnings. The key metric for the stock is revenue and the results were excellent. Revenues were $57.4 million for the third quarter compared to last year’s $26.6 million and last quarter’s $14.2 million. Revenue from the USA rose to $12.6 million for the quarter, but the company also reported that in October total revenue from the USA rose to $12.9 million. Revenue in Canada during the third quarter was $44.8 million compared to $21 million in the same quarter last year.

All of these revenue figures are quite good. As of the end of the quarter, GasFrac had 4 sets of equipment operating in Canada and two in the USA. Under the company’s previous guidance, a full year of operation for each set was expected to generate about $65 million of revenue or about $5 to 6 million per month. That means that the two sets in the USA were operating at full tilt in October, a remarkable feat given that the company only commenced full time operations in the Texas market this year. The Canadian results were affected by the late end of the spring break up in the Alberta market. July was mostly a lost month in that area. This weather problem had been announced at the time of the second quarter earnings report and conference call, so it was not a surprise. The scope of the problem was less than had been predicted, however. If one assumes that there were only about two months during which the Canadian equipment could operate, that means there were four sets for two months or a total of eight months during which revenue could be generated. At $5 to 6 million per set per month for full scale, full time operations, that would mean revenue of between $40 and $48 million dollars, right in line with the $44.8 million revenue that was achieved.

The analysts had been predicting revenue of $46.8 million for the quarter, so the company beat that by about 23%. The highest estimate from any analyst was $51 million, so the company blew past that figure easily as well. The current consensus revenue figure for the next quarter is $79.3 million. Given the information issued by the company, this figure will be raised substantially in the coming days unless there is some problem disclosed in the conference call. In short, these are blowout revenue figures.

Earnings were $5.9 million or ten cents per share. This is an increase in earnings from $2.3 million or 6 cents per share in the same quarter last year. (There is a significantly higher number of shares now outstanding.) Earnings, however, while important are less meaningful for the future than the revenue figures. Gasfrac is training crews for the four additional sets of equipment that will soon be in service and the other startup costs in the Texas/USA market are distorting the actual profits to be earned in the future.

There were some very important informational points which were in the press release as well. First, there was more detail given about the Husky deal. Under this long term contract, GasFrac will be doing completion work for Husky in Canada. The key item here is that most of the work for Husky will be pad fracturing; this means that during the spring thaw next year this work will be able to continue and the revenue interruption suffered this year will be nowhere as severe in the future. Pad fracturing will also reduce the costs for moving the equipment, but since we do not know the pricing of the work for Husky, it is unclear if this benefit will be gained by Gasfrac.

The second major news was the appointment of Zeke Zeringue as President and CEO of the company. Mr. Zeringue has a long history in the oil services field, mostly with Haliburton but also with many other companies. He appears on paper to be just the sort of executive who could introduce Gasfrac technology to many new parts of the E&P field. We will, of course, have to wait to see how he performs, but his selection looks good at this point.

Third, the company said that the remaining four equipment sets on order would be in operation in the first quarter of 2012. It is unclear from the release if the sets would all go into service then or if this is the date when the last of these sets begin operation. Hopefully this will be clarified in the conference call tomorrow. Previously, the schedule had called for most of the equipment to be in service during the fourth quarter of this year, so this seems to be a slight delay.

Overall, today’s news is extremely good. The stock is up 7% as I write this, but my estimate is that it will rise much more over the next few days as all of the estimates of future results get raised. Of course, we still have the conference call to come, and the GasFrac conference call usually has some interesting information that adds to that in the press release. Normally, I might recommend waiting until after the call to purchase shares, but with the revenue figures being so good, I would not wait.

UPDATE: The market has closed for the day, and the stock was up another 8% beyond where it stood when I first posted this blog entry. If the conference call is good, we may see another big rise tomorrow.

Disclosure: I am long GasFrac stock and it is one of the larger holdings in my accounts.