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Wednesday, December 14, 2011

An Update on GasFrac to explain today's trading

I often write about GasFrac Energy Services (symbol GFS:CA in Canada and GSFVF on the pink sheets). Today, GasFrac traded in a very different manner from the rest of the energy space. The stock traded in heavy volume (almost three times the average) and it gained 1.32% (based upon the Canadian numbers). Nearly all the rest of the energy sector fell as oil and natural gas prices tumbled by 4% or more. So why the heavy trading and rise in the GasFrac price?

The answer to the question can be found in a news item about a completely different company: Frac Tech International. Frac Tech is 30% owned by Chesapeake Energy and, as the name suggests, it specializes in hydraulic fracturing of oil and gas wells. Basically, it is in the same field as Gasfrac except that Frac Tech uses water based solutions for fracturing and Gasfrac uses liquid propane instead. Here's the news: Aramco, the Saudi oil giant, as well as Chinese energy majors Sinopec and CNOOC are all in talks to acquire a substantial stake (between 20 and 30%)in Frac Tech. This is major news.

Right now, fracking is mostly confined to North America. It is the American and Canadian companies that have all the expertise in the process. Nevertheless, there are substantial deposits of shale gas and oil located around the globe, and these deposits are substantial enough to change the nature of the gas and oil markets for decades to come. Both China and the Saudis want to be able to develope their own resources, and it is likely that both countries have substantial non-conventional reserves. In order to move forward with development, these countries have to obtain the knowhow needed for fracking. The interest in Frac Tech makes clear that their first attempts will be to buy that knowledge through investments. Of course, if there is such interest in hydrofracking, there is also likely to be big interest in fracking with liquid propane.

Let's translate this into English for simplicity. The news today indicates that we may soon see interest from major companies in buying fracking technology. GasFrac becomes a prime target in that environment. Particularly with the currently depressed price of GasFrac stock, this news makes purchases all the more likely to result in profits.

DISCLOSURE: I remain long GasFrac stock. It is one of the larger holdings in my accounts.

2 comments:

osanrick said...

A Canadian investor, Nawar, stated in a financial investor board that he was tired of the anemic quantity taking the stock down. Therefore he stated in advance he would increase the price single handedly. It appears that he bought in excess of 900,000 shares boosting the stock price. That might have something to do with the increase in price of GasFrac on 14 Dec.
I am very long GSFVF,
OsanRick

osanrick said...

I am new to this blog stuff but thoroughly enjoy reading your blog comments and agree almost completely with your point of view.
The silent majority.