The Second Quarter Gasfrac Conference Call

The conference call for the Second Quarter Earnings Report for GasFrac Energy Services (GFS in Canada and GSFVF on the pink sheets) just ended. After the disasterous report for the quarter, management was on the spot, to put it mildly. Here are the key items as I see it.

1. We got a fuller explanation of why the miss was so great for the second quarter. First, the two well project in the Utica was cancelled (although we also learned that the company is in discussions with the new owner of the well to try to revive that project). Second, the horizontal in the Eagleford was cancelled due to what the company called changes in commodity prices. Of course, these changes in commodity prices were further explained in the question period as the well owner switching from GasFrac to conventional hydrofracking. Third, the weather in Canada did not cooperate. We also learned that the weather problems have continued in July. Fourth, Black Brush delayed its work as infrastructure was put in place for the wells.

2. We got another prediction for the revenue for the second half of the year. Zeke Zerengue said that he expected between $100 and $150 million of revenue for the two quarters. Yesterday, the press release from the company said that Q3 and Q4 should comprise between two-thirds and three-quarters of the revenue for the year. Using the figures in the press release, revenue would run between $120 and $180 million for the two quarters. Zeke did not explain why his figure was lower than the press release by twenty to thirty million dollars for the two quarters. It may have just been loose talk, but it would be nice to know which of the two figures is the actual outlook.

3. The utilization rate in the USA for July was about 20%. This is three times the rate of the second quarter. This rate, however, is too low for the company to meet even the lowered expectations announced for the third and fourth quarters.

4. The field propane recovery system was used on a job in the Niobrara and recovered 90% of the propane that had been used. This is a major positive since it will reduce the cost of using GasFrac's services by a great amount.

5. There is only $8 million of capital expenditures on tap for the rest of the year. For the rest of 2012, there will be seven sets operating. No explanation was offered as to what will happen with the company's eighth set (which was delivered months ago). Nor was there any discussion of the ninth and tenth sets which have been mostly (or all) already paid for. It seems, instead, that given the dearth of sufficient work, the company is saving expense by not hiring crews for any more than the seven sets already in the field.

6. In discussing the revenue for the rest of the year, management said that the bulk of revenue would come in the second half of the third quarter and the entire fourth quarter. This was disquieting since it was just one more report where the revenue stream is in the future. When asked about the reasons for optimism that this revenue would actually materialize, management offered general opinions about improves performance by employees in sales and management. No particular contracts were cited. The revenues sound more like a hope than a fact.

Other subjects were discussed. Indeed, the last question asked was a request for management to explain whether the company could remain solvent, not a particularly happy subject. These other items, however, were not particularly illuminating.

DISCLOSURE: As of the moment, I remain long GasFrac stock, but that may change quickly.