Stock slides as GasFrac parts ways with top managers, Waterless well stimulation company promises to repair financial woes

Stock slides as GasFrac parts ways with top managers, Waterless well stimulation company promises to repair financial woes by Dan Healing, September 11, 2012, Calgary Herald
GasFrac Energy Services Inc., which primarily uses gelled propane instead of water to fracture stimulate oil and gas wells, announced Tuesday morning that chief executive Zeke Zeringue and chief operating officer Steve Batchelor have left the company. The two were appointed last November to replace founding CEO Dwight Loree and president and COO Reid MacDonald, both of whom retired. Zeringue and Batchelor were both previously with American services giant Halliburton. Chief financial officer Jim Hill has been appointed acting president and CEO and the board of directors is launching a formal CEO search process, the company said. Hill did not return a call asking for comment on Tuesday. On the Toronto Stock Exchange, the company’s stock fell as much as 21 per cent or 63 cents on Tuesday morning before recovering to close at $2.43, down 16.5 per cent or 48 cents. Its 52-week high of $9.46 was recorded last November. Megan MacNeill, an analyst for Haywood Securities, said it’s no surprise that the company is changing management for the second time in under a year. “Underperforming yet again,” she said. “Utilization of their equipment isn’t up, it sounds like the expansion in the U.S. is going slower than expected, so, no, it’s not a surprise.” … The management moves come one month after GasFrac issued second-quarter results that were widely panned by analysts. It reported a $17-million loss on $17 million in revenue and negative EBITDA (earnings before interest, taxes, depreciation and amortization) of $10 million.

“From our viewpoint, something needs to change within GasFrac, and it needs to change relatively quickly,” Raymond James analyst Andrew Bradford wrote in a note to investors posted the same day. He pointed out that GasFrac had to generate $9 million in positive EBITDA in the third quarter to avoid being in violation of its debt and interest coverage covenants with lenders — and predicted it would fall short. In its second-quarter news release, Zeringue blamed wet weather in Canada and delays related to infrastructure adjustments at its major U.S. customer for missing its revenue target. “On a positive note, several of our Canadian customers are seeing far superior results using GasFrac and have committed additional stimulation programs in 2012,” he added. “Of the 20 different customers we have completed stimulation treatments for in 2012, 13 have committed additional jobs in 2012, giving us a 65 per cent customer retention rate in North America.” … Five of eight analysts in a Bloomberg survey on Tuesday advised investors to sell the stock and the other three suggested holding it. … The company also announced Tuesday it will conduct an operational review “to ensure that its current infrastructure is appropriate to support operational efficiency while ensuring long-term profitability, sustainably and the continued growth of the company’s proprietary LPG fracturing technology.” It added it is considering recruiting new directors to provide “additional experience and expertise.” On its website, GasFrac says its fracking system, which uses primarily gelled propane to break impermeable rock formations underground to allow the oil and gas to flow, is more effective than water fracking. It says it enables higher initial and long-term production and more evenly distributes proppant (sand or other substances injected to keep the fractures open), adding that the propane is more easily and completely recovered after use.

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