The company ‘firmly declined’ both offers as they undervalued the business
Author of the article:
Jul 14, 2020 • • 3 minute read
CALGARY — One of Canada’s largest fracking companies said its restructuring and has fended off “undervalued” offers for its U.S. operations amid a sharp decline in oilfield services activity.
Calfrac Well Services Ltd. announced Tuesday that an Alberta Court of Queen’s Bench judge allowed the company to restructure its debts through the Canada Business Corporations Act (CBCA).
A CBCA restructuring is different from a Companies’ Creditors Arrangement Act (CCAA) or Business Insolvency Act (BIA) as it’s not a bankruptcy or insolvency process. Companies are solvent when they begin CBCA processes and no receiver is appointed to manage the assets.
“There is no admission of insolvency,” Calfrac vice-president, capital markets and strategy Scott Treadwell told the Financial Post.
The company was in court in the U.S. on Tuesday filing under Chapter 15 of the bankruptcy code, but it was a jurisdictional filing asking the U.S. courts to recognize the Canadian CBCA process, the executive said.
Calfrac has been under considerable pressure as oilfield drilling and hydraulic fracturing activity has declined sharply after the COVID-19 pandemic and an oil price showdown between Saudi Arabia and Russia triggered a market collapse earlier this year.
There were 18 active oil and gas rigs in Canada by the first week of July, compared to more than 250 in February. The Petroleum Services Association of Canada expects a 37 per cent drop in oilfield activity by next year.
Last month, Calfrac said it would defer an interest payment due June 15 on notes with an 8.5 per cent interest rate. The company had 30 days to make the payment or be in default.
Several analysts lowered their price target for the company’s shares at that time and expected the value of Calfrac’s equity to become worthless as the company tried to strike a deal with its creditors.
Real Life. Real News. Real Voices
Help us tell more of the stories that matterBecome a founding member
“We continue to target Calfrac at $0.00 with an underperform rating on the risk that there may be no going concern value in the Calfrac equity,” Raymond James analyst Andrew Bradford said in a June 25 research note.
Shares in Calfrac tumbled around 24 per cent to 13 cents per share on the Toronto Stock Exchange Tuesday following the restructuring announcement.
Treadwell said the company doesn’t comment on analyst reports or its share price, but said the CBCA process is “absolutely a better outcome” than expectations of a CCAA process or Chapter 14 filing.
Article content continued
As it moved toward filing for the CBCA process, however, the heavily indebted fracking company received offers for its U.S. business.
Cisco, Tx-based holding company Wilks Brothers LLC, who own roughly 19 per cent of Calfrac’s shares, made offers on June 22 and again on June 29 to buy the company’s U.S. business division. Wilks Brothers also owns ProFrac Services Ltd., which competes with Calfrac in the U.S.
Calfrac disclosed the two offers in its announcement Tuesday but said the board, led by executive chairman Ronald Mathison, “firmly declined” both offers because they undervalued the business andthe transactions would have left Calfrac owing “a vastly disproportionate amount of debt.”
The company disclosed $947 million in long-term debt when it reported its first quarter financial results on June 25. Net loss for the quarter stood at roughly $123 million, considerably more than the $36 million net loss it posted at the same time a year earlier.
Despite the challenges, the company is not looking to sell it U.S. business.
“It would take a very, very compelling financial offer or strategic offer to even consider splitting up the North American businesses,” Treadwell said. “North America is the foundation of Calfrac. I don’t see that view getting altered.”
The company does not see its overseas business in Russia and Argentina as core assets, but the company is not contemplating selling those units either.“In times of industry distress, that’s probably not the best time to monetize the assets,” Treadwell said.
North American drilling activity this year could be half of what it was in 2019 and likely hit a 20-year low, according to Oslo-based energy advisory Rystad Energy.
“Both new wells and drilling lengths will be pared down as E&P’s scale down investments, affecting the entire supply chain associated with these services,” Rystad Energy oilfield services analyst Reza Hassan Kazmi said in a report published Tuesday.
Subscribe to the newsletter news
We hate SPAM and promise to keep your email address safe