Replying to a question from a Member of his Inner Circle, Pat McKeough looks at Trican Well Service, a supplier for oil and gas exploration and development firms. Trican has clients in Canada, the U.S., and around the world. However, lower oil and gas prices have reduced demand for its products and services and cut its revenue. At the same time, the company carries a high debt load with big payments coming due. Pat looks at Trican’s plan to reduce its debt and how likely it is to succeed in a weak commodities market.
Q: What do you feel the future holds for Trican Well Service? Thank you.
A: Trican Well Service (symbol TCW on Toronto; www.tricanwellservice.com) provides products, equipment and services that are used during the exploration, drilling and development of oil and gas reserves.
Calgary-based Trican operates in Canada, the U.S., Russia, Kazakhstan, Colombia, Saudi Arabia and Norway.
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Falling oil and gas prices have cut drilling activity in Canada and the U.S. by about 50% in the past year. That lowered Trican’s revenue by 52.7% in the third quarter of 2015, to $325.5 million from $688.5 million a year earlier. Excluding one-time expenses, it lost $53.6 million, or $0.36 a share, compared to a profit of $36.2 million, or $0.24 a share.
Penny stocks: Trican ponders asset sale to pay debt
A big risk factor is Trican’s total debt of $752.9 million, which is a very high 10.6 times its currently depressed market cap of $70.7 million. The company now hopes to sell its U.S. pressure-pumping business for an undisclosed sum to pay down some of that debt, including payments of $45 million Canadian and $65 million U.S. due in April 2016.
However, the sale would cut the company’s revenue by roughly 40% and make it difficult to generate enough cash flow to pay down its remaining debt.
We think the outlook for oil and other commodities is still weak—and that makes it uncertain that Trican can manage its debt while it waits for prices to recover.
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Replying to a question from a Member of his Inner Circle, Pat McKeough looks at Trican Well Service, a supplier for oil and gas exploration and development firms. Trican has clients in Canada, the U.S., and around the world. However, lower oil and gas prices have reduced demand for its products and services and cut its revenue. At the same time, the company carries a high debt load with big payments coming due. Pat looks at Trican’s plan to reduce its debt and how likely it is to succeed in a weak commodities market.
