From Calfrac:
Outlook
The near- and longer-term fundamentals for natural gas prices appear to be strengthening, with overall continental storage having fallen back to the five-year historical average. The recent rise in the price of natural gas provides a great deal of optimism for growth in North American activity levels as the year progresses.
In Canada, higher commodity prices resulted in stronger than anticipated demand for the company's services during the first quarter, especially in the deeper, more technically complex unconventional reservoirs located in Northern Alberta, northeastern British Columbia and Southern Saskatchewan. Calfrac expects this positive momentum to continue as its customers strive to develop new resource plays within the Western Canada sedimentary basin. The company expects to be an active participant in the Montney and Horn River shale plays in northeastern British Columbia and northwestern Alberta, as well as in the light oil plays in the Bakken and Shaunavon formations of Southern Saskatchewan.
The Canadian market continues to require additional hydraulic horsepower to support the development of these unconventional reservoirs, which in many cases require both multiple fractures per well and high-pressure fracturing. This industry trend is expected to substantially increase pressure pumping requirements into the future as these plays continue to grow. Drilling activity in the shallow gas regions of Southern Alberta is also forecast to remain active during 2008, offset slightly by lower levels of activity in the CBM fracturing market.
In the United States, the company anticipates that activity levels in the Piceance basin and the Fayetteville shale play of Arkansas will remain strong throughout 2008. Competitive pricing pressures within certain markets are expected to ease and be mitigated by higher levels of equipment use during the remainder of the year as customers plan to increase the number of fractures performed on a daily basis. As is the case in Canada, drilling activity in the United States is focused on the development of technically challenging tight-gas and shale reservoirs, which have high hydraulic-horsepower requirements. Calfrac expects that its United States operations will be a significant contributor to the company's consolidated financial results in 2008 and beyond.
The company recently signed annual contracts with one of Russia's largest oil and natural gas companies and these agreements are expected to ensure high levels of equipment use in western Siberia throughout the remainder of 2008. Calfrac will continue to focus on levering new operating efficiencies, combined with higher activity levels, to drive greater financial returns into the future.
During the first quarter of 2008, the company's fracturing operations in Reynosa, Mexico, continued through the start-up phase. A second fracturing spread comprising equipment from the company's recent acquisition of a Canadian competitor, as well as some new capital, was deployed into Mexico during the second quarter in order to improve overall equipment use as activity is anticipated to increase throughout the remainder of the year. As a result, the future operating and financial performance of this geographic segment is expected to improve.
As planned, Calfrac commenced cementing operations in Argentina during the second quarter of 2008, anchored by its negotiated arrangement with a local oil and natural gas company. The company has partnered with a strong local management team to work on growing this fifth geographical region. The company believes that this initiative will provide a long-term foundation for the introduction of additional cementing equipment as well as other service lines as the pressure-pumping market develops in Argentina.
Calfrac is also pleased to announce that its board of directors has approved a $44-million increase to the 2008 capital program, for a revised total of $72-million. The additional capital will be focused mainly on constructing a new high-rate, conventional fracturing spread and deep-coiled tubing unit likely destined for the Canadian market in advance of the 2009 winter drilling season, as well as the purchase of several horsepower units and high-rate blenders to bolster the company's existing fracturing fleet in North America. The addition to the 2008 capital program is expected to be financed from the company's 2008 cash flow from operations.
