I had a couple of minor questions regarding Husky left over from the 3Q ER report. With so much being made of the Husky capex announcement, I decided to update my list of pending questions and give Jim a call on Dec 6. As always, he was gracious and forthcoming. Here are my notes which don't format well on !Y:
?Husky
o $20M prepay item referred to in 3Q earnings: Husky made a prepayment in 4Q10 and 1Q11 to obtain equipment commitment from Gasfrac due to equipment in short supply. The prepay was paid off by Gasfrac with work in 3Q.
o Loss of 3Q Husky work pending the contract signed on October 1
* Husky spent many months testing the propane fracing science on different types of wells and completion techniques. This was a “pilot” period.
* Husky bureaucracy kicked in when the decision was made to make a commitment. The group which handles contract purchasing put Gasfrac work on holding pending the contract.
* Work resumed immediately when contract was signed.
o Effect of Husky 2012 capex on Gasfrac
* Husky has extensive backlog of drilled wells … they did not stop drilling when they stopped fracing. Husky has work for both contracted sets through 2012.
?2011 Capital program
o Build is on target with delivery of remaining 4 sets to commence in late 4th quarter and sets will be delivered about every three weeks
o Decision on deployment will be made in the next week or two. [I model next 2 sets to US, then 1 to CA, and last set to US.]
?Backlog
o There is sufficient backlog to keep the existing CA and US units working through 1Q [could be longer, my question was “through 1Q” … I wanted to determine if there was 3-4 months work for all 6 sets]
?2012 Capital program
o 2012 capex planning will take place in early first quarter
o [Given 6 month equipment lead times, that would see deliveries in 3Q and 4Q 2012]
o [My model assumes no additional equipment in 2012 and I won’t make any change there until I see absorption of the 4 new sets]
?Changes in emphasis/direction from Zeke
o “Not a real change but acceleration of US plan”
o Talk of becoming “a billion dollar company”
o Zeke has spent a lot of time with US customers – “He knows the guys down there”
o Zeke is emphasizing professional business development and how the technology is sold. “Sell is different in the US than CA.”
o CA
* Takes up technology much more quickly - the fields are more difficult
* “Everyone is in downtown Calgary”
* The E&P community is “tight” and there is a heightened level of trust among operators
o US
* US operators want to see the data. Zeke working to bring more hard data regarding the production and reserve benefits of using propane
* US projects are larger and more concentrated
* Weather is more favorable, especially the Eagle Ford, Canyon, Permian
* May use CA sets to serve Colorado
* Customs issues not major- can move sets/people across the border
* Biggest problem is the sales and use taxes
?Institutional investors
o A lot of the same firms remain holders and believers
o Some love the technology and the story but want to see another couple of quarters of demonstrated earnings
[As a refresher, Acuity Investment Management, filed notice on 10/31 it had acquired 10% of Gasfrac's stock. AIM manages investments, not takeovers. On balance, institutions increased net holdings during the past several months.]
Sentiment : Strong Buy
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