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Trican Well Service

WKN: 812693
Lang & Schwarz
+0,15 %
+0,005 EUR

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10th Largest US Frac Fleet Sold For 38 Cents On The Dollar

Until Tuesday, Canada-based Trican Well Services was the tenth largest pressure pumping company in the US by frac horsepower. On Tuesday, the company announced a deal had been reached to sell their US frac fleet to Keane Group, a privately-held, U.S. based well completion services company. The deal marks Trican's exit from the US market.

Under the agreement, Keane will acquire the majority of Trican’s U.S. assets, including equipment, key employees and its engineering capabilities.

The deal has been expected, and we previously reported that it was coming, but the price had not been known until today's announcement. The total consideration paid by Keane amounts to $247mm, which is comprised of $200mm in cash and a 10% minority stake in Keane (20% participation above certain thresholds if Keane has a liquidity event (i.e. a sale or IPO) is also part of the consideration).

Trican has 16 frac spreads (645,000 horsepower) in the US. But only 6 of Trican's 16 US spreads are currently active - the rest have been parked due to the downturn. In severe downturns such as the one we are in, fair market value for frac equipment can move south of build cost fast. This deal provides an important marker for what pressure pumping equipment is worth.

The purchase price implies about $380,000 per 1,000 horsepower, a standard unit measure of pressure pumping equipment. Although new frac horsepower construction has ground to a halt, the build cost (or replacement value) was about $1mm per 1,000 horsepower during the shale-driven upcycle. This is likely close to what Trican originally spent to build these assets. Thus, this deal implies an exit from the US frac market at about 38 cents on the dollar.

Importantly, this may be the high end of the range for 2nd hand frac equipment in the current market for several reasons:

Trican is one of the few players that has committed to full R&M spending for its parked fleet. Its repair costs have not declined on a $/horsepower basis as the company has parked equipment ring fenced and available to go to work immediately.

Analysts had expected Trican to get far less than the $247mm paid, with some speculating that $175mm would get the job done. Trican's shares surged 89% on the purchase price announcement Tuesday.

Trican has some contract coverage that is attractive to Keane. 5 of of the 6 working crews are committed to Q2 2016, the other is working in the Marcellus spot market. And 4 of the 6 crews are committed to 2017.

Keane receives a desirable footprint across key US basins and proprietary technology as well as new service lines including cementing, coiled-tubing, nitrogen pumping, and acidizing capabilities.

Because Trican is substantially exiting its US businesses, its not just the frac spreads Keane is getting. Some support assets will likely move along with the pump trucks. Also, Keane gets a trained staff. All of these "extras" contribute to the value Keane gets above the raw horsepower in this transaction, meaning that if the pumps were isolated, the deal value might have actually been even lower for the frac equipment.

And finally, Trican is one of the first large sellers and Keane is one of the few established frac companies that was in the market to buy assets. Some of the other large players are vertically integrated and aren't interested in buying 3rd party fleets even at fire sale prices because they build their own in house.

If the deal is completed as expected by mid-March 2016, Keane will move into the top ten US frac companies in terms of fleet size with nearly 1mm horsepower under management.

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