Gasfrac, and Evaluating Future Growth
Board: Value Hounds
Kitkat: Can you maybe start a new thread and put down some of your analysis of their growth and prospects?
You may want to sit down on the floor because what I am about to write may cause you to have a convulsion or hyperventilate.
I don’t maintain a spreadsheet on Gasfrac, I haven’t made any assumptions on their future growth, or on how much that growth could mean to their bottom line in the future. The truth is I think it misses the point and likely would distract me from what I view as important.
Are you OK? Can I get you a paper bag? :<)
OK, so allow me to explain myself. I could go through the exercise I suppose, but realistically it seams a bit silly for an amateur like me, with limited information, to come up with my own assumptions when the company will do it for me. If I am going to make judgments about the company’s prospects based simply on their growth, it just seems logical to go with what the company says and then judge them on their performance.
Personally, I think reading too much into the growth figures at this point in their development in itself is a potential mistake. Gasfrac’s growth IMO needs to be looked at differently from many other companies because much of it represents a “test” and in itself doesn’t provide us any direct information as to whether the test will lead to additional business. So to use an example when they announced that Husky had committed to a long term contract, that news whatever number of completions it represents was far more significant to me than a equivalent number of generic completions. Obviously over time there will hopefully be a correlation between regular repeat customers and the number of “tests” from new clients, but for now at least I don’t know what that is.
In the mean time I try to dig under the rocks and see if I can come up with any specific situations that demonstrate to me that adoption is likely to follow the tests and under what circumstances. I have seen a few impressive examples where companies after doing a few hydrofracs into formations gave Gasfrac a “test” and saw their initial results double. To me that is much more important than hearing Chevron ran a 20 well test because I can make assumptions about what can be expected going forward from the smaller company (and possibly surrounding companies operating in the same play) and have no idea if Chevron will ever use Gasfrac again.
I do not have any feel for how big this alternative fracking can get.
Neither do I but at this point I’m leaning to they will develop a niche, hopefully several, that will involve one or more geological, geographic, infrastructure and environmental considerations.
I do know that at this point, considering the addressable market, they are pretty much the equivalent of a flea on an elephant’s back so in all likelihood that niche wouldn’t need to all that big for them to grow and prosper.
If demand stays high, they look like an interesting investment. They do absolutely horrible when rig counts drop. I have some concerns that the $3 gas is going to lead to much decreased activity and well shut ins this year impacting service companies on land
IMO way too many investors are being misled by the statistics. Sure the NG rig counts are down but the ones that are running are drilling wells with a lot longer laterals. (More frac stages) There has also been a huge shift to oilier plays that require rigs and completions as well. Also there is the question of the rigs capabilities, so for example the low pressure type rigs that someone like SD requires can be contracted cheaply the high pressure rigs are still demanding top dollar.
Specific to Gasfrac I have looked at the current shortage of rigs as somewhat of a blessing as this may serve to decrease the cost differential somewhat and/or the waiting time backlog many companies have faced and provide somewhat of an incentive to give Gasfrac a “test”. Ultimately, if Gasfrac can demonstrate the economics, then for a while at least they won’t have much competition which in the end raises prices.
For now Gasfrac is a small position that I'll try to increase and/or lower my cost basis of if I think a decent trading opportunity arises. At some point I'll make a decision to exit or "go large" but I expect that to be based on my view of if and how broadly it might be adopted and not only on current growth figures.
Sorry I couldn’t be more helpful, but I am who I am. :<)