The wide swings in Calfrac stock highlight the current volatility of the oil-field service sector and, more specifically, the pressure-pumping category.TODD KOROL/Reuters
Calfrac Well Services Ltd. shares dropped sharply on Wednesday following news that the oil-field service company's chief financial officer is departing.
Calfrac's stock moved up by almost 50 per cent between mid-December – when the company announced a bought deal financing and covenant relief package – to the early part of this month. Calfrac CFO Mick McNulty said "the recovery in the share price reflected the fact that the bank amendment and the subsequent equity raise took away a level of uncertainty that existed before."
But investor concern about Calfrac returned on Wednesday, as the share price dropped about 9 per cent on the Toronto Stock Exchange. The wide swings in Calfrac stock highlight the current volatility of the oil-field service sector and, more specifically, the pressure-pumping category. Along with Calfrac, pressure pumpers Canyon Services Group Inc. and Trican Well Service Ltd. were also down. The companies have seen their share prices hammered by the precipitous drop in crude prices, the subsequent slowdown in oil-field activity, and stiff competition for pricing and market share.
Early Wednesday, Calfrac announced that Mr. McNulty, its CFO of just two years, will retire as of March. Calfrac has initiated a search process, but no replacement was identified.
In an e-mail to The Globe and Mail, Mr. McNulty said he is leaving the company for personal reasons after discussions with his family over the Christmas break. "Given the successful completion of our credit agreement amendments and financing to fund our newly negotiated equity cure provision, I concluded the time was right to step down from my role as CFO," he said.
"I can confirm that I am leaving on excellent terms with the senior management team and board of directors of Calfrac, and my decision to stay on through the finalization of the year-end audit and in a consulting role on an interim basis as required thereafter underlines that reality."
TD Securities Inc. analyst Scott Treadwell – who downgraded his rating on Calfrac to hold from buy on Wednesday – said Calfrac's elevated debt levels remain a key issue, but investors were moved by December's amendments to its debt covenants and the equity issue "in one fell swoop."
"If you run the math, that funding basically gets them [Calfrac] through 2016," Mr. Treadwell said.
He said Mr. McNulty's retirement announcement created "uncertainty" for the market.
But more generally, pressure pumpers are under stress. Trican will face a similar debt test later this year, he said.
Other cost-saving changes in the sector are afoot. Last year, Canyon announced that it would be moving away from its "fixed labour cost model" to "a variable pay model so that expenses are more closely linked to activity." For instance, some field employees now receive a daily salary instead of a fixed salary per month.
Analysts have hailed this as a key change in the way the industry operates, as it allows the firm to respond if business dries up with little notice. FirstEnergy Capital Corp. said that "this will more closely align the company's cost structure to field activity, which will be particularly beneficial during spring breakup or periods of lumpy activity.
"We do believe there are some near-term risks for employee attrition, but given the state of the job market in western Canada, this is unlikely to be a major issue."