Hurricane Services, a privately-held oilfield service company based in Wichita, Kan., agreed to buy Quintana’s legacy pressure pumping assets for $4.4 million in cash. (Source: Hart Energy/Shutterstock.com)
Quintana Energy Services Inc. exited its conventional pressure pumping business in a recent sale that analysts believe highlights a massive valuation upside to the Houston-based oilfield service provider.
Coming off a second-quarter miss due to market softness surrounding U.S. onshore activity, Quintana said Aug. 19 it sold its legacy conventional pressure pumping operations in Kansas and Oklahoma as the company continues to focus on cutting costs.
The legacy business included about 12,000 hydraulic horsepower (hhp) across five facilities plus 26 personnel. Hurricane Services Inc., a privately-held oilfield service company based in Wichita, Kan., agreed to buy the assets for $4.4 million in cash.
Post-closing, Quintana will retain the remainder of its pressure pumping operations, including the unconventional frac business operating in the Midcontinent, Permian and Rockies region and the company’s cement business based in Gillette, Wyo.
Analysts with Tudor, Pickering, Holt & Co. (TPH) noted the sale was a small deal but said it also highlighted a “prodigious valuation upside” for Quintana.
“Small numbers for sure but looking at the deal from a valuation perspective highlights how cheap [Quintana] is,” the TPH analysts wrote in an Aug. 20 research note. “The horsepower sold for $367/hhp, cheap vs. newbuild cost but if you apply that metric to the 255,000 hhp that [Quintana] still owns, deduct net debt, and assume the rest of [Quintana] is worth zero, you get equity value 30% above the current stock price.”
RELATED:
The Consolidation Conundrum Among US Pressure Pumpers
Earlier this month, Quintana reported a second-quarter miss driven from negative impacts experienced by its directional drilling, pressure control and wireline businesses. The company’s EBITDA for the quarter was $5.9 million, below Street estimates of $9.7 million.
For the first half of 2019, Quintana said its legacy conventional pressure pumping operations were responsible for an adjusted EBITDA loss of $400,000 after generating $2.2 million of revenue. In comparison, last year, the assets generated $7.9 million in revenue and $1 million in adjusted EBITDA.
TPH analysts estimate Quintana sold its legacy conventional pressure pumping operations for 4.4 times 2018 EBITDA vs. what the stock is currently trading at roughly 3.2 times TPH’s 2019 EBITDA and less than 2 times the firm’s 2020 EBITDA
“When private players start to pay more for assets than public investors, it peaks our interest,” the analysts added.
Following the second-quarter EBITDA shortfall, Quintina maintained it would seek improvements in its cost structure as analysts expected U.S. onshore activity to decline alongside increasing oilfield service pricing pressures for the remainder of 2019.
Recent cost reductions included the elimination of the COO role at Quintana when the company’s legacy COO, Christopher J. Baker, took the helm on Aug. 7 following the resignation of former CEO Rogers Herndon.
In an Aug. 19 statement, Baker, Quintana’s president and CEO who has a long history with the company and its predecessor, said the sale of Quintana’s legacy conventional pressure pumping operations will streamline the company’s focus and cost structure on its go-forward service offering and the needs of its unconventional pressure pumping and cementing customers.
“Our regional pressure pumping predecessor, Consolidated Oil Well Services, had been active in the Kansas pressure pumping market since 1956, but as our operating strategy evolved to focus on high-utilization unconventional completions, these legacy conventional pumping services have become noncore,” he said.
Quintana ended the second quarter with a total debt balance of $35 million, $16.6 million of cash on hand and $41.9 million of net availability under its senior secured asset-based revolving credit facility. The company also launched a $6 million share buyback program on Aug. 8.
