(Reuters) - Calfrac Well Services Ltd (CFW.TO) reported a higher-than-expected quarterly profit on strong drilling activity in North America, although revenue missed market forecasts as mild winter weather in Canada hampered the movement of equipment.
Calfrac shares were down 6 percent at C$23.97 on Wednesday on the Toronto Stock Exchange.
“An early breakup caused the company to complete 1,037 Canadian frac jobs versus our 1,363 estimate,” National Bank Financial analyst Greg Colman said.
Drillers and well service companies such as Calfrac and Precision Drilling Corp (PD.TO) rely on frozen ground to move heavy gear across boggy terrain in winter.
Precision Drilling, which reported last month, missed analysts’ profit expectations.
However, Calfrac said the early spring breakup in Canada, combined with below-average snowfall over the winter, could minimize the seasonal impact of road restrictions on activity during the remainder of the second quarter.
Increased use of hydraulic fracturing has resulted in strong profits for service companies in recent years but has created a natural-gas glut that has driven prices to decade lows.
The low prices have forced energy companies to move to liquids-rich regions in Canada and the United States.
Calfrac’s larger North American rivals, including Halliburton Co (HAL.N), Precision Drilling and Schlumberger Ltd (SLB.N), have said the movement out of natural gas basins will hit the industry in the near term as drilling costs rise.
Calfrac said its first quarter operating margin in United States fell about 7 percentage points to 22.6 percent due to high costs for chemicals needed for oil and natural gas liquid extraction.
“I am expecting another quarter or two of lower margins before we start to see that turn around,” Global Hunter Securities analyst Brian Purdy said.
Calfrac’s first-quarter net income attributable to shareholders rose to C$70.8 million ($70.7 million), or C$1.59 per share, from C$49.1 million, or C$1.11 per share, a year earlier. Analysts on average had expected earnings of C$1.40 per share, according to Thomson Reuters I/B/E/S.
Revenue rose 41 percent to C$474.1 million, well short of the C$501.85 million analysts had expected.
Canada is the company’s biggest market, contributing about 50 percent of revenue in the quarter. The United States accounted for about 40 percent.
Adjusting for foreign exchange gains, the company earned C$1.33 per share.
Reporting by Aftab Ahmed in Bangalore; Editing by Sriraj Kalluvila and Ted Kerr