Specifically, FTSI bumped the deal size up significantly to 19.5 million shares from 15.2 million with the IPO pricing at $18 vs. the $15-$18 expected price range. In all, it generated $351 million in gross proceeds, about 40% more than anticipated.
The lead underwriters on the deal were Credit Suisse, Morgan Stanley, Wells Fargo, Barclays, Citigroup, and Evercore ISI. Shares are set to open for trading later this morning on the NYSE.
FTS International (FTSI) is one of the largest providers of hydraulic fracturing services (also known as pressure pumping) in North America. Its services enhance hydrocarbon flow from oil & gas wells. It’s one of the largest well completion companies in North America and focuses primarily on unconventional plays.
FTSI is one of the top three hydraulic fracturing providers across its operating footprint, which consists of five of the most active major unconventional basins in the US: the Permian Basin, the SCOOP/STACK Formation, the Marcellus/Utica Shale, the Eagle Ford Shale and the Haynesville Shale. The company has 1.6 million total hydraulic horsepower across 32 fleets, with 27 fleets currently active. Customers include Chesapeake Energy, ConocoPhillips, Devon Energy, EOG Resources, Diamondback Energy, EQT, Range Resources among others.
After reducing its active fleet for a couple of years during the downturn, the company says it’s now experiencing a resurgence in demand for its services, which has led it to reactivate 10 fleets since the beginning of 2017 and FTSI is in the process of reactivating additional equipment at its in-house manufacturing facility. FTSI believes it can reactivate all of its idle equipment which would further increase its operating fleets by five fleets over the next nine months.
The surge in demand has allowed FTSI to raise prices significantly. Oil prices have more than doubled since the 12-year low of $26.14 in February 2016, reaching a high of $64.89 in January 2018 and averaging $50.80 in 2017. Similarly, the US horizontal rig count has increased by 155%, from a low of 314 rigs in May 2016 to 802 rigs in January 2018. The large growth in E&P drilling activity has caused demand for pressure pumping services to exceed the supply of readily available fleets, which has led average pricing to rise more than 56% since 4Q16. These price increases started in January 2017 and continued throughout 2017.
FTSI expects that customer activity levels will remain strong into 2018, which should provide an opportunity to activate additional fleets at favorable operating margins.
Turning to the financials, FTSI recognizes revenue upon the completion of a stage of a job. FTSI typically completes multiple stages per day during the course of a job. Invoices include an equipment charge and material charges for proppant, chemicals and other products. After reporting a loss in 2016, FTSI has been reporting profits in 2017.
Revenue for the first nine months of 2017 jumped 165% YoY to $1.01 bln with 17.2% operating margin. The main negative is that FTSI has a lot of debt. Long term debt is currently $1.19 bln and it has a negative shareholders equity. There are no plans for a dividend at this time.