Finally few hours after the release, and after talking with a number of fellow shareholders, it is time to put things in prospective.
Gasfrac has disappointed a lot of believers, operationally the company over promised and under delivered for several quarters, I would say for many the story has regressed from steady growth to: does the technology even work?
As usual the truth is somewhere in between, the technology is certainly working, too much empirical data has been released from several formations to indicate that the technology works well in a number of basins; however it is clear that data is not enough, the company needs to deliver the service quicker, better and does it safely, those imperatives seems to have slowed down growth, the growth in capacity has run widely ahead of demand, something the new team already addressed in their Q4 release when they stopped capacity additions.
It is also clear that management is also limiting expectations for the whole year at a range of $250m to $300m; this is significantly lower than the average of $370m expected by the street, at $250m to $300m growth in 2012 will be 56% to 88% from 2011. Those are positive and courageous steps; we finally have proper guidance from the company, thus we are not subject to analysts varying expectations.
Starting from tomorrow and after the severe sell off, the company will basically have to re-prove itself, this will only be done through:
- Signature of additional long term contracts.
- Translation of those contracts into revenues and cash flow.
- Progressing with its partnerships model and demonstrating the revenue potential of such a model.
The management team has a window between now and the end of the year to show that the obstacles the company is facing can be overcome; Q1 was the last quarter in my book that can be blamed on lack of time to react to conditions created by the previous team.
Long term the jury is still out, I don't think this $20m miss is the coup de grace to the company or to LPG fracturing, but they are certainly cruising too close to the edge; without concrete steps in the next few months conforming increased adoption, the likelihood of Gasfrac turning into a limited operator will look increasingly likely (flat scenario number 4 in the article I published today).
Disclosure: I am long OTC:GSFVF.