Flotek (FTK +5.1%) is trading higher after disclosing that it received a letter from MHA Petroleum Consultants responding to criticisms by FourWorld Capital Management and others of prior reports prepared by MHA for the company regarding the efficacy of the company's CnF chemical products.
Flotek (FTK -14.5%) expects total Energy Chemistry revenues to increase by 10-15% when compared to third quarter, but gross margins for the segment will decline, likely to the 38-40% range, from 40.4% in Q3.
The company also expects its Consumer and Industrial Chemistry segment revenues to decline by $2.5M-$3.5M in the fourth quarter compared to the prior period.
Offshore drillers Atwood Oceanics (ATW +1.9%) and Rowan (RDC +0.3%), as well as Oceaneering International (OII +3.1%), Helix Energy Solutions (HLX +0.3%) and Flotek Industries (FTK -2.9%) are the favorite takeout candidates among oilfield services stocks for Stephens analyst Matthew Marietta.
As Marietta says today's Patterson-UTI (PTEN -7.3%) "well-priced takeout" of Seventy Seven Energy attests, the firm believes M&A in the sector will remain prevalent and continues to see deal-flow potential in well-capitalized companies with technology differentiation or top tier asset quality.
Marietta believes confidence is becoming restored in oilfield services company management teams and that the potential accelerates for the IPO market to heat up.
Flotek Industries (FTK -8.2%) plunges in early trading following a bearish analysis posted on Seeking Alpha that claims the impact of the company's CnF nano-fluid technology on well productivity is "indistinguishable from zero" when using a full data set and controlling for key factors in the oil production process.
Studies commissioned by FTK have been based on incomplete information provided by the company and failed to consider key variables in the oil production process, according to the report by FourWorld Capital Management.
The report says if CnF were repriced to the level of other generic surfactants, FTK's consolidated revenues would fall 20%-30% and adjusted EBITDA would drop from near zero to deeply negative.
FTK released a report in January saying wells in Colorado's DJ Basin that received CnF nano-fluid technology performed better than wells that did not receive the product; it was an attempt to refute earlier criticism that the company manipulated data to exaggerate the effectiveness of its products.
Stephens analysts say “structurally oversupplied crude markets will take more time to balance” even with an OPEC production cut, which makes them reiterate support for their top six picks among oil services stocks: Baker Hughes (BHI +6.4%), Nabors Industries (NBR +22.8%), Schlumberger (SLB +5.2%), Oceaneering International (OII +6.8%), Superior Energy Services (SPN +17.8%) and Flotek Industries (FTK +13.6%).
The firm says the companies "tend to have market leadership, stable balance sheets and/or cash flows, differentiated/diverse products or services or product line leadership.”
Stephens says a production cut and follow-through could justify its base case to high case range for oil averaging $52/bbl in 2017 and $54/bbl in 2018, with low and high cases ~$10/bbl higher or lower in each year.