Like GasFrac, Xtreme has a technology edge
–
they use the largest coil tube drilling equipment
in the world.
Already in use for just over a decade,
I see
the use of
coil tube drilling increasing
dramatically in the coming years, and Xtreme is positioned as one of the best companies in the
world to benefit from that.
A picture tells 1000 words and on the next page you will see
what a coil tubing drill rig looks like
vs a conventional derrick
.
It’s
a long continuous tube of drill pipe that bends, as opposed to a
using hundreds of 30 or 45 foot sections of pipe.
T
he big benefits for the industry are that it can “rig up” and “rig down” much faster than
conventional drills. It’s faster, safer, uses few
er men on a drill crew and can control the
pressure in a well much better than using conventional hard drill pipe.
And then this management team took all those benefits and engineered them, and engineered
them
more, all the while applying for
–
and receiving
–
patents on their
engineering
innovation.
I’ll get into that in more detail.
I expect the increasing d
emand for coil tubing will keep
Xtreme adding new rigs
to their fleet
,
but they are also getting into
two new verticals
–
well servicing and MINING. The
y have
a joint
venture
with a major mining company
that could go commercial as early as next quarter.
However, the company’s recent Q1 top and bottom line did not show the growth the market
was expecting
–
bad news for me on the $4.75 financing but great news for new investors
looking at the stock here at $4.10.
Trading Symbols:
XDC
–
TSX
Share Price:
$4.
11 (my price $4.75)
2010 Revenue:
$
85.46 million
2010 EBITDA:
$22.1 million
Net
Cash:
$
15
million
Shares Outstanding:
63,8
79,000 (post financing
)
Market Cap:
$
262,542,690
POSITIVES
–
leader in what I see as big trend
–
coiled tubing drilling
–
clear competitive edge x 2
–
1.
they go deeper/longer than others, and
2.
patents
–
mgmt
is diversifying income
streams
with
potentially much higher margins in new sectors
–
mining and well servicing initiatives
–
stock is tightly held
–
so it can move on good news
–
work in Saudi Arabia impressing major partner and customer
–
high utilization r
ate
–
13 of 16 rigs contracted out
NEGATIVES
–
mostly US business means a currency loss on financials
–
concentrated customer base
–
3 clients are 85% of the business right now
–
before Q1 #s they had a
high valuation due to high growth curve
–
any delay
in growth will
prick that balloon
(it got pricked on Q1)
–
Q1 2011 was steady but not great
–
stock chart
WHAT IS COIL TUBING DRILLING AND WHY ITS USE
IS
INCREASING
Regular, normal drilling involves a big derrick that has to manually put 30 foot or 45 foot
sections of hard steel pipe down the well bore. Coil tube drilling, or CTD, is one continuous long
section of
steel
pipe that is uncoiled off a spool
and went down the hole behind a Bottom Hole
Assembly (BHA). The BHA is what
turns; does the drilling.
CTD can’t turn like regular steel drill
pipe does.
CTD has been around for
15
years in Alberta, but really started to get used in the shallow gas
boom there, and are now over 25% of the market.
