Oil services firm FTS International withdraws IPO
(Reuters) - U.S. oilfield services company FTS International on Wednesday officially pulled its plan for an initial public offering as the market for its hydraulic fracturing services remains soft and shows few signs of improving soon.
The entire oilfield sector has been weighed down by an influx of new U.S. pressure pumping equipment, which is used in fracking to extract oil and gas from shale rock.
"The company has determined not to pursue the sale of the securities covered by the registration statement," Greg Lanham, the company's new chief executive, wrote in a letter to the U.S. Securities and Commission.
Singapore sovereign wealth fund Temasek Holdings TEM.UL holds about 40 percent of FTS, while Chesapeake Energy Corp (CHK.N) owns a 30 percent stake.
The letter from Lanham did not include a reason for the IPO withdrawal, but the company -- formerly known as Frac Tech -- cited market weakness in June when it said it would postpone its IPO for the foreseeable future.
Then, earlier this week, Standard & Poors reduced its FTS earnings outlook due to the industry's excess capacity and high costs, while cutting its FTS debt rating a notch and assigning a "negative" outlook due to potential debt covenant breaches.
S&P said FTS's gross margins had dropped to below 20 percent in the third quarter from more than 50 percent in the first half of 2011. "Although we had anticipated a slight recovery in the fourth quarter of 2012, accelerating into 2013, we have pushed out our recovery expectations to mid-to-late 2013."
The Fort Worth, Texas-based company's full exposure to the fracking business, unlike more diversified larger rivals Baker Hughes Inc (BHI.N), Halliburton Co (HAL.N) and Schlumberger (SLB.N), have left it vulnerable in a downturn, S&P said.
A few tougher covenants will kick in through 2014 that present a risk of breach for the company, which has established a $175 million "cure" basket to be drawn upon to meet any earnings shortfalls next year, S&P said on Monday. The rating service had already anticipated no IPO for FTS until late 2013.
Having shelved its first IPO plan in the first half of 2011, the company refiled for an even larger share sale in September of last year while reporting revenue growth of 143 percent for the first half. The market then turned quickly as a result of the natural gas glut weighing down prices in North America.
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