Oil and gas services company Poseidon Concepts Corp., a Bay Street favourite only a month ago, is leaking value at a rapid pace as it grapples with accounts receivable questions and the threat of an industry slowdown.
Shares in Poseidon have plummeted about 90 per cent since its November earnings, wiping out about $1-billion in value. Earlier Thursday, the company suspended its monthly dividend and warned that "exploration and development activity has slowed considerably," meaning fewer oil and gas explorers need its services.
The drop marks a drastic change of heart from investors. Until November, Poseidon was in solid shape, paying a monthly dividend of nine cents per share, and its stock price held firm around $15 for much of the year. Many analysts predicted it was well-suited for growth. The stock closed at $1.48 in Toronto trading on Thursday, from $13.22 in its last earning report.
Others in the industry have also recently shown signs of stress. Earlier this month, Baker Hughes Inc., another oil field services company, said its revenue for the third quarter would be below expectations in part because of weaker onshore U.S. drilling activity.
Poseidon also said on Thursday it is forming a special committee to probe its accounts receivable, which came into question after nearly $10-million of them were written off in November. At that time, the company also lowered its cash flow expectations by 30 per cent, sending the stock plummeting 62 per cent in one day.
The Calgary-based company, which specializes in "frac fluid handling," first warned in November that the second half of its fiscal year looked gloomy because rig counts are declining and oil and gas developers and explorers were slashing their capital spending budgets – bad news for its tanks, which store liquids needed to extract oil and gas.
Because clients are drying up, Poseidon noted it is battling competitors to drum up business, and that has resulted in serious margin contraction, particularly in the Bakken region and in Colorado and Wyoming.
But its issues with accounts receivable are also a pressing concern. To look into the matter, the company set up a special committee "to review and address various issues arising from the recent writeoff of certain accounts receivable and the evolving business plan."
Noting Poseidon's rivals aren't plagued by the same problem, Alan Boras, a spokesman for the company said "this is very specific about the company, but there is the reality that … we've seen a slowdown in drilling in the last two quarters. There is drilling, but drilling has slowed down."
Mr. Boras would not say whether Poseidon's accounts receivables were overstated or if the company expects difficulty collecting from customers. "Determining that is what the special committee will work to do," he said.
Analyst Michael Mazar at BMO Nesbitt Burns believes "asset value is the best way to value the shares and our estimate of net asset value is in the range of 80 cents to $1 per share." Even though the stock has already lost 90 per cent of its value, "we continue to believe the shares are overvalued at current levels."
Poseidon named Scott Dawson, its chairman, as its new executive chairman in November. Mr. Dawson was previously president and CEO of Open Range Energy Corp., which was split into two separate companies, one of which was Poseidon.
Former CEO Lyle Michalukhas is now the company's chief financial officer, and former CFO Matt Mackenzie is now in a non-officer role.
How much shuffling the executives will matter is to be determined. "In our view, the challenges facing Poseidon, including inadequate systems and processes, declining pricing and margins and accelerating competitive pressures, go well beyond what can be resolved by a simple change in management," noted Mr. Mazar.