NEW YORK, Dec. 28, 2016 /PRNewswire/ -- Investor
FourWorld Capital Management has issued an open letter to
the CEO of Flotek Industries (NYSE: "FTK", "Flotek"), asking
the company to provide real-world data to support the benefit of
its "crown jewel" fracking additive known as CnF.
On December 7, FourWorld issued a
research report challenging the value of CnF for use in hydraulic
fracturing. Using both granular well production comparisons and a
data-driven regression analysis of performance at more than 600
wells in Colorado's DJ Basin,
FourWorld concluded that CnF (or "Complex nano-Fluids") produced
zero benefit in extracting oil from fracked wells relative to wells
using generic equivalents. The report also questioned Flotek's
repeated statements about increased "penetration" of CnF in the
face of data indicating large declines in users. The full report,
entitled Drilling Down to Zero, can be found here:
http://www.fourworldcapital.com/research/.
Then on December 21 Flotek posted
a letter from MHA Petroleum Consultants, the firm it had
commissioned for its past studies of CnF. MHA produced no new data
or field studies – but defended its support of CnF by citing a
performance metric it previously downplayed in its earlier
reports.
On December 27, FourWorld sent a
letter to Flotek CEO John
Chisolm, urging the company to address a list of
concerns raised by its December 7
report. Among other requests, FourWorld asks that Flotek release a
list of specific well identifiers used by MHA for its reports
touting CnF performance, "so that investors can verify the
results."
FourWorld also requests that Flotek "release a complete list of
trade names for frack fluid additives that contain CnF, so that
independent third parties – operators as well as investors – can
evaluate the performance of the product."
FourWorld further challenges Flotek to refute the findings of a
detailed analysis it produced describing a "rapidly shrinking
customer base" at Flotek, which the Houston-based company has failed to
acknowledge on recent earnings calls with investors.
"After stating at two investor conferences that you would
respond to Drilling Down to Zero, you issued interim
guidance on your operations for the first time since you have been
CEO, but did not address our report in any way," FourWorld
portfolio manager John Addis
writes in his letter to Mr. Chisolm.
"You instead published a letter from MHA which acknowledges that
their previous report on the DJ Basin was misleading, because it
failed to control for operator, lateral length and location, before
summarizing in a single paragraph new results stated in a
mysterious performance metric that MHA downplayed in its previous
report. Neither you nor MHA shared any raw data that could
reveal the miraculous properties of CnF."
FourWorld's letter succinctly restates its harsh view on CnF and
Flotek:
- CnF performs no better as a fracturing fluid additive than
"commodity" products available at a fraction of the cost. The
estimated uplift in oil production associated with using CnF cannot
be distinguished from zero. This fact is readily apparent when you
evaluate a large sample of well completions while controlling for
operator experience, lateral length and location, which any
competent oil professional knows affect oil production.
- The CnF customer base has been shrinking rapidly as both major
operators and smaller independents have stopped using the product.
Sales volumes have been maintained by the purchases of two large
users. A re-pricing of the product that is consistent with its
demonstrated performance and shrinking customer base could make the
business unprofitable.
The full text of FourWorld's letter can be found via link:
https://static1.squarespace.com/static/56f439ff1bbee05ec5ca56d1/t/586275bc37c58129993777f7/1482847676586/Open+Letter+to+John+Chisholm.pdf.
As with its December 7 report, the
letter stays focused on data for its conclusion that CnF brings no
benefit to well extraction.
As of the publication date of FourWorld's report, FourWorld,
and its managed accounts, have a direct or indirect short position
in Flotek stock, and stand to realize significant gains in the
event the price of Flotek stock declines. The consulting firms
hired by FourWorld, and referenced in the report, are receiving a
fee based on the performance of FourWorld's positions in Flotek
stock, and, independent of FourWorld, may have a direct or indirect
short position in Flotek stock. Following publication of this
report, FourWorld intends to continue transacting in the securities
covered herein. The firm may be long, short, or neutral at any time
hereafter regardless of its initial recommendation.
About FourWorld Capital
FourWorld Capital
Management LLC is an SEC registered investment adviser based in
New York. FourWorld focuses on
event-driven investing, with an emphasis on tax, legal and
regulatory catalysts. For more, visit
www.fourworldcapital.com.
Following publication of this report, FourWorld intends to
continue transacting in the securities covered herein. The firm may
be long, short, or neutral at any time hereafter regardless of its
initial recommendation.
Please see the full Disclaimer appearing in the report available
on the FourWorld website at:
http://fourworldcapital.com/research-flotek.
FourWorld Capital Management, LLC is a member of the Financial
Industry Regulatory Authority, CRD number 284138.
Contact: Allan Ripp
212-262-7477 aripp@rippmedia.com
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SOURCE FourWorld Capital Management LLC