Source Energy Services Ltd (SHLE-T)

Small oilfield services company.
Large supplier of frac sand to energy business.
Long term contracts that have recently rolled over at higher price.
High debt levels are coming down.
Cash flow being used to increase balance sheet strength.

(A Top Pick January 5/18 Down 68%) He sold out of this around $8-$9 per share. The frac sector has been devastated and he admits this was a bad call, although he thought Canada would be insulted from the crash. A badly timed acquisition further hurt the position – he has lost confidence with management.

(A Top Pick November 15/17 Down 54%) He was disappointed with this company did an acquisition, which eliminated the free cash flow position. He would prefer other names today.

(A Top Pick Nov 15/17, Down 47%) Management was a little optimistic when they did their financing and last acquisition. None of the forecasts were close to the mark from 9 months ago.

This is a Canadian fracking sand company. He believes it’s a name that will be stuck in the penalty box for a while. They set expectations too high when they came to market, and then suffered from rail congestion and severe weather. There’s probably no good news coming until the Fall. There will probably be another couple of poor quarters.

Dominates about 60% of Canadian frac sand. Despite the concern on ECO which is creating opportunity on Canadian services, a specialist put out an estimate on frac sand demand growing from 6 million tons last year, to about 8 million tons this year and 10 million tons next year. This company is 60% of the market, and because demand is growing so strongly they are increasing pricing. Thinks margins will hit $50 relatively soon. Trades at a 20% discount to its US peers. (Analysts' price target is $14.)

A provider of sand, but thinks of them more as a logistics company. That’s their competitive edge. Very strong barriers to entry. They are fully integrated from the mine right to the well site. Looking at the frac sand dynamics in Canada, Canadian companies are lower down in the learning curve in their adoption of using more and more sand on a per well basis. The dynamic for sand, where you have got our sand market probably growing by 50% a year, this company has 60% market in Canada. (Analysts’ price target is $14.)

The primary long way to get exposure in the Canadian frac market of larger companies. He likes management. They are a transportation advantage within Canada, and are roughly 40% of the Canadian frac sand market. Some of the big, big wells going on in the Permian literally use 100-200 railcars for a single well. The only hindrance is that there is still a large private equity component to it, which will act as an overhang. Any time the stock rallies, there will always be a kind of concern that there will be a secondary coming into the market.