The Markets Aren’t a Walk in the Park: ProPetro Inc. IPO

ProPetro Services Inc. is a company that provides services ranging from Oil and gas stimulation, drilling, coiled tubing as well as cementing services. The company provides its clients, who are primarily the owners of oil wells or other mines that could have natural gas with these services. Additionally, the company gives more specific services ranging from tubing conveyed perforating to acidizing services as part of the firm’s stimulation techniques. ProPetro was founded in 2005 and has its headquarters in Texas. Its other offices are located in Midland, Oklahoma and Vernal, Utah. Key executives within the company are Mr. Dale Redman who is the company’s Co-founder and Chief Executive Officer, Mr. Jeffrey Smith who is the organization’s Chief Financial Officer and Mr. David W. Sledge who is the company’s Chief Operating Officer.

On March 7th, ProPetro updated its S-1 form so as to include its new terms for going public. At the time, it targeted $350 million in revenue from its issuance through the sale of 20 million shares. The company went public on 17th March this year. However, things were not as rosy as the company was forced to sell its shares $2 below its expected price range of $16 – $19. It also sold more shares during the release, putting up 25 million shares for sale at $14 per share. At the end of the day, however, ProPetro still had their targeted $350 million.

Underwriters for this offering included Goldman, Sachs & Co., JP Morgan, Credit Suisse, Everscore ISI, Simmons & Company International, Raymond James, Deutsche Bank Securities, Tudor, Pickering, Holt & Co., Johnson Rice & Company LLC and Barclays. The company also had an extra 3.8 million shares available to underwriters as an over-allotment option.

In its plans for how the revenue generated from the release would be used, CEO Dale Redman explained that the firm wanted to use the money to pay the company’s remaining debt under its term loan. Additionally, the revenue would be used to fund the purchase of another hydraulic fracturing unit and for other purposes within the corporation. Notably, the company would not receive any proceeds from the sale of the shares.

On its first day on trading floors, the company began trading under the ticker PUMP. The company’s stock rose to 6.5 percent above issuance price on this day. This was a good sign for investors who had made a move on the company. However, the firm faces various challenges in a bid to expand and continue to consistently incur profits, especially now that it has gone public.

First, despite increased demand for drilling services over 2016, ProPetro’s overall performance declined. The company suffered drops of 23.2 percent in revenue over last year as compared to 2015. Additionally, net losses incurred in 2016 were $53.1 million as compared to a loss of $45.8 million the previous year. The gross margins of the company also suffered a decrease, falling from 15.1 percent to 7.5 percent in 2015.

Also, a total of 47 percent of the shares the company sold in its offering were from insiders. This move shows lack of confidence in the firm’s prospects from the people who are believed to know the company most. The volatility of the Oil and Natural Gas sector should also serve as an additional warning that the company’s stability hangs in the balance. Putting the company’s position in its current conditions and presenting it on the stock market could open up even more challenges. An offering is just the beginning to this company’s marketability. It needs to start seeking improvements; and it needs to do so fast.