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Wednesday, January 20, 2021

C&J ENERGY SRV LTD COM USD0.01 (OTCMKTS:CJESQ) Facing Strong Headwinds

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C&J ENERGY SRV LTD COM USD0.01 (OTCMKTS:CJESQ) is a stock that had been advancing nicely on the strength of the revitalization in the commodities space, most notable in oil and gas pricing. That move has lit a fire under a number of Chapter 11 cases in the oil patch of late, with CJESQ being no exception. However, the stock has suffered a sharp pullback in recent days, in part because the bankruptcy court just ruled on executive bonuses, but mostly because of very negative action in the oil and natural gas markets.

Both oil and gas have recently suffered sharp pullbacks in the past two weeks, with natural gas diving 20.5% and WTI Crude Oil sliding just over 19% in that time. We’ve seen about 20% pared off CJESQ shares during that stretch, with the distributive movement coming on a 17% increase in trading volume, when compared to a 3-month average for transactions.

C&J ENERGY SRV LTD COM USD0.01 (OTCMKTS:CJESQ) trumpets itself as a completion and production services play in the oil and gas industry primarily in North America.

The company provides well construction, well completions, well support, and other oilfield services to oil and gas exploration and production companies. It operates in three segments: Completion Services, Well Support Services, and Other Services.

The Completion Services segment provides hydraulic fracturing, coiled tubing, cased-hole wireline, and other well stimulation services, including nitrogen, pressure pumping, and thru-tubing services.

The Well Support segment offers rig services, such as providing workover and well servicing rigs that are involved in repair and maintenance, completions, re-drilling, and plug and abandonment operations; fluid management services comprising manufacturing, transportation, storage, and disposal services for fluids used in the drilling, completion, and workover of oil and gas wells; and other well site services.

The Other Services segment provides cementing, directional drilling, equipment manufacturing, specialty chemical supply, and research and technology.

The company operates in oil and natural gas producing regions of the continental United States and Western Canada. C&J Energy Services, Ltd. was founded in 1997 and is headquartered in Houston, Texas. C&J Energy Services, Ltd. is a subsidiary of Nabors Industries Ltd.

As noted above, on July 20, 2016, C&J Energy Services, Ltd. filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. It is in joint administration with Nabors Industries Ltd.

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As we have covered quite frequently of late, the oil and gas space has the historical potential to revive bankruptcy cases in a manner not seen in other sectors, with the exception of potentially the industrial metals producers.

The reason is because the valuation of assets below liabilities is the essence of a balance sheet bankruptcy situation. And, in the commodities arena, the value of the liabilities is rarely volatile. But the value of assets changes with action in the commodities futures markets.

For a company like CJESQ, the move in oil from $26 to $52 per bbl so far this year seemed to smack of the juice that can foster a full recovery. But the past two weeks has seen a dramatic reversal in the space.

One of the big drivers there is a loss of confidence in OPEC’s ability to get all the parts and moving pieces working together in signing a fully articulated agreement among members and in coordination with certain key non-members (such as Russia and Mexico) by their next key meeting now just weeks away.

As you may recall, this deal was promised in late September. And the oil market rallied on the promise. But now, as the actual rubber gets nearer to the road, the confidence that fostered the rally is waning, and waning fast.

If no deal can be struck, oil traders will further have to deal with the burden of the fact that many oil producers were likely able to sell forward oil contracts in the mid-$50’s a couple weeks ago. Those hedges will allow the producers to pump a lot more oil down here in the $43-45 area without worrying as much about per barrel net losses.

That makes it less likely that we will see an easy snap back to the upside.

At this time, carrying a capital value in the market of $86.7M, CJESQ has a long and winding path in front of it, which may well not result in any value for common shareholders, as is so often the case in Chapter 11 situations. Perhaps the most important catalyst for this company will end up being the OPEC meeting toward the end of November. We will keep a close eye on it and update the situation very soon. For continuing coverage on shares of $CJESQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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