Enservco Corp. (OTC BB:ENSV) is an oilfield services company providing well enhancement and fluid management services to domestic onshore E&P companies. Through an organic growth strategy of geographic expansion and capacity additions, the company is generating impressive revenue growth. In early January, Enservco reported preliminary 4th quarter revenues, which were approximately $1.0 million above our expectations. Based on the preliminary revenue announcement for the fourth quarter of 2013, Enservco’s revenues for the full-year of 2013 increased 47% over 2012’s results to $46.3 million, which is quite impressive considering third quarter revenues were adversely affected by flooding in Colorado. Enservco is expected to report financial results for the year ending December 31, 2013 in late March. So far in 2014, Enservco should be benefiting from even stronger demand in it service territories from the continued colder-than-normal winter weather.
During the months of December 2013 and January 2014, management facilitated greater investor awareness of Enservco through road trips to Milwaukee, Chicago, New York City and Boston, along with presenting at the Sidoti Semiannual Micro-Cap Conference at the Grand Hyatt in New York City. During early March 2014, management is hoping to present both at the 26th Annual ROTH Capital Partners conference in Los Angeles and Northland Capital Markets 2014 Growth Conference in New York City.
With management scheduled to present at several conferences during the month of March, the company is expected to release an operational update in early March. With unseasonably cold weather during January and early February and the delivery of newly fabricated equipment expected in this same timeframe, the operational update is expected to be upbeat.
The company continues to expand service capacity through the procurement of newly fabricated equipment. During 2012, Enservco purchased and fabricated five double-burner frac heating units, two hot oil units and two water hauling trucks under a $3.7 million capital expenditure program. During 2013, management initially allocated $4.7 million in capital expenditures toward fabricating new equipment (two double-burner frac heating trucks, six single-burner frac heating trucks, four hot oilers and a well acidizing truck). Four hot oilers and three frac heating trucks were delivered in the third quarter of 2013. The fabricator of the equipment is based in Colorado; as a result, equipment deliveries for the remaining units under the initial order were delayed until the first quarter of 2014, at first due to flood damage and later by abnormal cold temperatures. In the meantime, the company leased three frac heating units through the end of the season to help meet the current strong demand.
In addition, PNC Bank approved an additional $4.0 million in capital expenditures, which is being funded by a $3.0 million equipment term loan from PNC Bank and $1.0 million received from recent warrant exercises. The expanded capex program is directed toward the fabrication of four hot oiling trucks and up to four additional frac heating units. Therefore, during 2013, a total of $8.7 million was committed toward capacity expansion, which management projects should generate an incremental $14 million in revenues annually when the equipment is fully deployed.
Enservco’s existing customers have announced major 2014 capital expenditure plans: Noble Energy plans to invest $2.0 billion (or 40% of its total capex program) in the D-J Basin during 2014, while Anadarko Petroleum plans increase the number of D-J Basin wells drilled by 33% to 400 wells. Having allocated approximately $500 million for the Utica shale play during 2013, Gulfport Energy has budgeted between $594 million and $634 million for the drilling of 85 to 95 wells in the Utica play during 2014. EQT Corp. plans to spend $1.2 billion to drilling more than 200 wells into the Marcellus and Utica formations in the Appalachian Basin, up from $860 million in 2013.
One of management’s goals is to pursue an up-listing. By the end of January, the company stock had traded above $2.00 per share for 10 consecutive days, which would allow the company to file for an up-listing, having fulfilled the quantitative listing standards (under standard 3) of the NYSE MKT Exchange, along with a market capitalization above $50 million with a public float over $15 million and shareholders’ equity above $4 million.
Enservco continues to expand geographically into additional domestic oil & gas basins. During the third quarter of 2013, at the request of several existing customers, the company’s service territory expanded to Wyoming's Powder River and Green River Basins. Enservco was commissioned for year-round hot oiling work in the Green River Basin by one of the region's largest operators; this program alone potentially could add annual incremental revenue annually of more than $4 million. A new service yard has been opened in Rock Springs. Management expects to initially serve approximately 10 new and existing customers with a master service agreement (MSA) having already been signed with a new customer in the region.
We reiterate our Outperform rating and raise our target to $2.65, which is based on price-to-sales (P/S) and enterprise value-to-EBITDA (EV/EBITDA) valuation methodologies. Enservco is a small-capitalization company with a growing revenue profile that should continue to expand as management invests in the underlying businesses, deepens the company's presence in existing markets and expands into new service territories. The target was determined after e valuating the current price-to-sales and EV/EBITDA of comparable companies.
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