20150122 Temasek’s $2 billion investment in FTS International a wipeout soon?

In April 2011, Temasek invested $2 billion in FTS International (previously Fra Tech Holdings LLC), an oilfield services (for shale gas) company.

Temasek’s $2 billion investment in FTSI was essentially also a bet on high oil price which has recently collapsed.

According to one estimate, the breakeven price of shale gas production is when oil is about US$73 per barrel. With oil price currently below US$50 per barrel, shale companies are forced to scale down its costs and production.

During the oil boom, shale companies have borrowed some US$200 billion in bonds and loans for development and projects in the expectations of big returns. With crude oil prices collapsing, Texan billionaire, Ross Perot Jr, has predicted 20% to 30% of US shale industry would shut down if prices go below US$40 per barrel.

Plummeting oil prices has claimed its first bankruptcy victim. WBH Energy LP, one of the hundreds of shale companies, filed for bankruptcy with estimated debt of between $10 and $50 million because its lender refused to extend more loans.

With oil companies cutting costs, scaling down on production or closing shop, the profitability of FTSI will be severely impact. Since FTSI incurred a loss of US$1,816 in FY 2012 and US$1,,692 in 2013, with current oil prices, FTSI may actually become insolvent.

FTSI losses in 2012 and 2013

Source

Shareholder equity fell 40% from US$3,733 million in 2012 to US$2,277 in 2013. In 2014, it fell 74% to US$586 million. 2015??

Temasek has a 41% stake in FTSI but appears to have no exit plan. Guess our $2 billion investment may soon be another wipeout.

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