BAY STREET-Oil industry frackers poised to outperform again

* Shares of high-flying fracturing companies have stalled

* Drillers now outperforming fracking stocks

* U.S. rebound by stocks may move to Canada

* Fracking services in high demand, earnings growing

By Scott Haggett

CALGARY, Alberta (Reuters) – The companies behind the high-tech rock fracturing techniques that have revolutionized the oil and gas industry have seen their shares stall after eye-popping gains in 2010.

They may just be taking a breather.

There are three Canadian companies listed on the Toronto Stock Exchange that offer the multistage fracturing that has made tapping vast shale reserves economic for energy companies and boosted production from conventional oil reserves for the first time in a decade.

Trican Well Service Ltd, Calfrac Well Services Ltd and Canyon Services Group Inc are in the business of providing the fracturing — or fracking — services that oil companies are increasingly relying on to tap new reserves.

Shares in all three handily beat the 14 percent rise in the Toronto Stock Exchange’s benchmark index last year. Trican, the largest operator, rose 45 percent, while Calfrac was up 52 percent and Canyon, the smallest of the three, saw its share quadruple.

But 2011 has not been quite as kind. Though they’ve outperformed a year-to-date rise in the TSX of less than 1 percent, the three pressure pumpers, as they’re known in the oil and gas industry, have underperformed other companies in the oil and gas drilling sector that compete for investor dollars.

So far this year, Trican is up 9.2 percent, while Calfrac has posted a 2.6 percent gain. Canyon, whose C$927 million ($946 million) market capitalization is just 28 percent of Trican’s, has offered the greatest reward, with a 34 percent rise.

But those gains are looking paltry next to the drilling companies. Shares in Precision Drilling Corp and smaller rival Trinidad Drilling Ltd are up by more than half this year as the industry recovers from the recession and their energy industry customers rush to boost oil production while crude prices are high.

“Year to date, the pumpers haven’t done all that well while the drillers have outperformed,” said Kevin Lo, an analyst with FirstEnergy Capital.

The performance of the pressure-pumpers’ shares relative to the drillers isn’t because the environment has turned against them. Their services are in high demand and the growth in earnings — Trican’s first quarter profit rose 48 percent — isn’t expected to abate.

Analysts say the fracking companies’ stock growth began to falter late in 2010 on concerns from U.S. investors that the industry there would soon have too much capacity.

But demand for fracturing services in Canada is strong and may get stronger. Earlier this week the Canadian Association of Oilwell Drilling Contractors raised its estimate for the number of wells drilled in Canada this year by 11 percent to 13,128.

Many of those wells will be hunting for oil in the Saskatchewan portion of the Bakken field or in the Cardium and Viking fields in Alberta, all of which need the multistage fracking technology.

“As long as we are seeing oil prices in the $85 to $100 a barrel range there’s going to be demand for these resources,” said John Tasdemir, an analyst with Canaccord Genuity.

As well, the move to shale-gas joint ventures like the one agreed to on Thursday that saw Malaysia’s Petronas pay C$1.07 billion for a stake in some of Progress Energy Resources Corp’s British Columbia shale gas holdings , one of a host of such deals, means that future demand will be high as well.

Investors have yet to again reward the Canadian pressure pumpers with the higher multiples they had last year.

Tasdemir said the companies’ shares were being priced as high as seven times their expected earnings before interest, taxes, depreciation and amortization, or EBITDA. Now that multiple is closer to five times EBITDA.

Still, he is bullish on the fracking companies, expecting that a recent rebound in the shares of U.S. pressure pumpers will soon be seen in Canada as well.

“The Canadians are just lagging behind a little bit,” he said.