1. Investment Thesis
This is a long-term emerging markets
growth play at the beginning of its
economic cycle. They currently have
approximately a $33 million market cap and
trading volume around 5,000 shares per
day. It’s current market position makes it
unattractive to institutional clients however
I believe it has the technology and the
position to capture market share and
become a leader in their area of operations.
Description
EcoStim is an oil well services company that
operates in the Argentina market. They
provide pressure pumping, coil tubing and
field management services to E&P
companies on the Vaca Muerta Shale,
noted to be the third largest shale in the
world. The company is managed by an
experienced team and is based out of
Houston TX.
Technology
EcoStim has advanced technology that
drastically reduces the operating costs of
traditional pressure pumping process. Their
TPU’s or turbine pumping units can deliver
4500HP, similar to traditional units
however, these units run on 100% natural
gas, which can be pumped at the wells.
Each unit is only 800 pounds, making the
transport easy and cost efficient. Currently
they have one crew working and as noted in
the first quarter conference call,
management has had to turn away
customers because of it. They anticipate to
have their second full crew up and running
by August 1st and that should bring the
1 Noted on their first quarter 2016 earnings
results.
amount of HP available to approximately
50,000 compared to the current 22,000.
The second innovation that EcoStim is using
is a seismic data technology that identifies
“sweet spots” in well stages, allowing
producers to reduce or eliminate costs
associated with non-producing stages. The
new tech has led to higher R&D expenses
but has declined on a q-q basis and we
should see this positively impact future
earnings. The tech improvements,
consisting of fiber optic diagnostic tools,
should eliminate any human error during
pressure pumping operations.
Operations
There are large scale production companies
that operate in Argentina, which include
Conoco Philips, Shell, Exxon Mobil and BP.
They have already done work for PCR, Oil
Stone, Medanito and YPF. YPF has been
their largest source of revenue to date,
displaying some investment risk, however
they are currently in “advanced discussions”
with one of the largest privately owned E&P
companies currently operating in
Argentina1. Also they have disclosed
expansion of their customer base of 4 new
customers and the CEO has noted the are at
a point where they are operating at
maximum capacity with their one pressure
pumping crew.
With the price of oil being pegged at $67.50
per barrel and gas at $7.50 in Argentina the
risk of volatility in commodity prices is
reduced. It was also noted that if global
prices begin to rise beyond the fixed price,

2. the price stabilization will be removed.
Additionally, the new administration is pro-
business and within the first 100 days in
office the president has removed currency
restrictions allowing a freer flow of capital
into the country.
Currently they service only conventional
wells but with the onboarding of their
second crew they will be able to start
servicing unconventional wells. Their
unconventional pumping fleet is noted as
being able to pump up to 25 stages per
month at $400,000 per stage. That is their
capacity however to be conservative I cut
that number in half for revenue forecasts
because of the inexperienced crew. I think
by early next year they will be able to have
the new crew well trained and bring on an
additional crew to expand their fleet
organically.
Valuation
As of May 26th, 2016 the company was
awarded a new well stimulation and coiled
tubing contract for the remainder of 2016
with on the of largest privately owned oil
and gas operators. This is good news for
investors because they are beginning to
gain more traction in their market and with
the onset of the second and third crews the
loss from operations should begin to
reverse. Using the revenue results for their
first year of operations, 2015, and their
ability to grow quarter over quarter at an
average rate of 48%. Moving forward with
the onset of additional crews the
equipment already in place they should be
able to expand their topline.
Stock Price $2.48
Shares(MM) 13.58
Mkt Cap $33.68
Cash ($MM) 10,259
Debt 24,701.1
NetDebt 14,442.10
Revs(Annualized)
2015A 13.8
2016E 15.3
2017E 67.318
Valuation
2015 P/S 2.4x
2016E P/S 2.2x
2017E P/S 0.5x
Target Multiple
2017E P/S 1.0x
Target Price $4.96
The chart above shows an intrinsic
valuation based on the firm value and its
average weighted shares outstanding.
Summary
EcoStim is an emerging markets play with
an experienced management team in place.
As they gain traction in the Vaca Muerta,
operating efficiencies begin to develop and
oil productivity begins to pick up I expect to
see substantial profit potential and growth.
The company is still in its infancy but could
become a leader with its technological
advancements that reduce emissions and
run cheaper than traditional service
equipment.