Type: Public Company
Address: 7030 Empire Central Drive, Houston, Texas, 77040, U.S.A.
Telephone: (713) 849-9911
Fax: (713) 896-4511
Web: http://www.flotekind.com
Employees: 157
Sales: $100.6 million (2006)
Stock Exchanges: American
Ticker Symbol: FTK
Incorporated: 1985
NAIC: 213112 Support Activities for Oil and Gas Operations
SIC: 1382 Oil & Gas Exploration Services; 1389 Oil & Gas Field Services Nec
Flotek Industries Inc. is an American Stock Exchange-listed company based in Houston, Texas, primarily serving the oilfield and mining industries. The company is organized around three business segments: downhole production equipment and tools, specialty chemicals, and transload and facility management services. Flotek's downhole (inside an oil or gas well) business is split between two main product lines, the Petrovalve line of pump valves and the Spidle Turbeco line of drilling tools and casing accessories. Flotek's flagship product, Petrovalve, is a proprietary product that was developed to replace the ball-and-seat valves that had been a standard component in downhole sucker-rod pumps for more than 80 years. The superior design of Petrovalve results in better pump performance and extended service life as well as lower operating costs. The Spidle Turbeco subsidiary designs, manufactures, and maintains downhole drilling tools used in the oilfield, mining, and waterwell industries. Drilling tools include bits, hammers, keyseat wipers, mills, reamers, and stabilizers. Casing accessories include slip-on centralizers, integral joint centralizers, external casing packers, and shaker screen. Flotek's specialty chemical business is conducted through Oklahoma subsidiary Chemical & Equipment Specialties, Inc., doing business as CESI Chemicals. The company offers well stimulation additives and chemicals, and a line of cementing products to control well loss and other concerns. CESI also provides oilfield blending services for both dry and liquid products. Another Flotek subsidiary, Material Translogistics, Inc. (MTI), provides the company's transload and facility management services. Based in Louisiana, MTI provides consulting to oilfield service companies as well as management services for automated bulk handling and loading facilities, which transfer products from rail cars to trucks to oilfield ports for shipping.
Canadian Incorporation: 1985
While Flotek did not begin to hit its stride until the late 1990s, the foundation for the company was laid a dozen years earlier in Canada. On May 17, 1985, Flotek was incorporated under the laws of the Province of British Columbia. Based in Vancouver the oilfield services acquired Houston's Petrovalve International Inc. in December 1992 for about CAD 720,000. Petrovalve then began a 30-month CAD 1.2 million joint research project with the Alberta Research Council to improve what was then called the Petrovalve Plus Bottom Hole Pump Valve System. Improvements were made to the design as well as the valve's metallurgical characteristics.
The traditional valve was fraught with problems, providing an opening for a new system. According to Oil & Gas Investor, standard ball-and-seat valves "allow fluid to flow through when the ball is energized in a direction opposite to the seat, and seal when the ball is energized against the seat. Because the ball careens wildly in the pump chamber when fluid passes it, the ball is subjected to extensive wear caused by metal-on-metal contact." As a result, these valves had short life spans, leading to expensive pump repairs. Moreover, the ball cost producers in other ways, restricting flow in high-volume wells and hindering production. The Petrovalve device, according to Oil & Gas Investor, featured "a plunger shaped like a hemisphere, penetrated by a stem which projects vertically above and below. The movement of the plunger is constrained so that it seats itself center on center." Limited movement resulted in less wear and tear, thus extending the life of a pump and lowering production costs. In addition, because the plunger was much smaller than the ball, it did not restrict flow as much, again to the benefit of producers.
Acquisition of Turbeco: 1994
In addition to oilfield industries, Flotek looked for other applications for the product. In late 1993 a stake was taken in Canadian Agtechnology Partners Incorporated (CAP), which also received an exclusive license to use Petrovalve technology for water well pumping applications. A few months later, in February 1994, Flotek acquired the rest of CAP. The company then looked to diversify further in 1994 by acquiring Turbeco Inc., a seven-year-old Houston oilfield services company founded by William G. Jayroe, the addition of which established Flotek's slate of drilling products. The unit drew its name from its primary product at the time, the Cementing Turbulator. The Turbulator was a sleeve placed over a drill pipe before cementation was done in a newly drilled well, its main purpose to prevent mud from hindering the work.
While the Petrovalve system was being refined, Flotek began doing spadework in marketing the product in Canada and the United States. Jayroe was named president of USA Petrovalve, Inc., responsible for introducing Petrovalve to U.S. oilfields. Flotek also targeted Venezuela, establishing a small test program on some of the country's wells. The company's marketing efforts were helped a great deal when Flotek made a splash with the Petrovalve product at the annual Offshore Technology Conference held in Houston in early May 1994. Entered in the annual Technology of the Year competition sponsored by the International Petroleum Association, Petrovalve was ranked among the top 20. Given that the product was competing for the first time, this performance caught the attention of oilfield companies around the world. Less than a month later Flotek announced the opening of offices in Venezuela, where Petrovalves were being ordered in an advanced testing phase for 127 pumping wells in 14 oilfields in the Orinocco Belt, which contained more than 9,000 pumping wells. Early results revealed production increases that ranged from 35 percent to 200 percent. Given that the 14 oilfields represented just half of Venezuela's total capacity, the sales potential for Petrovalve was promising. In addition, the system was being tested elsewhere, including South Texas' Austin Chalk area, Alabama's Black Warrior Basin, New Mexico's San Juan Basin, and California's Kern County.
The obvious advantages offered by Petrovalve began winning over producers. In April 1995 three of the company's customers adopted the technology as the standard for their U.S. operations after testing the new valve under a number of field conditions. The independent companies included WRT Energy Corporation, Equinox Oil Company, and J.M. Huber Corp. Although generating sales of CAD 3.2 million from operations in Canada, the United States, and Venezuela in fiscal 1995 (the fiscal year ending February 28), Flotek was not on a solid financial footing, saddled with excessive debt taken on during the development of Petrovalve and in need of a change in direction. The company's chairman and chief executive officer, William R. McKay, was replaced by Jayroe and the company's headquarters was moved to Houston while the Vancouver office was closed. The company's incorporation was also transferred to the Province of Alberta. A bid to gain a listing on the NASDAQ failed, however, and the company's shares continued to trade on the less prestigious Vancouver Stock Exchange.
Jayroe brought some improvements to Flotek, selling CAP and taking other steps to trim debt. He also restructured the company's capital and sought to improve the company's marketing efforts. Sales grew to CAD 4.4 million in fiscal 1996 but improved only modestly to CAD 4.6 million in fiscal 1997, as the company continued to post net losses: CAD 4.5 million in fiscal 1996 and another CAD 4 million in fiscal 1997. The company's accumulated deficit ballooned to CAD 19 million.
New Chairman and CEO: 1998
A new chairman and CEO, Jerry D. Dumas, Sr., was installed in September 1998, marking the turning point for the fortunes of Flotek. A graduate of Louisiana State University, Dumas brought a wide variety of experience to the job. He was a seasoned energy executive, having served as a group division president of Baker Hughes Tool, and president of HydroTech International, involved in the offshore pipeline construction business. In addition, Dumas, prior to joining Flotek, worked for Merrill Lynch, acting as vice-president of corporate and executive services for the firm's private client group.
Dumas shored up Flotek's finances, arranging new financing and voluntarily delisting from the Vancouver Stock Exchange, a move that saved on filing fees and regulatory expenses. The company was poised for expansion. In July 1999 Flotek acquired Trinity Tool, Inc., to beef up its Turbeco business. Two years later, in June 2001, Material Translogistics, Inc., (MTI) was added, providing another revenue stream. Six months later MTI won an important contract to provide a major oilfield service company with a transload facility in Raceland, Louisiana, a facility that could also be used to service other stimulation and drilling material companies.
Completion of CESI Merger: 2001
An even more important transaction was completed in October 2001 when Flotek and Duncan, Oklahoma-based Chemical & Equipment Specialties, Inc., (CESI) were merged. Prior to the completion of that deal, Flotek was reincorporated in Delaware and shareholders approved a 120-to-1 reverse stock split, a move that reduced the number of shares available for trading and increased the price, thus giving it more prominence to potential investors. Not only did CESI cater to the oilfield industry with chemicals for cementing and stimulation, it also manufactured such specialized equipment as nitrogen pumpers, cement mixing units, and fracturing pumpers and blenders. Moreover, CESI complemented MTI, offering engineering services to oil service companies for the design and construction of bulk material handling and loading facilities.
Following the CESI merger, Dumas and his management team decided to focus their efforts on three oilfield industry segments: downhole production tools, downhole drilling tools, and specialty chemicals. Within the specialty chemical area, Flotek elected further to concentrate on more profitable value-added niches, primarily cementing, stimulation, acidizing, and fracturing. Later the company branched into production chemicals, such as capillary foam additives. CESI's capabilities were supplemented in 2002 with the acquisition of Denver-based IBS 2000, Inc., maker of environmentally neutral chemicals for the oil industry.
Flotek began growing revenues in the early 2000s. Sales increased from $11.34 million in 2002 (the fiscal year coincided with the calendar year) to $18.4 million in 2003, but the company continued to post net losses: $5.4 million in 2002 and another $7.4 million in 2003. The corner had been turned, however. In 2004 revenues approached $22 million and the company netted $2.2 million. Business was even stronger in 2005, as Flotek more than doubled sales to $52.9 million and net income jumped to $7.7 million. Much of that growth was the result of a deal made in late 2004 and completed in February 2005, the $8 million acquisition of Spidle Sales & Services Inc., that greatly enhanced Flotek's Drilling Products Group. Based in the Rocky Mountain region, the company was founded by its president, Agee Spidle. It was a downhole tool company serving energy, mining, water, and industrial drilling clients in North and South America, Europe, Asia, and Africa. The addition of Spidle benefited Flotek on several fronts: It added new products, increased market penetration, expanding the company's geographic footprint, and opened up new cross-selling opportunities between Flotek's specialty chemicals and downhole production equipment business. Also in 2005, Flotek acquired assets related to oilfield shale shaker screen from Phoenix E&P Technology, LLC, and the assets of Harmons Machine Works, Inc., a downhole oilfield and mining tool company based in Midland, Texas. In August 2005, Flotek added another Texas company, Precision-LOR, Ltd., a drilling tool rental and inspection service company.
American Stock Exchange Listing: 2005
Flotek's increasing revenues paved the way for Flotek's stock to jettison its over-the-counter status. In July 2005 Flotek shares began trading on the American Stock Exchange. Revenues topped the $100 million mark in 2006 and net income grew to $11.35 million. The company's aggressive growth continued in 2007 with the $31 million acquisition of Triumph Drilling Tools, a downhole equipment rental company; the $18.5 million purchase of Houston-based Cavo Drilling Motors, which offered a line of mud motors used by drillers; and the $7.1 million purchase of Sooner Energy Services Inc., a Norman, Oklahoma-based specialty chemical company.
Flotek's revenues and profits were on a record pace in 2007, leading the company to declare a 2-for-1 stock split in the summer. At the end of the year the company filed to be listed on the New York Stock Exchange. The company had barely scratched the surface of its potential, especially on the international scene. Given that energy prices were not likely to fall in the near term, Flotek's prospects looked promising for years to come.
Principal Subsidiaries
Chemical & Equipment Specialties, Inc.; Materials Translogistics, Inc.; Petrovalve International, Inc.; Turbeco, Inc.
Principal Competitors
Baker Hughes Incorporated; The Lubrizol Corporation; Omni Energy Services Corp.
Further Reading
"Flotek Industries Inc.," Oil & Gas Investor, August 2005, p. 54.
"Flotek Industries Inc.," Oil & Gas Investor, August 2006, p. 50.
"Flotek to Buy Spidle for $8 Million," Houston Business Journal, December 21, 2004.
Goldsmith, Jill, "Flotek Seeks Nasdaq Listing; New Valve Helps Pump Oil Faster," Dow Jones News Service, October 18, 1995.
Leach, W. H., Jr., "Nuts, Bolts and a Better Valve," Oil & Gas Investor, May 1995, p. 31.
Page, David, "Chemical & Equip. Specialties to Merge into Flotek," Oklahoma City (Okla.) Journal Record, August 17, 2001.
— Ed Dinger
