FTK - Flotek Industries (FTK) - Flotek Leases Out Part of Its Facilities
Flotek announced a long-term agreement with Resolute Oil to lease out its 15-acre blending facility in Waller, TX. Terms of the agreement were not announced. Resolute will use the facility to blend white mineral oil which is used in a variety of industries from agriculture to food to cosmetics. Resolute will have the right to upgrade the facilities (perhaps to manufacture products for Kosher foods) and the option to renew the lease until 2036. The lease should not affect Flotek's current operations. Flotek has six operating facilities. Flotek's other operating facilities are located in Texas (2), Oklahoma, Canada, and Europe. We do not believe the lease of the Waller plant will have an adverse impact on its ability to manufacture its oil service and cleaning products at current levels. By leasing out the facilities instead of selling them, Flotek retains the right to take back control of the plant in 2036 should its current businesses take off. Lease payments should help reduce an expected annual cash drain over the next two years as the company awaits a rebound in drilling activity and a movement towards ecologically-friendly solutions.Partnership could expand the end market for both companies. Flotek and Resolute are familiar with each other even as they serve different product niches. Both emphasize the green aspect of their operations and specialize in providing highly technical manufacturing that can tailor products to individual customer needs. Research advancements at the Waller plant could benefit both companies as their respective customer based expands to new markets.Rating remains Outperform with a $2.50 price target. We view the transaction as a positive one for Flotek although its is difficult to quantify the benefits without financial details. We expect to learn more when the company discusses June-quarter financial results on August 10th (9:30 EST). Until such time, we are maintaining our Outperform rating and our $2.50 per share twelve-month price target. Read More >>