Here's What Sank Flotek Shares Today

Shares of Flotek Industries Inc FTK traded down more than 4 percent on Wednesday after investment firm FourWorld Capital Management issued an open letter challenging the company’s CEO to provide data that supports the use of its fracking additive CnF.

About CnF

Flotek’s “crown jewel,” Complex nano-Fluid^® or CnF, is a surfactant used in hydraulic fracturing. The company has argued that the technology is “more effective than traditional surfactants as well as environmentally responsible.”

However, FourWorld conducted a study at more than 600 wells in Colorado's DJ Basin, using granular well production comparisons and a data-driven regression analysis of performance, and concluded that CnF did not generate higher extraction levels when compared to generic, “commodity” and much cheaper equivalents. The full report can be found following this link.

Back And Forth

In response to FourWorld’s report, Flotek posted a letter from MHA Petroleum Consultants, a firm that had studied the technology in the past, defending the product.

Nonetheless, FourWorld’s press release assured, MHA provided “no new data or field studies,” citing instead “a performance metric it previously downplayed in its earlier reports.”

Not satisfied with this answer, FourWorld sent a letter to Flotek’s CEO John Chisolm, asking him to “release a list of specific well identifiers used by MHA for its reports touting CnF performance,” in order for investors to be able check the results. Moreover, the firm requested the “release a complete list of trade names for frack fluid additives that contain CnF, so that independent third parties – operators as well as investors – can evaluate the performance of the product.”

Disclosure: “As of the publication date of FourWorld's report, FourWorld, and its managed accounts, have a direct or indirect short position in Flotek stock, and stand to realize significant gains in the event the price of Flotek stock declines. The consulting firms hired by FourWorld, and referenced in the report, are receiving a fee based on the performance of FourWorld's positions in Flotek stock, and, independent of FourWorld, may have a direct or indirect short position in Flotek stock. Following publication of this report, FourWorld intends to continue transacting in the securities covered herein. The firm may be long, short, or neutral at any time hereafter regardless of its initial recommendation.”