Bri-Chem's Q3 2024 Results: Navigating US Drilling Downturn

As an investment consultant, I've been keeping a close eye on Bri-Chem Corp.'s (TSX: BRY) financial performance, particularly their recently announced 2024 third quarter results. The company, a leading North American oilfield chemical distribution and blending company, has faced challenges due to the decline in US drilling activities. Let's dive into their results and explore how Bri-Chem is navigating this downturn.

Bri-Chem's consolidated sales for the three months ended September 30, 2024 were $22 million, an 18% decrease from the prior year. This decline is primarily due to decreased US drilling activities, driven by a lower average rig count. The number of active operating land rigs in Q3 2024 averaged 566, compared to a 2023 Q3 average of 627, representing a decrease of approximately 10% (Source: Baker Hughes).

The decrease in US drilling activities has had a significant impact on Bri-Chem's gross margin, which decreased by $1.1 million compared to the same period last year. This decrease is primarily related to the decrease in sales in the US divisions. Additionally, adjusted EBITDA for the third quarter 2024 decreased by $464 thousand compared to the same period in the prior year, and operating earnings decreased by $951 thousand for the three months ended September 30, 2024 compared to the prior year.



To mitigate the effects of the decline in US drilling activities, Bri-Chem has been focusing on diversifying its product offerings and expanding its presence in the Canadian market. The company's Canadian blending and packaging division generated sales of $4.6 million for the three months ended September 30, 2024, compared to Q3 2023 sales of $3.9 million, representing a quarterly increase of $682 thousand. This increase relates to higher cementing and stimulation activities in Western Canada.

Bri-Chem's strategic focus on its Canadian operations has helped offset the impact of lower US drilling activity on its overall sales. The company's Canadian drilling fluids distribution division generated sales of $3.8 million for the three months ended September 30, 2024, compared to $3.9 million in the comparable prior period. Although there was a slight decrease in sales, this relates to the slowing of sales of select commodity items. The number of active operating land rigs in Q3 2024 averaged 206, compared to 187 in the same period last year, representing an increase of approximately 10% (Source: Baker Hughes).

In conclusion, Bri-Chem's 2024 third quarter financial results reflect the challenges faced by the company due to the decline in US drilling activities. However, the company's strategic focus on its Canadian operations and product diversification have helped mitigate the impact of this downturn. As an investor, I'll be closely monitoring Bri-Chem's future performance, particularly their ability to adapt to changing market conditions and maintain profitability.