Un­der pres­sure

Oil­field ser­vices M&A picks up as bat­tered drillers seek lower costs, scale

Cape Breton Post - - News - BY DAN HEAL­ING

Cana­dian drillers and other oil­field ser­vice providers have stepped up merger and ac­qui­si­tion ac­tiv­ity, with more deals ex­pected in com­ing months, as play­ers bat­tered by more than two years of weak oil prices look to lower costs and strengthen fi­nances by scal­ing up.

Crude prices have sta­bi­lized from the lows of early 2016 and the big en­ergy com­pa­nies that hire drillers are in­creas­ing spend­ing from de­pressed lev­els. That has spurred some drillers and re­lated ser­vice com­pa­nies to re­hire staff and re­de­ploy equip­ment af­ter cut­ting costs to the bone dur­ing the down­turn.

But many still find it tough to raise cap­i­tal, in­creas­ing the pres­sure to do deals, said Alf Sailer, man­ag­ing di­rec­tor of M&A ad­vi­sory ser­vices for ATB Fi­nan­cial.

“The pace of M&A trans­ac­tions, it re­ally has picked up,” said Sailer, who sees the trend con­tin­u­ing.

“The lenders are still ner­vous about oil­field ser­vice com­pa­nies and the eq­uity in­vestors are also still ner­vous. We’re not see­ing ei­ther of those warm up to the oil­field ser­vices busi­ness yet.”

Source En­ergy Ser­vices (TSX:SHLE) and STEP En­ergy Ser­vices (TSX:STEP) re­cently raised money in ini­tial pub­lic of­fer­ings that fell short of ex­pec­ta­tions, Sailer said, not­ing both have since traded at less than their IPO prices.

On Mon­day, Cal­gar­y­based Se­cure En­ergy Ser­vices (TSX:SES) said it will pay $26 mil­lion in a cash-and-shares deal for smaller ri­val Ceiba En­ergy Ser­vices, which had an­nounced a re­view of al­ter­na­tives last fall. In­terim Ceiba CEO Ron Sifton said the com­pany de­cided it was too small to com­pete prof­itably in the oil­field dis­posal busi­ness and its de­pressed share price meant it couldn’t raise eq­uity to grow big­ger. Adding debt was not an op­tion.

“Our bal­ance sheet was tapped out,” he said.

Driller CWC En­ergy Ser­vices (TSX:CWC) an­nounced a sim­i­lar process this month to find a way to grow again while re­duc­ing its high level of debt.

“We’ve come through two, two-and-a-half years of just sit­ting and try­ing to fig­ure out how to sur­vive,” said CEO Duncan Au.

The re­cent con­sol­i­da­tion trend started with a low-pro­file swap. Canada’s largest drilling rig con­trac­tor by mar­ket cap­i­tal­iza­tion, Pre­ci­sion Drilling (TSX:PD), agreed in De­cem­ber to trade its Cana­dian coil tub­ing op­er­a­tions plus $12 mil­lion to Es­sen­tial En­ergy Ser­vices (TSX:ESN) in re­turn for Es­sen­tial’s ser­vice rig busi­ness.

Since then, High Arc­tic En­ergy Ser­vices (TSX:HWO) bought Tervita’s pro­duc­tion ser­vices di­vi­sion, driller To­tal En­ergy Ser­vices (TSX:TOT) won a hos­tile takeover bid for ri­val Sa­vanna En­ergy Ser­vices (TSX:SVY) and frack­ing firms Tri­can Well Ser­vice (TSX:TCW) and Canyon Ser­vices Group (TSX:FRC) agreed to a share-swap merger deal worth $637 mil­lion.

In April, the Pe­tro­leum Ser­vices As­so­ci­a­tion of Canada up­dated its drilling fore­cast for 2017 to 6,680 wells, a 60 per cent in­crease over its Novem­ber fore­cast.

CP PHOTO

Pump­jacks are shown pump­ing crude oil near Halkirk, Alta., June 20, 2007. Cana­dian drillers and other oil­field ser­vice providers have stepped up merger and ac­qui­si­tion ac­tiv­ity, with more deals ex­pected in com­ing months, as play­ers bat­tered by more than two years of weak oil prices look to lower costs and strengthen fi­nances by scal­ing up.

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