Sanjel sale seen as beneficial for fracking
The sale of Calgary-based
CALGARY Sanjel Corp.’s Canadian pressure pumping operations is positive for its rivals, who have watched profit margins collapse because of too much capacity chasing too little work, an analyst said Tuesday.
In a note to investors, Dan MacDonald of RBC Dominion Securities said overall industry capacity will remain the same after Sanjel sells its Canadian assets to Step Energy Services Ltd., but Step is a stronger competitor that is less likely to bend to producer demands for uneconomic pricing.
“We view consolidation in the Canadian pressure pumping business as a positive, noting that the sale would put the assets in the hands of an existing private player in the business,” wrote MacDonald.
“At the margin, we are optimistic the transfer of assets from a distressed player to Step may help the current situation of severe price competitiveness in the WCSB (Western Canadian Sedimentary Basin) pressure pumping market, providing a modestly positive readthrough for all Canadian operators.”
Sanjel didn’t give financial details Monday as it announced the sale of its Canadian pressure pumping, coiled tubing and cementing assets to Step, and the sale of similar assets in the U.S. to Denver-based Liberty Oilfield Services.
But a financial analyst who asked not to be identified because he doesn’t cover Sanjel said he estimates the company would have received between $100 million and $200 million for each set of assets for a total of between $200 million and $400 million.
Step is to gain about 165,000 horsepower of pressure pumping capacity and Liberty about 250,000 HP when the deals close in about 30 days.
Sanjel said it is still actively trying to sell its Suretech Completions tools division with offices in Calgary and Houston, and Terracor Group proppant and logistics operations centred in Montana and Texas. It’s unclear what it intends to do with operations in Mexico and the United Arab Emirates as listed on its website.
According to an initial report by PricewaterhouseCoopers, the court-appointed monitor under Sanjel’s Companies’ Creditors Arrangement Act filing, the insolvent company owes its creditors more than $1 billion. PwC also noted that Sanjel reduced staff from 4,300 to 2,200 over the past 18 months.
Mark Salkeld, president of the Petroleum Services Association of Canada, said the commodity price downturn that began some 22 months ago is making life tough for almost everyone in the oil and gas business.
“It’s not a happy time,” he said Tuesday. “Sanjel is an outstanding service provider, best in class. This is definitely shaping up to be a very different downturn.”
He said during the 1980s slump in Canada there was a “mass exodus” of people and equipment to the United States and other parts of the world — not an option this time because low oil and gas prices have reduced opportunity all over the globe.