Indebted Tervita’s service division sold for $42.8M
Deal not enough to significantly reduce company’s $2.5 billion debt
Tervita Corp. is selling off CALGARY its service rig business at the same time the highly leveraged company is trying to renegotiate $2.5-billion worth of debt.
Tervita, a privately held oilfield and environmental services company that employs 1,500 people, announced Monday it had struck a deal to sell its service rig business, comprising 68 rigs and 300 people, to High Arctic Energy Services Inc. for $42.8 million.
The deal was struck for well under the cost to build those rigs from scratch, in large part because the drilling and well servicing sector has been hit hard by Alberta’s ongoing recession.
“I’m extremely pleased with the assets that we bought,” said High Arctic interim president and CEO Thomas Alford, adding that factoring out other items included in the deal — like a fleet of rental equipment including mobile trailers and offices — his company bought the service rigs for less than 15 per cent of their replacement cost.
During the normally busy winter drilling season in January, just 26 per cent of service rigs were working this year, according to data from the Canadian Association of Oilwell Drilling Contractors.
“It’s a long time at the bottom (of the cycle), it seems,” Alford said, adding that activity on the rigs he bought Monday were slightly higher than the industry average.
“Tervita is selling this business in order to focus on our core areas, which we believe position us better for profitable growth,” president and CEO Chris Synek said in a release. “The decision to sell our production services business was taken some time ago, after a comprehensive strategic review of our operations.”
The company did not respond to a request for comment Monday on what other parts of the business are for sale, but Tervita has been looking to shore up its balance sheet as it continues to renegotiate $2.5 billion worth of debt with six different groups of creditors.
The company announced Aug. 15 it would use a 30-day grace period to delay a US$18.2-million interest payment to one group of creditors with which the company is currently trying to renegotiate lending terms. That process is ongoing.
Tervita also used a 30-day grace period to delay an interest payment to another group of creditors in May — the company reached an agreement with those creditors in June.
“Tervita’s capital structure is untenable without significant earnings growth or debt reduction, which we view as unlikely given our commodity price estimates,” wrote Paresh Chari, assistant vicepresident with Moody’s Investor Service, in a report published after that June agreement.
Moody’s deemed the missed interest payment a “limited default” that affected $2 billion of Tervita’s rated debt.
Tervita did not indicate how it would use the proceeds from the sale, but the deal is not large enough to significantly reduce the company’s indebtedness.
The deal is more significant for Calgary-based High Arctic, which was widely expected to buy a business in Canada while prices are low.
AltaCorp Capital analyst Aaron MacNeil said High Arctic “has long been telegraphing an acquisition.”
The company’s most recent investor presentation shows High Arctic could take advantage of “depressed North American activity levels” that “may provide attractive valuations for acquisition targets.”
The majority of High Arctic’s cash flow comes from operations in Papua New Guinea, and MacNeil said the company has been looking to redeploy some capital in Canada during the downturn.
High Arctic shares closed up 1.39 per cent Monday at $3.39.