Oilfield services M&A rises with well counts

CALGARY 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, Calgary-based 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.

At its annual meeting on Wednesday, Precision CEO Kevin Neveu said the swap was an “opportunistic” transaction not likely to be repeated, but he agreed there are great deals available for buyers of oilfield services.

“The entire space is undervalued right now,” he said. “Drilling, pressure pumping, everybody’s got very low (stock market) valuations, ourselves included. So I’d say there are bargains everywhere.”

Since January, 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 shareswap 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. It attributed the change to stronger crude prices after the Organization of Petroleum Exporting Countries and other nations agreed to curtail production in December.