‘There is clearly a labour constraint in the market’

Continued from FP1

It follows the competing bids by Total Energy Services Inc. and Western Energy Services Corp. for driller Savanna Energy Services Corp.

Trican said it would issue new shares to buy Canyon even though both companies have oilfield service equipment sitting idle. Trican shares dropped 7.95 per cent to close at $3.59 after the deal was announced. It will result in Trican issuing shares and taking on Canyon’s $40 million worth of debt. Canyon shares, meanwhile, finished at $5.94, up 18.09 per cent.

Canyon shareholders will receive 1.7 shares of Trican for each share they own. That translates to an offer price of $6.63 per Canyon share, representing a 32 per cent premium to the stock’s Tuesday close.

Trican president and CEO Dale Dusterhoft said on a conference call the company is acquiring a fleet of mostly active pressure pumping equipment that will generate cash for the combined company immediately and, “We are going to need that spare capacity down the road.”

CIBC World Markets analyst Jon Morrison asked Dusterhoft how the company rationalized “spending $640 million in stock at this point to buy a platform that is incredibly similar in size to your idle capacity”, when Trican could spend just $3.5 million to reactivate its own idle fleet.

Though demand for oilfield activity has increased in recent months, Trican still has 250,000 horsepower of pressure pumping equipment parked.

AltaCorp Capital analyst Aaron MacNeil, however, didn’t see the idle equipment as a problem, especially if demand for oilfield services continues to improve.

“There is clearly a labour constraint in the market today,” MacNeil said, adding the availability of equipment would allow the combined Trican-Canyon entity to ramp up more quickly as conditions improve.

MacNeil, who has reviewed the two companies’ customer list, also noted their customer base did not overlap. Since “customer relationships matter,” he said, the combined company could also activate more of its idle fleet by tapping into its expanded customer network.

The rationale for the deal was not just to combine customer bases and pressure pumping fleets, but to consolidate in an effort to further drive down costs, Dusterhoft said.

“We’re living in a different world than we used to and it’s important to be as efficient as possible,” he said.

As oil and gas prices declined over the past two years, energy producers have demanded service providers such as Trican aggressively cut their prices and do more for less.

For example, oil and gas producers are asking fracking companies to both cut their costs and to use more pressure and more frack sand at each job site to boost production, Dusterhoft said.

“A lot of these trends are putting strains on both of our respective companies,” Dusterhoft said. “Our industry is pushing toward larger jobs but it is also pushing all of the service companies to be more efficient.”

On the same call, Canyon president and CEO Brad Fedora said consolidation in the industry is very important. “Scale is everything,” he said. Fedora will join the combined company’s board if the shareholders and the competition bureau approve of the transaction.

Dusterhoft said he didn’t expect the competition bureau would take issue with the deal expected to close in the second quarter. “We’re confident that it will get approved,” he said.