Ensign makes ‘bargain basement’ bid for Trinidad Drilling

Calgary-based Ensign Energy Services Inc.’s hostile takeover bid for Trinidad Drilling Ltd. announced on Monday comes as sluggish drilling activity levels in Canada continue to beset energy service firms, despite a rise in global oil prices.

Ensign’s $947-million offer includes purchasing all outstanding Trinidad shares for $1.68 per share, an 11-per-cent premium compared with Friday’s closing price, and assuming $477 million in Trinidad debt. The target company’s shares surged 15.6 per cent to $1.75 Monday; Ensign stock rose 5.9 per cent to $6.30.

As part of a strategic review that began in February, Trinidad Drilling, which builds rigs in Canada and the U.S., made changes to its board. The review ended on Aug. 1, but the company did not decide on any deals.

After the review, Ensign, which owns about a 9.8-per -cent stake in Trinidad, said it approached the company ’s board with an offer, but was stalled. “The Trinidad board’s failure to fully engage with Ensign has led us to bring the offer directly to you, the shareholders,” Ensign, North America’s fifth-largest driller by number of rigs, said in a statement.

Trinidad said it was aware of Ensign’s intended bid, and had hired a legal team that would review it once it gets a formal offer.

The proposed merger comes amid lower Canadian oil rig activity levels that have hurt company balance sheets, prompting many firms to shift some of their operations into the U.S.

“Canadian activity is really lagging U.S. activity,” said Tim Monachello, analyst at AltaCorp Capital Inc. in Calgary. “Economics in Canada for drilling rigs is a lot less robust than it is in the U.S.”

Monachello said Canadian drillers have continued to face lower drilling activity levels compared its U.S. competitors, due in large part to the discounted price Canadian oil producers receive for their crude.

Drilling rig supplies have been tight in the U.S. due to a high concentration of demand for so-called “high spec” rigs, Monachello said, used to crack into oil reserves deep below the Earth’s surface and highly complicated to produce. Ensign and Trinidad both have significant positions in the U.S. market.

PSAC CEO Tom Whalen said in a statement at the time that slightly improved drilling activity in Canada has mostly failed to cushion firms’ bottom lines, with several firms cutting staff by five to 15 per cent.

Whalen called the layoffs an improvement from the 40 to 60 per cent levels seen in 2015 and 2016, but still “a very telling sign that our services sector is far from healthy.”

National Bank Financial analyst Greg Colman called Ensign’s $1.68 per-share offer a “bargain basement price,” but said shareholders are likely to accept the offer due to mounting frustrations over management’s strategic review process.