Estevan, Calgary – Four years after it fired up operations, Millennium Stimulation has now shut down.
Millennium Stimulation Services started as a conventional hydraulic fracturing company in early 2012. The company’s original operational focus was set primarily in southeastern Saskatchewan, Bakken territory. Throughout the short time in operations, the company expanded into Manitoba and southeastern Alberta.
In the last two years, the company had been developing its energized fracs using liquefied natural gas, instead of large amounts of fresh water. These fracs were called ENG, or energized natural gas. If successful, the net result would have been a dramatic reduction in the usage of fresh water in hydraulic fracturing – long considered a matter of concern for the industry. They had just done their first few jobs with the new technology earlier this year when they ran out of runway, financially speaking, and the bank foreclosed. Millennium Stimulation Services Ltd., was placed into receivership by its lender, Alberta Treasury Branches, on March 24.
KPMG Inc. has been appointed as the receiver by the Court of Queen’s Bench of Alberta in Calgary on March 24.
Pipeline Newsspoke to Mike Heier, founder, president and CEO on April 5, Heier, who was also founder and former CEO of Trinidad Drilling (and still is its chair), has always been one of the most forthright and straightforward interviewees this paper has interviewed. That hasn’t changed.
“Our bank petitioned us into receivership,” Heier said by phone from Calgary. He noted it goes back over a year, as they had been trying to finance their energized natural gas initiative. “That’s where all the future was.”
“As you can well imagine, there’s been zero to negative profit on the conventional fracking side. When you look at everyone’s financials, it suggests it’s a war of balance sheets. If you can’t get out of that, you’re done. So we had our
primary funder, a Chinese outfit that were all things LNG in China, they were making a big business footprint in North America. They needed a base. We were effectively going to be it. They were going to be the lead in equity funding. They exited North America in December,” Heier said.
That led to Millennium looking at strategic alternatives in January. “When we had all bids back in the middle of March, the bank basically stepped in and said, ‘We can finish the job from here,’” he said.
That shut down the company, and the remaining staff were laid off in late March. KPMG is running a sale process.
The total owed to ATB was $17.1 million. That included a $5 million mortgage on its Estevan properties – its initial frac operations base, and subsequent sand storage facility completed a year ago. Heier said about $10.5 million had been spent on those two properties. The trade payables was under $2 million.
Their staff had been wound down to the high-50s range, mostly part-time at this point, before the shut down. Millennium had operated two frac spreads and two coil tubing units. A year ago the company effectively shut down its spread that had been working out of Estevan due to lack of work in the area, but had still been working out of Medicine Hat.
Millennium had shaken up its pay structure back in October to a variable compensation scheme. The fourth quarter of 2015 and first quarter of 2016 had looked reasonable, “until you actually got into them,” he said. “Dozens and dozens of wells on our books to do, and it became less than 10, overall.”
“It was a dramatic reduction in client programs. We would have normally five or six pretty decent-sized clients then about a dozen smaller guys that we would do a little bit here and a little bit there. We would have activity from south central Alberta to southwest Manitoba.
“Once oil started falling below that $40 range, clients’ workload would drop precipitously. I would even say easily 60, 70 per cent was dropped off the working schedule. Of what was left, the narrative you would have going back and forth with the clients would be, “Gee whiz, you might say you would do it for cost, but this guy will do it for 10, 15 per cent less.’”
“So really, what you had going on was people willing to take on the work at a negative field margin,” Heier said.
This resulted in erosion of balance sheets across the frac industry peer group. To protect their balance sheets, he noted one company sold its overseas assets, while another raised funds recently. A third company is staring at a large deficit and debt. One more sold off their assets and was broken up.
Millennium had tried to see a clear pathway through this, with their LNG frac business as the future of the company, but the bank stepped in, and that was that.
So what happens to their pioneering ENG frac technology? “It belongs to the company. The company is controlled by the receiver,” Heier explained.
The patents are corporately held.
“The obvious place for the receiver is the best place for all stakeholders. The best answer isn’t necessarily a sales process until there is nothing left. They have fiduciary responsibilities to act on behalf of all stakeholders, the bank is just the largest right now,” he said.
Right now, all he can do is sit back and patiently watch. Heier said, “This isn’t something anybody gets to practice at. Certainly it’s a function of a lack of business, of profitable business, that’s available in a downturn like this. Effectively, we just started getting our footing, getting operational. Interestingly, most of our upside was on the ENG, not the conventional side. Before we could execute on it, you’re done.
“Truly unfortunate, but in the environment we’re in, I don’t know if there was a different narrative to play out.”
After having done a couple of ENG fracs, they had work lined up in Texas for December and January. But that evaporated when oil dropped below US$30 per barrel for WTI.
Heier was in Lloydminster during the 1986 oil meltdown. “That was dramatic. It was brutal. It was very long-winded. What a lot of people don’t reflect on, is the fact that is it wasn’t until 2002 that we actually crawled out from that one.
He noted it wasn’t just oil-related, but natural gas was deregulated at the same time. Natural gas dropped dramatically. Heier said, “That was murderous for everybody. Not only did you have the oil meltdown, you had the natural gas meltdown. The same thing we’re going through right now, we went through back then. There’s a much greater story playing out here right now than most people realize. There’s a lot of really big Canadian names, they’re done, you just haven’t heard it yet.”
Heier said the business needs to see oil prices greater than US$50 per barrel to make a difference. It would have made a difference for Millennium. “We had stuff lining up in the $40 to $50 range on the ENG side,” he said, but there was no profitability on the conventional frac side.
