Woke up to another merger deal in the patch

Ensign makes offer to Trinidad shareholders

I woke up this morning, and unlike Tony Soprano, I did not get myself a gun. But I did get an email which indicated there was yet another merger in the works.

Merger, acquisition, buyout, hostile takeover – same difference. But there’s been a lot more of them in the oilpatch recently.

In this case, Ensign Energy Services Inc. was making an offer directly to the shareholders of Trinidad Drilling Ltd. These are two of the biggest players in the Canadian drilling industry, and they play on a global scale. Trinidad had, as of May, 68 rigs in Canada, 66 in the U.S. and overseas, and another five in a joint venture with Halliburton. They work in Mexico and the Middle East.

But their share price, compared to its heyday, is peanuts. The offer from Ensign, a 20 per cent premium over the recent Trinidad price, is roughly one-seventh, per share, what Trinidad was trading for in early 2014, before the oil downturn hit.

I take particular interest in this deal because it involved some local content I’ve spent the last 10 years writing about. When I first came to Estevan, I spent a lot of time writing about Eagle Drilling, which was building new rigs as quick as they could. They built eight yellow rigs before they sold to CanElson Drilling, whose corporate colour is tan. At the same time, Totem Drilling sold its six orange rigs to CanElson. Then a few years ago Trinidad Drilling, green, bought CanElson. Now Ensign Drilling, dark blue, is seeking to buy Trinidad. By the time this is all said and done, Ensign may end up with a Skittles-fleet. Good thing I know a guy who sells industrial paint. I hope he makes a killing.

More seriously, though, it has been the evolution of small drillers where the management knew all the staff to companies where the employees would simply be a number. And that’s kinda sad.

What’s also sad is that Trinidad’s board, for all intents and purposes, threw in the towel a few months ago by announcing one of those corporate strategic reviews, where it basically told the market, “we give up, come buy us.”

They got no takers, at least no takers that were worth announcing, from Trinidad’s board’s perspective. So they said they’d keep plugging along. Ensign then came in and made a offer, which Trinidad’s board didn’t seem to keen on, so Ensign put out its press release on Aug. 13 appealing directly to Trinidad’s shareholders. In other words, it became something of a hostile takeover of a company that had just recently said “come buy me.”

Ironically, if Ensign is successful, they will gain another 13 rigs based in southeast Saskatchewan. A little over two years ago, the company cut up 13 of its own, admittedly older rigs in Oxbow and Carnduff. And for these new rigs, they will be paying an average price of $6.8 million per rig.

That price is across the entire Trinidad fleet, which includes a lot of much bigger, more advanced and more capable rigs, many of which are AC-powered. So maybe it’s not fair to say they would be paying $6.8 million each per telescopic double (teledouble) rig in Saskatchewan. Maybe they’re paying more like $11 million a crack elsewhere, and a lot less here.

The reason this is significant is that much of the southeast Saskatchewan teledouble drilling rig fleet has been gobbled up by Matrrix Energy in the past year. They’ve scooped up either the company or the assets of Vortex Drilling, Stampede Drilling, D2 Drilling and Red Dog Drilling, and the price per rig was only in the $1.4 million to $3 million range, for rigs that were $8 million and up to build. Does the Ensign offer for Trinidad improve the value of rigs in Saskatchewan today? Maybe it does. Maybe it doesn’t. Time will tell.

These mergers are not a sign of health in the oilpatch, or of recovery. They are a sign that many companies simply can’t hold on any longer. We are a very long way from a healthy industry. Even US$65/bbl. oil has not been enough to revive them. A rising tide may float all boats, but either the tide has not risen enough yet, or the boats had too many holes in them.

Hopefully the companies that are doing the purchasing will be strong enough to grow, now, with these additional assets. Otherwise, I can expect more early morning emails announcing mergers in the future.

 

Brian Zinchuk is editor of Pipeline News. He can be reached at brian.zinchuk@sasktel.net.  

 

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