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Merger creates Canada’s No. 3 driller
Gary Park
Canada’s third largest driller with a market value of C$1.3 billion is being created from a merger of Savanna Energy Services and Western Lakota Energy Services, two of Western Canada’s fastest growing contractors.
In an all-stock deal valued at C$635 million, the merger will bring together Savanna’s dominance in shallow-well drilling and Western Lakota’s focus on targeting more technically challenging holes deeper than 8,000 feet, which are considered vital as the Western Canada Sedimentary Basin matures.
Savanna has developed a proprietary line of hybrid coiled tubing units, but is currently caught up in a legal battle over patents with Technicoil and Nabors Industries.
Western Lakota has led the way in partnerships with aboriginal groups in Alberta and Saskatchewan, including deals with the Dene Tha First Nation and the Blood Tribe, gaining access to first nations’ land and workers, with aboriginals making up almost one-quarter of its workforce.
It has also established a U.S. toehold in West Texas which is expected to start growing in 2007.
The entity carrying the name of Savanna Energy will have a fleet of 88 rigs by the end of 2006, an increase of 22 from today at a cost of C$240 million, putting it behind Precision Drilling and Ensign Energy Services.
For both companies, EnCana — which drills 25 percent of the wells in Canada — is the largest customer. Other clients include Apache, EOG Resources and ConocoPhillips, opening the way for further U.S. expansion.
“This builds a whole new energy services powerhouse,” said Savanna chief executive officer Ken Mullen, who will retain that role in the new company.
He said the company, with 1,500 employees, will be able to offer more services over a wider geographical area. Aboriginal advantage Patrick Tomalin, an analyst with Orion Securities, said in a report that the new Savanna should “capture a bigger piece of the pie than either could individually, particularly as Western Lakota applies its aboriginal branding and staffing” to Savanna’s rigs.
Miles Lich, a veteran oil services analyst who is now chief executive officer of investment firm Northern Plains Capital, said the increased market capitalization will appeal to a wider range of money managers in the U.S. and Canada.
The merger comes amid a forecasted downturn in drilling stemming largely from softer natural gas prices.
Mullen said he expects shallow drilling to feel the impact, but he is confident deeper drilling will survive the price drop and allow rig contractors to better meet demand.
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