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Canadian drillers try to regain luster Schlumberger buying Saxon, but no takeover wave expected as Canada oversupplied with rigs; Precision, Ensign move rigs to U.S. Gary Park For Petroleum News
Emerging battered and bruised from the roughest ride in its recent history, Canada’s service sector has reason to hope the worst is over as gas prices lock in above $10 per thousand cubic feet.
Whether they have a new cause to be nervous set off a debate following a takeover offer in May that has Saxon Energy Services headed for the Schlumberger fold for C$592 million — a price that had shareholders and analysts complaining.
The deal won’t be concluded until July when the offer must be approved by two-thirds of Saxon shareholders.
So far all that is known is that Saxon managers and related shareholders who own about 14 percent of the 84.6 million shares have tendered to the offer from a private company called Sword Canada Acquisition, which is owned by Saxon management, Schlumberger and First Reserve Corp.
Depending on the circumstances, if the deal is rejected Sword would collect a termination fee of C$17.3 million. It also has the right to match any competing offer.
Saxon, which started life in 2005 with nine rigs in Ecuador, had a fleet of 56 rigs at the end of 2007, with major and intermediate clients among its customers in North and South America. It also runs joint ventures with Schlumberger, one of the world’s largest service companies, in Ecuador and Colombia.
Chris Gindl, an analyst with Dundee Securities, is urging Saxon investors to tender to the offer, which he views as a “done deal,” with no white knights on the horizon.
No support for upcoming wave There is no support among analysts for any theory that more takeovers are at hand.
Mike Mazar, an analyst at BMO Capital Markets, said that if a wave of consolidation was in the works “it would have happened by now.”
He said international companies are not anxious to enter the Canadian market, which is overloaded with capacity.
Brian Purdy, with National Bank Financial, said Canadian land drillers have a heavy emphasis on natural gas, while buyers are seeking exposure to oil.
He said companies that are active in the oil sands could have some appeal to foreign buyers, suggesting that would be a good way for companies with large worldwide operations, but no presence in Canada, to gain some presence.
If Canadian companies did find favor on a global scale, the betting among analysts is that Precision Drilling Trust, Ensign Energy Services and Savanna Energy Services would have appeal.
Precision moved rigs to U.S. Precision, which owns about 30 percent of Canada’s rigs, and Ensign have decided against tying their futures to Canada alone, with both making strong bids to enter the United States.
Precision Chief Executive Officer Kevin Neveu said Canada is oversupplied with rigs, prompting his company to move 17 rigs south of the 49th parallel over the last year and schedule the transfer of another five or six this quarter, while opening a new U.S. headquarters in Houston.
While noting that “there’s a renewed level of optimism in our client base compared with the last quarter of 2007,” he said gas producers are still trying to come to terms with Alberta’s royalty increases and are not totally convinced about the sustainability of gas prices.
Although Canada will remain Precision’s home, like all other drillers it has to deal with the winter-spring thaw that “means for much of May and June a lot of our rigs are sitting around. … The U.S. is far less weather-dependent,” he said.
In the 11 months since Neveu took over the helm from Precision founder Hank Swartout he has been assembling the pieces of global expansion that could start in August with the expiry of a non-compete agreement with Weatherford International, which acquired Precision’s international division in 2005.
He aims to build the trust from Canada’s dominant land driller into a key player in the U.S., and a worldwide power, applying the efficiencies that are essential to succeed in Canada’s 10-week peak drilling season.
Precision showed its intentions in mid-June with a spurned $2 billion takeout bid for Houston-based land driller Grey Wolf on the heels of Grey Wolf’s moves to merge with Texas-based Basic Energy Services.
Beyond the U.S., Neveu sees strong prospects in the Middle East, north-central Africa and parts of Latin America.
Ensign doing more work abroad Ensign Chairman Murray Edwards said his company expects to generate more cash outside of Canada in 2008 for the first time in its 20-year history, the bulk coming from the U.S., with Australia, the Middle East and South America also contributing.
He said the fact that Canada is still lagging, despite increases in commodity prices “is cause for concern. … Clearly the growth opportunities are in the U.S. and international.”
Edwards said there is only enough work to keep 700 of Canada’s 900 rigs at work.
Add to that list the name of Savanna Energy Services, which is expanding its well servicing business into North Dakota, with an initial commitment of six rigs, all of them newly manufactured and designed for the U.S. market.
The company has also secured long-term drilling contracts in Texas for five conventional double drilling rigs, with three of the rigs being transferred from the Canadian fleet.
The new contracts represent about 10 percent of Savanna’s fleet.
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