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Taking flight in northern Canada Mullen spreads wings in remote resource locations, fueled by spate of takeovers; sees Mackenzie gas pipeline as major prey By Gary Park For Petroleum News
From a Mom-and-Pop operation that started out with a single truck in 1949 and struggled to stay afloat through its first two decades, Mullen Group Income Fund has spawned a network of independently operated businesses which play a major role in Canada’s frontier oil and gas fields and built itself into a powerhouse that has annual revenues of C$1.235 billion and provides jobs for more than 5,000.
Its latest foray into the north has unfolded over the last three months in a whirlwind series of deals creating Horizon North Logistics which has its sights fixed on Canada’s resource expansion into northern Alberta, British Columbia and across the 60th parallel into the Northwest Territories and Nunavut.
The trigger occurred in June when Mullen pulled off a billion-dollar deal to scoop up Producers Oilfield Services, whose assets were then spun off into publicly-traded Horizon.
Just a day after making its debut on the TSX Venture Exchange on July 25, Horizon made a spate of acquisitions, buying Shanco Camp Services, Legacy Industrial Camps and Swamp Mats in cash and stock transactions worth a combined C$135 million. CEO: company positioned to grow with Canadian North Horizon Chief Executive Officer Ric Peterson said the businesses “fit very well” with Horizon’s goal of providing logistical services and support operations to large natural resource developments such as oil sands and frontier pipelines — reinforcing the company’s hopes of taking advantage of the Mackenzie Gas Project.
However, Peterson told the Calgary Herald that Horizon is not ready to gamble its entire future on a Mackenzie pipeline going ahead, although “we are betting fairly heavily … we think it’s going to go.”
The current delay of about six months in the regulatory process is not a cause for concern; instead it provides time for Horizon to put its pieces in place, he said.
Whether the Mackenzie proceeds or not, Peterson is full of confidence that Horizon, having built strong ties with the aboriginal communities and established base camps in the Northwest Territories, is positioned to capitalize on what could be resource development on a huge scale in Canada’s North.
Even if the immediate prospects of oil and gas exploration sputter, the outlook for gold and diamonds could place mining on an equal footing with petroleum in the two territories and the more remote the opportunities the more strongly placed Horizon is.
The Mullen-Producers merger was described by Mullen Chairman and Chief Executive Officer Murray Mullen (son of the founder) as a chance to establish one of the largest service group income funds in Canada while sticking with the corporate strategy of allowing divisions to operate as separate entities.
He said Mullen is “one big ship with 25 independently operated speedboats, with operators making sure they are in touch with the market and their customers.”
The objective, he said, is to pay about C$400 million in salaries, reinvest in assets and distribute up to C$160 million a year to unit holders, although Horizon will operate as a conventional company because managers did not see it as suited to the trust model at a time the company needs to raise capital to grow.
The growth was quick in coming with the trio of takeovers on July 26:
• Shanco manufactures, rents and sells camps for use on remote locations and Legacy provides camp catering services, both of them operating in Alberta, B.C., the Northwest Territories and the Yukon. Shanco’s rental fleet consists of 500 units, which can be configured into camps for 20 to 500 workers, and it is capable of producing 275 units a year.
• Swamp Mats manufactures, rents, sells and installs heavy duty oak mats to build roads and work locations in areas where ground conditions do not allow year-round access. It currently has 9,500 units and can turn out another 60 a day.
Peterson said he is counting on the new operations generating combined revenue of C$90 million for the full year ending Oct. 31, with operating margins in the 30-35 percent range.
For the second quarter of 2006, Mullen reported revenues of C$200 million, up C$85.8 million from a year earlier, largely attributable to the 12 new businesses added to the stable since April 2005.
Net income was C$38.9 million, an increase of C$35.7 million and cash distributions for the three months were C$22.8 million.
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