CALGARY – Precision Drilling is getting larger on the well servicing side, and perhaps now ironically named High Arctic Energy Services is getting out of its Canadian well servicing and snubbing operations to focus on tropical work in Papua New Guinea. But it is keeping nitrogen and small rentals operations going here.

Well servicing

Precision Drilling Corporation announced on July 18 that it has entered into an asset purchase agreement to acquire the well servicing business and associated rentals assets of High Arctic Energy Services Inc. for an aggregate purchase price of $38.2 million, payable in cash.

Precision adds to its Canadian well servicing operation a fleet of 80 service rigs (51 marketed and 29 inactive). The transaction provides Precision with rental assets, ancillary support equipment, inventories and spares, and six additional operating facilities in key basins, four of which are owned.

The company said the acquisition include high-quality assets with skilled and experienced field personnel and a strong customer following.

Precision noted the combined business will have marketed fleet of 134 service rigs and represents approximately 20 per cent of Canadian industry well service activity;

The company noted the deal, “Leverages Precision Well Services’ leading operational scale, generating significant synergies including expected annual operating cost savings of $5 million annually, realizable within one year.”

It is considered an accretive acquisition that supports Precision’s long-term capital allocation and de-leveraging plan through increased cash flow generation.

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Precision’s president and CEO, Kevin Neveu, stated in a release, “This acquisition significantly expands our well servicing division with high quality rigs and field personnel, strategic regional positioning, and alignment with key customers. High Arctic’s people are well known for their focus on safety and field execution and will complement Precision’s High Performance, High Value operating strategy. The Transaction accomplishes needed consolidation in the well servicing industry, providing greater opportunities for our combined team, while bolstering service capabilities for our customers. With the expected synergies and further leveraging our scale, we believe this transaction provides accretive earnings and significant cash generation potential supporting our debt-reduction strategy and our short-term and long-term debt reduction targets of $75 million in 2022 and $400 million between 2022 and 2025.

“I am excited to welcome High Arctic employees to the Precision family.”

Photo via High Arctic web page

 

Snubbing

Additionally, High Arctic Energy Services Inc Corporation has entered into an asset purchase agreement with Team Snubbing Services Inc. to sell High Arctic’s Canadian snubbing business for 42 per cent of the post-closing total outstanding shares in Team and a note receivable of $3.4 million.

High Artic said both the well servicing transaction and the snubbing transaction retain working capital, are subject to customary commercial closing conditions and are expected to close before the end of July 2022.

Michael Binnion, Chairman of High Arctic, said in a release, “After reflection on High Arctic’s core strength and future opportunities, the board made a strategic decision to divest certain assets in Canada and focus on resurgent opportunities associated with our existing business in Papua New Guinea (PNG). PNG is a market where we have a dominant position, a history of high profit margins and free cash flow generation, and where the corporation’s future fortunes are inextricably tied.

“We take great pride in the development of our Canadian well servicing and snubbing businesses. These transactions, we believe, set our employees up for success as most transition to a larger organization wherein their safety, service acumen and operational skill set them up for career success.”

The Well Servicing transaction includes High Arctic’s Canadian Well Servicing fleet marketed under the Concord Well Servicing brand comprising of 51 marketable rigs and 29 inactive and out of service rigs, as well as oilfield rental equipment associated with well servicing including 17 modern hydraulic catwalks purchased in 2021. The transaction will result in the transfer of High Arctic’s Well Servicing employees and a large majority of support personnel to Precision.

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The consideration includes $10.2 million payable at closing and the remaining $28.0 million payable in January 2023, with High Arctic expecting to retain approximately $3.0 million in closing working capital. Title to four Alberta real estate locations owned by the Corporation will transfer to Precision on final payment, with High Arctic retaining owned Alberta properties in Whitecourt and Clairmont. Precision will assume the lease obligations for High Arctic’s properties in Cold Lake and Acheson.

Mike Maguire, CEO of High Arctic, said, “Consolidation in the well servicing market is necessary to realize the scale and synergies to deliver profitability to shareholders. This transaction delivers to Precision high quality assets and people, and provides High Arctic with access to the capital tied up in our business. We are pleased to have found in Precision’s Well Servicing team, people who share a culture grounded in service quality and believe there is no better place to vend in Concord Well Servicing.”

Mike Watts, CEO of Team, said “We are genuinely excited for the future of Team. The addition of the top-tier snubbing assets of High Arctic will enable us to realize our business plans for rapid expansion of operations in Canada and abroad. Team management has been working diligently over the past number of years to create a strong corporate and operational foundation given the uncertain times in the Canadian energy industry. This transaction has helped solidify management’s efforts and adds an exciting portfolio to the Team group. Through this transaction we get a strengthened balance sheet, board members with vast experience and knowledge of the energy services industry and capital markets, and employees who are as passionate about high quality, reliable and safe snubbing practices as we are.”

Elimination of High Arctic’s production services segment

Combined, the two transactions represent the effective divestment of High Arctic’s Canadian Production Services segment, the company said. Post-closing, High Arctic will retain in Canada its Ancillary Services Segment comprised of the Nitrogen Pumping business and a smaller rentals business focused on pressure control while keeping the HAES Rental Services branding. These Ancillary Services businesses will be supported from its Whitecourt facility, and a small corporate headquarters in Calgary.

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  • 0026 Buffalo Potash Quinton Salt
  • 0024 Southern Bolt Katrina Southern Folk Rock Intro
  • 0023 LC Trucking tractor picker hiring mix
  • 0022 Grimes winter hiring
  • 0021 OSY Rentals S8 Promo
  • 0019 Jerry Mainil Ltd hiring dugout
  • 0018 IWS Hiring Royal Summer
  • 0014 Buffalo Potash What if PO
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The book value of the net assets transferring under the Well Servicing Transaction is estimated to be $42.4 million and under the Snubbing Transaction are estimated to be $11.1 million, at the respective closings. The minority interest in Team will be reported as an investment on High Arctic’s balance sheet, with the net movements in Team’s profit and loss recognized to High Arctic’s income statement on a proportionate basis.

Mike Maguire, CEO of High Arctic, said “The divestment of High Arctic’s Canadian Production Services allows our management to streamline the remaining Canadian business and focus attention on the growth opportunities in PNG where we are excited about the opportunities for our Drilling Services segment as the next round of gas development projects materialize there.

The net proceeds of the Well Servicing Transaction provides additional liquidity to the corporation, High Arctic said. The timing of the second well servicing transaction payment provides the opportunity for management to evaluate the need and sources for both working and growth capital in PNG. The corporation has a history of returning surplus cash to shareholders, and will consider capacity to distribute funds to shareholders at that time, High Arctic noted.

CIBC Capital Markets is acting as exclusive financial advisor and Torys LLP is acting as legal advisor to Precision. Paradigm Capital Inc. is acting as exclusive financial advisor to High Arctic in connection with the Well Servicing Transaction. DLA Piper (Canada) LLP is acting as legal advisor to High Arctic on both transactions.

 

  • 0027 TED_NA Helium 2021_30
  • 0028 SIMSA_Energy_Forum_2022
  • 0025 Kendalls
  • 0026 Buffalo Potash Quinton Salt
  • 0024 Southern Bolt Katrina Southern Folk Rock Intro
  • 0023 LC Trucking tractor picker hiring mix
  • 0022 Grimes winter hiring
  • 0021 OSY Rentals S8 Promo
  • 0019 Jerry Mainil Ltd hiring dugout
  • 0018 IWS Hiring Royal Summer
  • 0014 Buffalo Potash What if PO
  • 0015 Latus Viro PO Ad 01
  • 0013 Panther Drilling PO ad 03 top drive rigs
  • 0011
  • 0006 JK Junior
  • 0004 Royal Helium PO Ad 02
  • 9001
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