Brian Zinchuk is editor and owner of Pipeline Online
CWC’s operating areas. CWC Energy Services
CALGARY, – One of Canada’s biggest drilling firms just got a lot bigger, especially on the service rig side.
CWC Energy Services Corp. (TSXV: CWC) announced on Sept. 7 it has entered into a definitive agreement to combine with Precision Drilling Corporation (TSX:PD; NYSE:PDS) in a cash and share transaction worth approximately $141 million.
Under the terms of the agreement, CWC shareholders will receive total consideration of 947,909 shares of Precision and approximately $14 million in cash, resulting in an implied blended offer price of approximately $0.197 per CWC common share based on Precision’s closing price of $92.58 on the Toronto Stock Exchange on Sept. 1, 2023. CWC shareholders shall have the ability to elect for either cash or Precision shares, or a combination thereof, subject to proration and consideration caps set out in the Agreement.
The aggregate transaction value is approximately $141 million, including the assumption of approximately $40 million in CWC debt.
Duncan Au, President and Chief Executive Officer of CWC, said in a release, “I am extremely proud of the success and growth of our company and the tremendous efforts that the entire CWC team has helped build to being one of the premier contract drilling and well servicing companies in Canada and the U.S. Today we announce a strategic combination with Precision which has the size and scale that will allow for expanded opportunities for our employees, enhanced services for our customers, and CWC shareholder participation in one of the leading innovative companies in our industry. We look forward to bringing our teams together and realizing the full potential of this strategic combination.”
The board of directors of CWC has unanimously approved the transaction and recommends that holders of CWC shares vote in favour of the special resolution approving the transaction.
Precision’s President and CEO, Kevin Neveu, stated, “This acquisition supports our High Performance, High Value strategy as it allows us to expand our service offering in both Canada and the U.S. with high-quality rigs and field personnel. With the expected synergies and by further leveraging our scale, we believe the transaction will be accretive to earnings and provide significant cash flow to drive shareholder returns and support our debt reduction strategy. I am excited to welcome the CWC employees to the Precision team.”
Precision remains committed to reducing its debt levels by $500 million between 2022 and 2025 and achieving a sustained Net Debt-to-Adjusted EBITDA ratio of less than 1.0 times by the end of 2025. For 2023, Precision remains on track to reduce its debt by $150 million.
With this transaction, Precision adds to its fleet: 62 marketed service rigs in Canada, seven marketed drilling rigs in Canada, and 11 marketed drilling rigs in the U.S., including seven AC triple rigs. Currently, three of the Canadian drilling rigs and seven of the U.S. drilling rigs are actively working for customers.
Precision’s first half financials, released on July 27, noted the company at that point, (prior to acquiring CWC) had 225 drilling rigs and 119 service rigs.
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Support Agreements
The directors and officers of CWC who own CWC shares, together with CWC’s largest shareholders, BBU Alta Investments L.P. and Brookfield BBP (Canada) L.P. (collectively, “Brookfield Business Partners”) and Canada Pension Plan Investment Board Private Holdings Inc., a wholly owned subsidiary of Canada Pension Plan Investment Board (“CPP Investments”), have entered into support agreements with Precision pursuant to which such directors and officers, Brookfield Business Partners and CPP Investments have agreed to vote all of the CWC common shares they own or control in favour of the transaction. The support agreements will be available on CWC’s SEDAR+ profile at www.sedarplus.ca.
Brookfield Business Partners currently owns or controls approximately 289.3 million CWC common shares representing approximately 56.0 per cent of the outstanding CWC common shares, CPP Investments currently owns or controls approximately 85.5 million CWC common shares representing approximately 16.6 per cent of the outstanding CWC common shares and the directors and officers of CWC collectively hold approximately 41.8 million CWC common shares representing approximately 8.1 per cent of the outstanding CWC common shares. The approximately 416.6 million CWC common shares subject to these support agreements collectively represent approximately 80.7 per cent of the outstanding CWC common shares.
CWC Energy Services Corp. is a contract drilling and well servicing company operating in Canada and the United States with a complementary suite of oilfield services including drilling rigs and service rigs. The company’s corporate office is located in Calgary, with operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta and U.S. offices in Denver, Colorado and Casper, Wyoming.
CWC’s shares trade on the TSX Venture Exchange under the symbol “CWC”.
The Contract Drilling division operates under the trade name CWC Ironhand Drilling and is comprised of 13 electric triple drilling rigs with depth ratings from 3,600 to 7,600 metres and nine telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. All 22 rigs have top drives, 17 have pad rig moving systems, nine have 7,500 psi pumping systems, three have carbon reduction bi-fuel capabilities, and two have high line power capabilities.
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CWC said all of the drilling rigs are suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin (WCSB), including the Montney, Cardium, Duvernay and other deep basin horizons, and select United States basins including the Permian, Eagle Ford, Niobrara, Denver-Julesburg (“DJ”), Powder River and Bakken.
The Production Services division operates under the trade name CWC Well Services. With a fleet of 138 service rigs, CWC is one of Canada’s largest well servicing companies as measured by active fleet and operating hours, the company said. CWC’s service rig fleet consists of 73 single, 52 double and 13 slant rigs providing services which include completions, maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. In 2023, CWC chose to park 76 of its service rigs and focus its sales and operational efforts on the remaining 62 active service rigs due to the reduction in the number of service rigs currently required to service the WCSB and the tight labour market experienced in the industry for service rig crews.
On July 27, CWC Energy Services announced its second quarter results, which included quarterly revenue of $34.5 million, a decrease of $8.2 million (19%) compared to a record $42.7 million in Q2 2022. Revenue decreased $2.8 million (12%) in Q2 2023 for the Contract Drilling segment and $5.5 million (27%) for the Production Services segment compared to Q2 2022. Both the Contract Drilling and Production Services segments in Canada were affected by delayed activity due to the Alberta wildfires and wet weather conditions in May and June 2023 with no similar conditions in Q2 2022. CWC estimated 3,448 operating hours or $3.1 million of lost revenue in the Production Services segment were due to the wildfires and wet weather conditions in Q2 2023. CWC also estimates 15 operating days or $0.5 million of lost revenue in the Contract Drilling segment were due to the wet weather conditions in Q2 2023.
For the first half of 2023, it reported record revenue of $92.0 million, an increase of $8.5 million (10 per cent) compared to $83.5 million in the first six months of 2022. Revenue increased $10.1 million (26 per cent) in the Contract Drilling segment and decreased $1.6 million (4 per cent) for the Production Services segment compared to the first six months of 2022.
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