Calgary-based operators Precision Drilling Corp. and Essential Energy Services Ltd. have agreed to swap some oilfield service assets, which would expand Precision's rig operations and workforce in Canada while Essential would add coil tubing and pumping services.
In addition to the swap, set to be completed by the end of the week, Precision agreed to pay Essential C$12 million. The transaction overall is valued at $28 million.
"This is a strategic transaction to divest a business line in which Precision lacks scale to generate the returns we expect and follows similar Precision divestitures of our U.S. trucking and U.S. coil tubing businesses in 2014," CEO Kevin Neveu said. "The acquisition of Essential's service rig business is a unique opportunity to expand our leading well service position within the Canadian market by adding the high-quality assets and people of Essential's service rig operations."
Precision would gain 150 employees, along with 38 active service rigs, 16 parked rigs and related inventory. Essential in exchange would receive four coil tubing rigs, which are similar in size, age and capability to its Generation III rigs. The coil well assets have been parked by Precision since early this year. Essential also would gain three quintuplex pumper units, one nitrogen unit and related inventory.
The transaction, the companies said, "is an example of logical industry consolidation" as Essential is an industry leader in coil well service, with the largest coil tubing fleet in the Western Canadian Sedimentary Basin, while Precision has the largest service rig fleet in the basin.
Once the transaction is completed, Essential would have two remaining businesses: coil well service and downhole tools/rentals.
"We believe this is a transformative transaction for Essential," said CEO Garnet Amundson. "In the past few years, we have generated higher operating hours, utilization and margins from our coil well service business than our service rig business. We believe the opportunity to return to growth and profitability as the industry recovers is greater in the coil well service business as there is less competition and not as much excess competitor equipment."