Precision Drilling to Acquire CWC Energy for $141MM

Oil rig services provider Precision Drilling Corp. is acquiring all of the issued and outstanding common shares of CWC Energy Services Corp. for a total consideration of approximately $141 million.

The purchase price is composed of 947,909 Precision shares, valued at approximately $88 million as of the market close of September 1, $14 million in cash, plus the assumption of CWC’s outstanding debt, Precision and CWC said in separate news releases Thursday.

With the transaction, Precision adds 62 marketed service rigs and seven marketed drilling rigs in Canada and 11 marketed drilling rigs in the USA, including seven alternating current (AC) triple rigs. Currently, three of the Canadian drilling rigs and seven of the USA drilling rigs are actively working for customers, according to its news release.

The transaction is expected to be completed in the fourth quarter subject to the approval of CWC shareholders, the Toronto Stock Exchange, and the Competition Bureau, as well as court and regulatory approvals and other customary closing conditions, Precision said.

Precision said the assets are located in complementary geographic regions across Canada and the USA, “supported by skilled and experienced personnel and strong customer relationships”. The company expects to realize annual operating synergies of approximately $20 million once CWC is fully integrated, and Precision has identified approximately $20 million of excess CWC real estate that it expects to monetize post-transaction closing. Precision expects the transaction to be accretive on a 2024 cash flow per share basis and to support its ongoing deleveraging plan.

“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 President and CEO Kevin Neveu said.

Precision said it remains committed to reducing its debt levels by $500 million between 2022 and 2025 and reducing its debt by $150 million.

In the CWC release, CWC President and CEO Duncan Au said, “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”.

The release noted that the transaction will require approval by at least 66 2/3 percent of holders of CWC shares represented in person or by proxy at a special meeting of holders of CWC shares to be called to consider the transaction. “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”, according to the release.

In July, Precision reported a net income of $20.3 million (CAD 26.9 million), or $1.49 (CAD 1.97) per share, for the second quarter of 2023, compared to a net loss of $18.6 million (CAD 24.6 million), or $1.37 (CAD 1.81) per share, for the same quarter last year, according to an earlier earnings release.

Precision said it strengthened its contract book by signing take-or-pay term contracts with several new customers, including large USA independent companies and major oil and gas companies. The company also reported a rise in fourth-quarter rigs under take-or-pay term contracts in the USA from 18 to 27 and Canada from 15 to 25.

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