Oil rig service provider Precision Drilling Corp. is acquiring all of the issued and outstanding common stock of CWC Energy Services Corp. for total consideration of approximately $141 million.
The purchase price consists of 947,909 shares of Precision stock, valued at approximately $88 million at the close of the market on Sept. 1, $14 million in cash, plus the assumption of CWC’s outstanding debt, Precision said and CWC in separate press releases on Thursday.
With the transaction, Precision adds 62 marketed service rigs and seven marketed drilling rigs in Canada and 11 marketed drilling rigs in the US, including seven alternating current (AC) triple rigs. Currently, three of the Canadian drilling rigs and seven of the US drilling rigs are actively working for customers, according to their press release.
The transaction is expected to be completed in the fourth quarter subject to approval by 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 in Canada and the US, “supported by skilled and experienced personnel and strong customer relationships.” The Company expects to realize approximately $20 million in annual operating synergies once CWC is fully integrated, and Precision has identified approximately $20 million of excess CWC real estate that it expects to monetize after the transaction closes. Precision expects the transaction to be cash flow positive per share in 2024 and to support its ongoing deleveraging plan.
“This acquisition supports our high-performance, high-value strategy by allowing us to expand our service offering in both Canada and the US with high-quality field teams and personnel. With the expected synergies and leveraging further scale our business, we believe the transaction will be earnings accretive and provide significant cash flow to drive shareholder returns and support our debt reduction strategy. I am excited to welcome CWC employees to the Precision team,” said Kevin Neveu, President and CEO of Precision.
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 statement, CWC President and CEO Duncan Au said: “Today we are announcing a strategic combination with Precision that has the size and scale to enable expanded opportunities for our employees, enhanced services for our customers and the participation of CWC shareholders in one of the leading innovative companies in our sector”.
The release noted that the transaction will require the approval of at least 66 2/3 percent of CWC stockholders represented in person or by proxy at a special meeting of CWC stockholders to be called to consider the transaction “CWC shareholders will have the option of electing cash or Precision shares, or a combination thereof, subject to the pro-rata and consideration limits set forth in the agreement,” according to the statement.
In July, Precision reported net income of $20.3 million ($26.9 million CAD), or $1.49 ($1.97 CAD) per share, for the second quarter of 2023, compared with a net loss of $18.6 million (C$24.6 million), or $1.37 (C$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 contracts with several new customers, including large US independents and major oil and gas companies. The company also reported an increase in fourth-quarter rigs with futures paid in the US from the 18th to the 27th and Canada from the 15th to the 25th.
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