Five-and-a-half years after Eagle Drilling Services Ltd. sent its first rig into the field, the Carlyle-based company has been acquired by CanElson Drilling Inc. (TSX: CDI) for $61.0 million (plus the assumption of debt of approximately $17.1 million), consisting of cash and the issuance of common shares of CanElson for a total purchase price of approximately $78.0 million.
"We are pleased to add Eagle's top quality crews, operations personnel and modern drilling rig fleet to our group," CanElson President Randy Hawkings states in a press release. "They will form a key component of CanElson's future growth plans for expansion in Saskatchewan, Manitoba and North Dakota. Eagle's rig fleet aligns with CanElson's existing western Canadian platform drilling rig fleet focused on the service to resource play operators requiring drilling equipment with the ability to drill deep horizontal wells."
The acquisition of Eagle Drilling adds eight rigs to CanElson's existing six-rig fleet in Southeast Saskatchewan. The Canadian company now operates 27 (totally owned 23) rigs in western Canada, the Permian Basic of Texas and the Ebano-Panuco-Cacalilao fields of Mexico. However, the 14 currently operating in Saskatchewan will remain in the area.
"The rigs we have here now will basically stay here in Southeast Saskatchewan and Southwest Manitoba," says Mike Smith, VP of Operations and General Manager, Saskatchewan for CanElson
"We're going to bring all our operations from Carnduff - where Totem's office originally was - we're going to bring that all to Carlyle," says Smith.
Derrick Big Eagle - the former President and General Manager of Eagle Drilling - will stay on board with CanElson as the new VP of Business Development. This provides him with an opportunity to put his best skills to use, as he calls upon the knowledge he gained over the past five years when he helped Eagle Drilling grow from a one-rig fleet to an eight-rig fleet in a short period of time.
"I'll be helping to grow and expand [CanElson] and bring in new business," says Big Eagle. "I'll try to enable us to bring more rigs into new areas."
CanElson plans to expand its business further into the Bakken Play, by putting rigs in North Dakota and Montana, where the oil industry is experiencing a similar boom as its northern neighbours.
There are no major changes foreseen due to the acquisition, however; Big Eagle anticipates the day-to-day operations will run smoother.
"I think if anything [the merger] will enhance it," says Big Eagle. "Mike and I grew up down here on the rigs, and we worked together as a team before, and I think it should make running operations in Southeast Sask. a whole lot easier for both us. We can now bounce ideas off of each other, and it's easier to work together. Plus, we grew up learning the same stuff, so it's kind of like two brothers living in a bedroom - you know what the next guy's move is already."
With a combined experience of 50 years, Smith and Big Eagle look forward to working together as a team to grow and expand CanElson's operations.
"We've been chatting about it for six months or so," says Big Eagle. "Then, it was just an opportunity we saw to put it out there and give everyone an equal opportunity to have a look at Eagle Drilling and see if it fit their regime they previously had. And, it just worked out that our best fit was going to be with CanElson."
"Our biggest factor with that was our employees," continues Big Eagle. "We felt that there was more of an opportunity for our employees with CanElson [for] international eligibility, and also for our shareholders to get the best value for their dollars. We saw a great upside to the CanElson share value, and this was able to get our shareholders a little more cash for their shares with Eagle Drilling."
Payout for the acquisition is one-third cash and two-thirds shares in CanElson.
"When you look at it, it looks like a sale," says Big Eagle. "But in our minds, it was more like a merger because there was a lot more paper than cash exchanged. It wasn't a takeover, but a merger and a team building."
Pursuant to the offer, Eagle shareholders will receive $20 million of cash consideration and approximately $41 million of CanElson shares at a deemed price of $4.15 per share. Five per cent of the CanElson Shares received by Eagle shareholders will be free trading upon issuance, 33.33 per cent are subject to a resale restriction of four months, 33.33 per cent are subject to an eight-month resale restriction, and the remainder are subject to a one year resale restriction
With his appointment as VP of Business Development, Big Eagle has been granted 150,000 stock options at an exercise price of $4.76 per share. The options will vest as to one-third, one year from the date of grant; one-third, two years from the date of grant; and one-third, three years from the date of grant. Each respective one-third will expire on the date that the subsequent one-third vests, such that the final one-third of the options expire four years from the date of grant.
All 14 of CanElson's rigs are currently being utilized. The recent acquisition brings CanElson's employees in Southeast Saskatchewan and Sousthwest Manitoba to 340, making it the second largest drilling contractor in the area. One of the largest employers in the area, CanElson feels strongly about supporting the local communities in which it works.
"CanElson looks at community involvement as very important, and still plans on being strongly involved in the local communities," says Big Eagle.
