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The tug-of-war over a beleaguered Calgary-based oilfield services company has Wilks Brothers LLC of Texas coming out with all guns blazing in a plan to secure majority ownership of Calfrac Well Services Ltd.

Calfrac, meanwhile, has labelled Wilks a “wolf in sheep’s clothing,” accusing it of using “hyper-aggressive” tactics in an attempt to take over the company during a punishing industry slump without giving shareholders fair value.

Calfrac is one of the best-known names in the Canadian oil service sector. But like many companies in the patch, its finances and share price have been devastated – first by the 2014-15 collapse in oil prices, then by COVID-19.

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The legal battle over recapitalizing Calfrac is the latest chapter in a years-long struggle between the two industry mainstays. It spans multiple court actions in two countries, and countless tit-for-tat news releases. At its heart is control over large portions of the oilfield services sector in Canada and the United States, where Wilks-owned ProFrac Services is Calfrac’s direct competitor.

In 2014, Calfrac shares on the Toronto Stock Exchange hovered around $20. Two years later, the price had crashed to $1.25. These days, Calfrac shares trade for about 15 cents.

Calfrac reported a net loss of $277-million for its second quarter ended June 30, after revenues plunged by 79 per cent. And it is staggering under $947-million in long-term debt.

“We’re mortified to be in this spot,” company founder and executive chairman Ron Mathison told The Globe and Mail.

As Calfrac pondered a recapitalization plan this summer to avoid insolvency, Wilks – which already owns almost 20 per cent of Calfrac – tossed out what it called a fiscal “life raft.” It proposed to buy up a large swath of the Calfrac debt it doesn’t already own, swap the debt for shares and pay the struggling company $80-million in cash. The swap and payment would have given Wilks a 60-per-cent equity stake in Calfrac.

A special committee formed by Calfrac’s board of directors gave the Wilks plan a hard pass, but the Texans are not stepping down. “We are patient and thoughtful and persistent, and we’re not done here,” Matt Wilks, chief financial officer of ProFrac, told The Globe and Mail.

Mr. Wilks contends that Calfrac is the perfect vehicle to spur much-needed industry consolidation through acquisitions on both sides of the border, especially once the Canadian company’s balance sheet is cleaned up.

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Consolidation is already a reality in the energy sector, says Aroon Sequeira, chairman of Edmonton-based investment bank Sequeira Partners.

Mr. Sequeira expects it to continue as small companies face financial strain due to low crude prices and a harsh investment climate. Unable to access capital, those companies are vulnerable to activist shareholders and creditors who may want to take a run at them, he says.

Mr. Mathison agrees that consolidation in the patch is long overdue, but says Wilks hasn’t shown how it would operate two companies that compete directly with one another.

“How do you compete for work if you have guys on both sides of the street? Who’s going to get the best crews? Who’s going to get the best pricing?” he said.

“I don’t know how you do that. I think it’s conceptually flawed. You’d be continuously colliding.”

In a practical sense, the Wilks proposal was wiped off the table when the Calfrac committee rejected it. But the offer looms as a fiscal elephant in the room as Calfrac’s current shareholders and debt holders prepare for separate votes on Sept. 17 on the board’s recapitalization plan.

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The board says its proposal would avoid insolvency by swapping roughly $510-million worth of debt for equity as part of a court-supervised restructuring, lowering debt by $571.8-million and annual interest expenses by $52.7-million. It would also keep Calfrac independent, saying in a circular to investors that “giving up control of [Calfrac’s] future destiny is a matter of considerable importance to stakeholders.”

Mr. Mathison said 78 per cent of holders of Calfrac unsecured notes have signalled their support for the board’s plan, though he’s under no illusions a vote will spell the end of Wilks’s interest in gaining control of Calfrac.

“If they want to buy the business after the restructuring, they can do that. But that is a different set of rules and they’ll be forced, effectively, to be transparent,” he said.

Wilks contends its proposal will significantly de-lever Calfrac and provide a “superior recovery to stakeholders at all levels of Calfrac’s capital structure.” It even set up a website called A Fair Calfrac to promote its plan, urging stakeholders to vote against the board’s proposal.

“We have put together a proposal that leaves the company with a better balance sheet and leaves stakeholders in a better position than what the company has provided, where the only winners are insiders,” Mr. Wilks told The Globe.

He insists his company is “a white knight, protecting the existing stakeholders from insiders stealing the company” and a deal that would see “a few select insiders ... disproportionately enriched,”

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“The overall attempt here is to paint us as being the bad guy that they’re protecting the company from, but it’s just incredibly dishonest,” Mr. Wilks said.

But Mr. Mathison said it is “laughable” for Wilks to paint itself as a saviour. “They’re trying to do something which is so obviously in their own, distinct best interest,” he said.

“They’re trying to buy 60 per cent of the business for what would be the lowest consideration for a business of this nature in recorded history, while at the same time saying that they’re providing the stakeholders a big benefit.”

Pointing to recent court actions in which Wilks has argued against granting Calfrac legal bankruptcy protection in Canada and the U.S., Mr. Mathison said Wilks is trying to push Calfrac into insolvency and pick up its assets for a fraction of their worth.

“So you’re a minority shareholder and some guy says, ‘I’m trying to protect you,’ ” he said.

Yet Wilks is also saying, in essence, “ ‘I’m going to try as hard as I possibly can – spare no expense, hire the best attorneys – and I’m going to try to put you into insolvency,’ which, by definition, would result in the shareholders getting nothing,” Mr. Mathison said.

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There are other wrinkles as well. Under the board’s recapitalization plan, Calfrac will issue $60-million in new notes with a lien against the company. Of that, $18-million will go to G2S2 Capital Inc., a Halifax-based investment company under Armco Capital Inc.

Armco founder George Armoyan has bet big on buying up oil and gas company debt over the past two years. His company owns about 20 per cent of oil service outfits Trican Well Service Ltd. and Western Energy Services Corp. Last year it acquired 16 per cent of Bonavista Energy Corp. and was a key part of its recapitalization.

A further $13-million of lien notes are earmarked for Matco Investments Ltd., chaired by Mr. Mathison. Of the rest, $14-million will go to an ad hoc group of current debt holders and $15-million to any noteholders who want to buy in.

Mr. Wilks said issuing lien notes to G2S2 essentially hands it the reins of Calfrac, which flies in the face of the board’s fiduciary obligations to shareholders. He also argued that striking a special committee to examine his proposal – but ignore G2S2 – amounted to a double standard.

Mr. Mathison countered that Calfrac received specific legal and financial guidance on its fiduciary duties, and followed that advice to a T. He said Calfrac tried to get Wilks to the table early on, but when it ignored the overtures, the Canadian company turned its attention to G2S2.

“What is the likelihood that we were going to cavalierly disregard them, when we know that they’re armed with the highest price lawyers in Texas, in New York, and they’re going to try as hard as they can to do something which benefits only them?” he said.

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Mr. Armoyan told The Globe he didn’t expect such an ugly fight between Calfrac and Wilks. “It’s unfortunate it’s getting this dirty and this nasty,” he said.

Yet Mr. Mathison and Mr. Wilks both say there’s not as much bad blood as a casual observer might think.

That’s despite years of public scuffles, including a $100-million lawsuit Calfrac launched in 2018, accusing Wilks of attempting to drive up its financing costs with the goal of acquiring Calfrac’s U.S. operations. Wilks countered that Calfrac caused its own problems by not being drastic enough in addressing its debt.

“In a backhanded way I admire how single-mindedly they are focused on their own self-interest. That is the American way, and it’s a kind of a bare-knuckled way,” Mr. Mathison said.

As for Mr. Wilks, he said his company isn’t out “beating our chests and starting fights with people.”

“I know that’s a narrative that some would like to put into the market, but we’re seen as good stewards and market participants,” he said.

“There’s no reason for conflict here. The stakes are too high for that. There’s an opportunity to do what’s right for everyone, and I hope that all stakeholders get the fair shake that they deserve.”

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