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New Sanjel cautious amid signs of energy recovery

The new Sanjel, owned by Calgary’s ARC Financial Corp., sticks to acidizing and cementing, processes that follow the drilling and fracking of oil and gas wells so they can be put into production.

Todd Korol/The Globe and Mail

It should come as little surprise that a company that emerged only recently from one of the biggest flame-outs of this oil-patch downturn is stepping gingerly.

Sanjel Energy Services provides some very specialized tasks for oil and gas drilling, especially compared to the former Sanjel Corp., which was broken up in creditor protection last spring, its assets split among Canadian and U.S. private-equity firms at fractions of their onetime book value.

The new Sanjel, owned by Calgary's ARC Financial Corp., sticks to acidizing and cementing, processes that follow the drilling and fracking of oil and gas wells so they can be put into production. With some signs of recovery in energy prices, Sanjel chief executive officer Shane Hooker says he's being very cautious about adding capacity.

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Indeed, forecasts for oil and gas prices – and how producers will adjust their spending in 2017 – are all over the map. The new Sanjel operates solely in Western Canada, where winter operations are traditionally the busiest and most crucial for the health of oil-field service providers. The last couple have been busts.

"We need three to four months in order to properly prepare new hires for any growth for that high-activity season, so we're actively engaging our clients on what they're going to do. I'm not certain they know," Mr. Hooker said in an interview.

"We're taking a responsible and conservative view on recovery and gearing up with that in mind."

The downturn in the sector is now more than two years old, and there is growing optimism that the worst is behind the business, which has been forced into deep cuts and mass layoffs. Sanjel's predecessor was a high-profile victim of the severe slowdown with an untenable debt load.

At its peak, the company, run by Calgary's MacDonald family for more than three decades, employed 4,300 people and generated revenue of $1.5-billion. It was the No. 3 Canadian-based "pressure-pumping" company, a hydraulic fracturer with extensive well-cementing and related operations. It had branches in Canada, the United States and Saudi Arabia.

But as the oil collapse took hold, customers quit spending, cash dried up and bondholders demanded payment. Sanjel's efforts to restructure its finances and even find a buyer came up dry, and the company entered bankruptcy protection and struck deals to split up the North American business among two private equity players. There was court drama, as bondholders tried to block the sales. But Calgary-based ARC Financial snapped up the Canadian assets, placing the fracking business with STEP Energy Services, which it already owned. It put the acidizing and cementing unit under the stewardship of Mr. Hooker and chairman Douglas Freel, managing director at ARC.

Mr. Hooker had worked at the former Sanjel, having left in 2014. Indeed, the company took the old name to capitalize on brand recognition, he said. Now, it has 229 employees at head office and nine field locations. ARC's backing gives it some financial stability amid the uncertain industry conditions, with several domestic and multinational players vying for market share.

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"The entire climate is very competitive right now, with everybody trying to get a share of the 25-per-cent rig utilization that's occurring right now. It's a very competitive environment, but one that we're planning for and managing through," Mr. Hooker said.

There have been signs of improving market conditions. On Tuesday, GMP FirstEnergy analyst Martin King told a room of energy executives that global oil markets are balancing, even without a potential OPEC deal to cut production. Meanwhile, natural gas markets could strengthen this winter with U.S. inventories expected to match or lag last year's by the end of this month.

That's not enough certainty for the new Sanjel to ramp up its investments in people and gear yet, though.

"We need to see evidence that recovery is under way and going to be sustained before we go out and commit significant resources to growth. It's a tough question to answer," he said.

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