Sanjel Corp. expects to recover as little as $325-million from the sale of its U.S. and Canadian assets, a small fraction of what it said the businesses were worth and well under what is owed to the company's lenders.
The family-controlled international oil services company struck a deal to sell its Canadian and U.S. divisions to STEP Energy Services Ltd. and Liberty Oilfield Services LLC, respectively, under court supervision after seeking protection from creditors earlier this month. Both buyers are backed by private equity.
The purchase prices were not disclosed, but in a supplementary affidavit from its chief financial officer, Sanjel said it expects to recover between $325-million and $375-million from the sales – well short of the $1.4-billion it said its assets were worth in earlier filings.
The estimated recovery also includes working capital and potential proceeds from additional asset sales, CFO Paul Crilly said in the document. That means the Canadian and U.S. divisions probably fetched considerably less than the stated range.
It is a steep bargain that underscores risks to banks and other lenders as they navigate the deepening fallout from oil's collapse. The total falls short of the $396-million Sanjel owes under a secured credit facility to a syndicate of banks led by ATB Financial Corp. The company's debts also include $300-million (U.S.) of unsecured bonds that recently traded for pennies on the dollar, suggesting that they are unlikely to be repaid.
Sanjel, known for its hydraulic-fracturing and well-cementing businesses, sought to scare up a buyer and ultimately signed confidentiality agreements with 19 parties as its finances deteriorated last year. It agreed to sell itself to Liberty and STEP on April 3.
"This wasn't a business where they turned the lights off and kind of took it to auction," TD Securities Inc. analyst Scott Treadwell said.
"It's a bit of a commoditized business at the best of times, and when you've got oversupply and low spending, you just kind of end up in this situation where nobody really wants the assets."
This week, privately held ATK Oilfield Transportation Inc. became the latest casualty of the bust, pushed into receivership by its lender, ATB, Alberta's provincially owned bank.
The Alberta-based company was founded in 2010 by Artie T. Kos, who previously built one of North America's largest privately owned oil field transportation firms, Kos Corp. Oilfield Transportation Ltd. That company was sold in 2006.
It was not immediately clear what drove ATK over the brink, and calls to the company were not returned on Thursday.
However, it specialized in hauling rigs and other equipment, a segment of the industry that has been hit especially hard as oil and gas companies slash spending and drilling activity grinds to a halt.
The number of active rigs in Western Canada fell 11 per cent this week to 41 and is now 74 per cent below the five-year average of 156, according to RBC Dominion Securities Inc.
Also Thursday, cash-strapped Pacific Exploration & Production Corp. said its board had agreed to negotiate a financial restructuring involving private-equity fund Catalyst Capital Group Inc.
Energy companies have cuts tens of thousands of jobs and slashed spending to the bone to weather the downturn. Many now face increased pressure as banks tighten lending restrictions and chop credit lines, reducing liquidity when they need it most.
That could prompt a spike in defaults, said Charla Smith, senior manager at Grant Thornton LLP in Calgary. "I think in most of those situations, the companies have already tried to sell their assets, and either they couldn't sell them or they couldn't sell them for enough to satisfy the bank and get them to the level that they need to be at," she said in a recent interview.
"If the bank isn't happy with the current level of borrowing, they're probably unlikely to increase the amount of borrowing to help them deal with that cash crunch."