Sanjel, owned by Calgary’s MacDonald family, generated revenue of $1.26-billion (Canadian) in its fiscal 2013, putting it third in its category of Canadian oil and gas well-cementing and pressure-pumping firms.Jim Wilson
The court-supervised selloff of Sanjel Corp. is the biggest display yet of what's permeating much of Canada's energy services industry – desperation.
The family-run company, known for such work as hydraulic fracturing and well completions, said late Monday that it is selling its Canadian operations to STEP Energy Services and U.S. business to Liberty Oilfield Services. Both buyers are backed by private-equity firms.
No deal terms have yet been revealed, but details will emerge as the Companies' Creditors Arrangement Act proceedings play out. Still, court filings and shards of other sources give a pretty good idea of what's become of the company that had been the No. 3 in the "pressure pumping" segment of the industry, behind publicly traded Trican Well Service and Calfrac Well Services Ltd.
Sanjel is hobbled by more than $1-billion of debt. It missed a payment on its bonds in December as oil and gas producers that form its client base slammed the brakes on development spending, squelching cash flow and narrowing survival options.
The company, which had been run by chairman Don MacDonald and CEO Darin MacDonald, went to market for $400-million (U.S.) of bonds in the spring of 2014, just months before crude prices began to collapse. That debt last traded at pennies on the dollar, and how the bondholders will fare in the transaction is not yet known.
In the prospectus for that debt issue, the company said it had 4,100 people on staff, and it generated $1.5-billion (Canadian) in revenue in fiscal 2014. Its website currently lists the work force at 2,300.
Now, Sanjel is being carved up and sold under CCAA, a process that closes the book on a Calgary corporate story that began with a single truck several oil downturns ago in 1982. There's no word yet on the fate of the remaining employees, as the buyers say they can't disclose many details of their acquisitions yet.
In some ways, it's surprising there hasn't been more consolidation in oil services, given what the industry's already endured.
The tally of active drilling rigs is down by three-quarters from the five-year average, as the traditionally busy winter drilling season was essentially cancelled.
The number of workers in the field was slashed by 46 per cent by the end of 2015 versus 2014, according to FirstEnergy Capital. That translates into more than 24,200 people dropped from oil-service-company payrolls, half of those at contract drillers.
Just about any company with debt to service has been forced to go to lenders to seek concessions on the terms, some more than once. Others, such as Trican, have sold off assets to raise money.
Last week, more than a dozen oil-field service companies set off an e-mail blast, filling reporters' inboxes with statements about how politicians should be more forceful in pushing for pipelines and how they will fight against misinformation about the energy industry spread by "foreign celebrities and radical environmentalists" as part of their industry's "Oil Respect" campaign.
It was clumsy, and in some ways appeared to be an attempt to refight a PR battle from a couple of years ago.
Indeed, their biggest threat is not Hollywood, but the global oil market and whether their business models can withstand the downturn. But, given the tough times they and their workers' families face, it's completely understandable.
Share prices across the sector have been hammered, as investors fear more carnage.
Trican is down 70 per cent in the past year and Calfrac has tumbled 87 per cent. Dividends? Forget about them. They've long since been reduced, then cancelled.
Now, the Sanjel breakup could spark a round of deals, and its type of buyers is instructive. Calgary's ARC Financial backs STEP and Liberty is in New York-based Riverstone Holdings' portfolio.
For much of the past year and a half, there's been plenty of talk about private-equity money waiting to pounce as energy assets get cheaper. This could shake loose more acquisitions in the oil-field service industry.
After all, the pain threshold has long since been crossed.
Jeffrey Jones