Precision Drilling announces swap with Essential Energy Services
Calgary-based Precision Drilling Corp. (ticker: PDS) announced Tuesday that the company will swap its Canadian Coil Tubing operations for Essential Energy Services’ (ticker: ESN) service rig business. In addition to the swap of assets, Precision will make a cash payment of $12 million to Essential, the company said in a press release.
“This is a strategic transaction to divest a business line in which Precision lacks scale to generate the returns we expect and follows similar Precision divestitures of our U.S. trucking and U.S. coil tubing businesses in 2014,” Precision Drilling President and CEO Kevin Neveu said.
“The acquisition of Essential’s service rig business is a unique opportunity to expand our leading well service position within the Canadian market by adding the high quality assets and people of Essential’s service rig operations.”
The Service Rig Business that Essential is selling includes the following:
- 38 active service rigs and 16 service rigs that have been classified by Essential as parked;
- 150 employees; and
- Certain ancillary equipment and related inventory.
The Coil Well Service Assets that Essential will receive includes the following:
- Four coil tubing rigs, similar in size, age and capability as Essential’s Generation III coil tubing rigs;
- Three quintuplex pumper units;
- One nitrogen unit; and
- Related inventory.
There will be no transfer of employees as the Coil Well Service Assets have been parked since the first quarter of 2016, according to Essential’s press release.
Seeing stronger demand in 2017
Improved commodity price and stability are increasing demand for Precision’s rigs, the company said in its 2017 capex plan. The company said its CAD$109 million 2017 capital expenditure plan would be allocated as follows:
- $51 million to upgrade existing rigs,
- $ 7 million expansion capital, carried forward from 2016 international new build drilling rigs,
- $51 million for sustaining and infrastructure.
“We are seeing signs of strengthening demand for our services for the upcoming Canadian winter drilling season and improving demand in U.S. regions where we operate,” said Neveu. “Since our third quarter earnings release in October, we have added three rigs years to our 2017 contract backlog and now have an average of 45 rigs under contract for 2017.
“With over 110 drilling rigs currently running in North America, we are experiencing customer demand greater than the prior year for the first time in over two years and are currently enjoying our historically strongest North American market share.”