Canada’s Trinidad Drilling offers robust fourth-quarter outlook

Canada’s largest contract drilling company is moving to solidify its position with a $540-million all-share merger offer for the country’s third-largest driller. Trinidad recently reached its expected target of 45 active rigs in the U.S.

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Trinidad said that it continues to maintain strong market presence in the Permian basin and, despite industry concerns regarding transportation bottlenecks in the area, customer demand remains robust.

“We’ve said many times that acquisitions are not a priority for Precision, but in this case the value creation opportunity was too compelling for us to ignore,” said Precision CEO Kevin Neveu on a Friday conference call. “Trinidad is presently receiving multiple requests for additional equipment in 2019.

Both Precision and Trinidad have focused on the United States and the Middle East as our primary growth geographies. This combined platform substantially reinforces our scale and market relevance in these key regions, positioning us for sustained growth and technology deployment.

In a news release, Trinidad said shareholders should support Precision’s white knight offer and continue to reject an all-cash $470-million hostile take-over bid from Ensign Energy Services Inc., Canada’s second-largest driller, launched in August.

Precision Drilling shares were at $4.31, down 13 cents or about three per cent, and Ensign was off 40 cents or 6.3 per cent at $5.95.

The Ensign bid was made soon after Trinidad ended a strategic review process that allowed prospective buyers to examine the company. It said no suitable offers had been received. Focused largely in the Permian, but with growing interest in other basins,” added the company.

Trinidad said the Precision bid is worth $2.11 per Trinidad share based on Precision’s 30-day volume-weighted average share price. That’s a premium of 25 per cent over the Ensign offer and 17 per cent over Trinidad’s 30-day price of $1.81, it said.

“This combination of two high-quality drilling contractors creates the third-largest drilling contractor in the robust U.S. market and provides a significant international growth platform,” noted Trinidad CEO Brent Conway in a news release.

The Precision-Trinidad merger is positive for the Canadian drilling market because it will reduce an oversupply of rigs chasing too few wells, said Houston-based analyst Taylor Zurcher of Tudor Pickering Holt & Co.
“If Trinidad was solely a Canadian company.

“I think the real reason they like this deal is for the U.S. assets, and that’s because the U.S. market is just a really tight market at the high end.”

Drilling activity in key American oil and gas fields where advanced technology rigs that can drill long horizontal wells are in demand is up over last year while Canadian activity is flat.

Ensign’s offer was “bargain basement” but Precision’s bid is a fair valuation, Zurcher said. “Dayrates for high-specification equipment continue to increase, and Trinidad expects to see ongoing improvement in spot market dayrates through the remainder of 2018, and into 2019.”

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