If a blockbuster deal goes through, a baker’s dozen of drilling rigs in southeast Saskatchewan will need new signs, and possibly new paint.
Ensign Energy Services Inc. announced on Aug. 13 it was making a $947 million offer to purchase Trinidad Drilling Ltd. for all of the issued and outstanding common shares of Trinidad, at $1.68 per Trinidad common share.
That’s a 20 per cent premium to the to the volume weighted average price of the common shares of Trinidad, on the Toronto Stock Exchange, for the trading days between Aug. 1 through Aug. 10, after Trinidad announced on Aug. 1 the end of its strategic review process.
In that announcement, Trinidad, which had been seeking strategic options including a merger or sale, said it had come up dry.
The company said in a release on Aug. 1, “After a comprehensive public process, the proposals that Trinidad received did not fully reflect the value of the company. The board has determined that the best alternative to improve shareholder value is to pursue Trinidad's revised five-year strategic plan, capitalizing on the company's operational excellence, strong customer base, geographic diversity and solid financial position. A number of strategic changes made over the past year are now beginning to be reflected in Trinidad's financial results.”
Ensign’s proposed deal would include Including Trinidad's estimated outstanding net debt of $477 million as of June 30. The total value of the transaction is approximately $947 million. Ensign already owns 9.8 per cent of Trinidad’s common shares.
In an Aug. 13 press release, Ensign said, “Following Trinidad's announcement on August 1, 2018 of the unsuccessful conclusion of its comprehensive public strategic review process, Ensign approached Trinidad's board of directors with a proposal to enter into negotiations regarding a fully-funded all-cash transaction which would provide Trinidad shareholders the opportunity to realize an immediate premium and liquidity for the Trinidad common shares at a compelling value.
“After having advised the Trinidad board of our offer and willingness to negotiate a Trinidad board-supported transaction, we believe the best course of action is to make the offer directly to Trinidad shareholders.”
Trinidad’s stock price had been as high as a little more than $2 per share in April, but took a nosedive in July. In the first half of 2014, the company was trading over $12 a share before taking an 18-month decline to flatten out in the $2 range since then. The current offer is one-seventh per share compared to what Trinidad was trading at in early 2014.
Ensign’s press release points this out, noting destruction of shareholder value.
“Trinidad has failed to create meaningful shareholder value over the long-term as the current price of the Trinidad common shares is close to both the 52-week and all-time low share price,” Ensign stated in the news release. “We strongly believe that our offer is a far superior alternative to the risk of further value destruction as Trinidad seeks to implement its ‘future plan’ over an elongated time period of five years.”
Ensign also pointed out their offer is fully financed and has a “high likelihood of completion.” They also said there is an “extremely low likelihood of a competing offer.”
In addition to offering a premium to the current market price and “full and fair value to Trinidad shareholder,” Ensign noted the offer provides “certainty of value and immediate liquidity,” in other words, a chance to cash out. In revealing this is not a friendly offer, the press release took a swipe at Trinidad management by saying, “The standalone alternative of Trinidad is highly uncertain and relies on successful execution of key initiatives over a lengthy period of five years. Initiatives which we strongly believe should have already been part of Trinidad's corporate strategy versus being a ‘future plan.’ In particular, Trinidad's initiative number 3, ‘culture of high performance and shareholder alignment’ and initiative number 1, ‘commitment to financial discipline and generating free cash flow’ should be core corporate principles, not aspirational initiatives.
“Trinidad shareholders face a highly uncertain future and an unpredictable share price. The offer provides 100 per cent cash consideration for the common shares, giving Trinidad shareholders certainty of value and immediate liquidity.”
Trinidad responded later that day, saying in a release, “Trinidad first received Ensign's proposed offer of $1.68 per common share on the evening of Saturday, August 11, 2018. In the afternoon of Sunday, August 12, 2018 after consultation with its financial and legal advisors and having regard to the extensive analysis conducted, financial advice received and feedback received from industry participants during Trinidad's very recently completed strategic process, the board determined that Ensign's proposed offer was not acceptable as it was not in the best interests of Trinidad or its shareholders, and communicated that to Ensign.
“However, Trinidad offered to continue discussions with Ensign and provide Ensign with additional information, on customary confidentiality terms, to better allow Ensign to understand the value of Trinidad and its business. Ensign again rejected this opportunity and instead announced its intention to make an unsolicited offer earlier today.”
The company said it advises shareholders not to take any action until they have received further communication from Trinidad's board of directors.
Should the deal go through, it means yet another sign for several rigs in southeast Saskatchewan. The eight former Eagle Drilling and six former Totem Drilling rigs came together when they were purchased by CanElson Drilling banner. A few years later, Trinidad Drilling bought out CanElson.
Those rigs were reduced by one in the region, as it was dispatched elsewhere, bringing the local count to 13, but not counting the Trinidad rigs that had been servicing, and continuing to service, the Manitoba oilfield.
Coincidentally, during the depths of the downturn, Ensign Drilling dramatically reduced its presence in southeast Saskatchewan, to the point where in early 2016 they cut up 13 rigs at Oxbow and Carnduff for scrap. Should the deal go through, they will regain precisely that number of rigs in the region.
As of Aug. 13, sister publication Rig Locator (riglocator.ca) showed seven Ensign rigs working in Saskatchewan, three in the Kindersley area, one near Onion Lake, one at Oungre, one at Pinto and one at the Esterhazy potash mines. Another rig was working in Manitoba in the Daly field. A total of 22 rigs were working in Canada, while 32 were listed as down. Of those down, three were in southeast Saskatchewan, four in west central Saskatchewan, and one near Lloydminster.
Trinidad Drilling showed 33 rigs down throughout Canada, including eight in southeast Saskatchewan and one in Manitoba. It had 35 working in Canada, with one in near Maidstone and five in southeast Saskatchewan. Another three were working in Manitoba.
In May, Trinidad had 68 rigs in its Canadian fleet, 66 rigs in its U.S. and international fleet, and five in a joint venture with Halliburton.
Trinidad Drilling was founded in 1996 by Mike Heier, originally of Estevan. He was, until July 3, the chair of the board, and had been CEO from 2000 to 2008.
