CanElson shares rise on Eagle Drilling purchase
CALGARY – Shares of CanElson Drilling Inc. (TSX-V:CDI) rose Friday morning after it announced it is buying a private company that will add eight rigs to the 10 it currently deploys in Canada.
In a news release, the company founded by former Savanna Energy Services Corp.(TSX:SVY) chairman Elson McDougald less than two years ago said it had agreed to buy Eagle Drilling Services Ltd. for $61 million in cash and shares plus the assumption of $17 million in debt.
Shares jumped five cents to $5 even on the Toronto Stock Exchange. The stock grew from $2.25 to $4.30 during 2010.
“Eagle is one of the most respected contract drilling providers operating in southeast Saskatchewan and southwest Manitoba that has consistently realized higher than industry utilization levels and also has a reputation as an efficient and safe drilling contractor,” said Randy Hawkings, CanElson president and chief executive, in a statement.
“The acquisition … will strengthen CanElson’s presence and capitalize on increased market exploration and production opportunities in Saskatchewan as well as Manitoba.”
The purchase, expected to close Jan. 28, will take CanElson’s overall fleet to 27 rigs by the end of March, he said, adding the company is looking for other opportunities to grow the business.
Carlyle, Sask.-based Eagle’s eight telescopic double drilling rigs are employed mainly in the Bakken area of southeast Saskatchewan.
The deal carries a break fee of $2.5 million but CanElson said shareholders with 55 per cent of the Eagle stock have committed to it.
Shareholders will receive $20 million in cash and $41 million worth of CanElson shares at a deemed price of $4.15 per share. The new shares will be restricted from being sold for up to a year.
CanElson said the cost per fully crewed rig is about $8.1 million after accounting for working capital, land and buildings and other equipment.
Key employees and management of Eagle are to be retained and continue with CanElson.
At the end of the first quarter, CanElson said it expects to have 18 rigs in Western Canada, five drilling rigs in West Texas, two sub-contracted drilling rigs in Mexico and two service rigs in Mexico. Two of the rigs in Texas and all the rigs in Mexico are operated through a joint venture.
Eagle was founded in 2005 by Robert MacCuish and Derrick Big Eagle, CanElson said. It had a 71 per cent utilization rate in 2010 and generated $8.4 million on revenue of $30.7 million.
CanElson reported utilization of 94 per cent in Texas and 70 per cent in Canada in the fourth quarter of 2010.