Precision Drilling trumps Ensign to buy Trinidad Drilling in $1.03 billion deal

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"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 now touting the Precision deal.

Together they would have an expanded platform for US and worldwide growth and technology deployment, Precision noted.

The Trinidad board is unanimously supporting the Precision offer and rejecting a previous hostile takeover bid of $1.68 per share cash from Ensign Energy Services Inc., also of Calgary, that was announced on August 30.

Similarly, last year, Total Energy Services Corp. launched a hostile takeover bid for heavily indebted driller Savanna Energy Services, beating out another rival Western Energy Services. BNN Bloomberg's Andrew Bell has the details. Finally, GMP Securities cut Trinidad Drilling from a "buy" rating to a "hold" rating and reduced their price objective for the stock from C$2.50 to C$2.00 in a research note on Thursday, August 9th.

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The Ensign bid was made soon after Trinidad ended a strategic review process that allowed prospective buyers to examine the company. "Within two weeks, (Ensign) boosted its offer to surpass (Precision's) by 9 per cent, thus "winning" the competition for AOGC", Bradford said.

In an email Friday, an Ensign spokesman said it is reviewing the announcement and will update the market "in due course".

The all-stock bid, C$1.98 per share based on the bidder's closing price on Thursday, represented a 7.6 percent premium to Trinidad's closing price on that day.

The Precision and Trinidad boards unanimously approved the merger, which is subject to regulatory and shareholder approvals. Precision has identified 50 rigs from the combined fleet that it intends to hold as assets for sale.

In its attempt to resist a hostile takeover bid, Trinidad Drilling Ltd. has found a rescuer in larger rival Precision Drilling Corp. "I think the real reason they like this deal is for the US assets, and that's because the USA market is just a really tight market at the high end".

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"With that said, should Ensign elect to increase the bid to exceed the one being made from Precision, there is still a healthy amount of financial accretion to be had on the part of Ensign", he said.

Post-merger, Precision's rig count would be behind USA leader Helmerich & Payne Inc. and second-place Patterson-UTI Energy Inc. and likely tied with Nabors Industries Ltd., he added.

Precision said this merger would be a unique combination of two highly focused drilling contractors pursuing similar strategies with complementary Tier 1 assets.

It also includes a break fee of $20 million, which Trinidad will be obligated to pay Precision if the deal doesn't close - which is a possibility given there is already an offer on the table for Trinidad that analysts think could be sweetened. Trinidad would own about 29% of the combined company. It expects about 215 rigs would be actively working.

In 2019, Precision expects to realize more than $30 million in annual synergies through corporate efficiencies and facility consolidations.

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In July, low natural gas prices were cited by the Petroleum Services Association of Canada in cutting its 2018 Canadian drilling forecast to 6,900 oil and gas wells, 200 fewer than were drilled in 2017.