Brookfield’s CWC to acquire rig services business for $37.5 mln

CWC Energy Services Corp (TSX-V: CWC) has agreed to acquire the Canadian service and swabbing rig assets and ongoing operations of C&J Energy Services Inc (NYSE: CJ), a U.S. oilfield services provider. CWC, a Calgary-based contract drilling and well servicing company, will pay $37.5 million in cash for the business. The deal is expected to close next month. Debt incurred by CWC as a result of the deal will be paid down in part by an equity rights offering. The private equity group of Brookfield Asset Management, which currently owns about 72.7 percent of CWC’s outstanding shares, indicated it plans to participate in the offering.

PRESS RELEASE

CWC Energy Services to Acquire C&J Energy Services’ Canadian Service and Swabbing Rig Assets Becoming the Largest Active Service Rig Contractor in Canada

CALGARY, Oct. 30, 2017 /CNW/ – (TSXV: CWC) CWC Energy Services Corp. (“CWC” or the “Company”) is pleased to announce that it has entered into a definitive agreement to acquire the service and swabbing rig assets and ongoing operations of C&J Production Services-Canada Ltd. (“C&J Canada”) from C&J Energy Services, Inc (“C&J Parent”) for total consideration of CDN $37.5 million in cash (the “Transaction”). The Transaction is expected to close on or about November 6, 2017. The combination of CWC’s premier well servicing fleet of 74 service rigs and C&J Canada’s 75 service rigs will create the largest active service rig fleet in Canada based on reported operating hours in 2016 and year-to-date 2017 by the Canadian Association of Oilwell Drilling Contractors (“CAODC”) with a Canadian service rig market share of approximately 15%.

SUMMARY OF THE ACQUISITION

C&J Canada is a leading well servicing company operating in the Western Canadian Sedimentary Basin (“WCSB”) with 75 service rigs (44 marketed rigs) and 13 swabbing rigs (9 marketed rigs) operating from six strategic locations in Alberta: Sylvan Lake; Grande Prairie; Slave Lake; Drayton Valley; Lloydminster; and Brooks. The total transaction value (“TTV”) is $37.5 million in cash, including the purchase of four owned real estate properties in Sylvan Lake, Slave Lake, Lloydminster and Brooks, Alberta which is estimated by CWC management to have a value of approximately $15 million. The Transaction will be financed initially from the Company’s expanded credit facilities with CWC’s existing banking syndicate and then through an equity rights offering, as more fully described below.

TRANSACTION METRICS

At a purchase price of $37.5 million(1), CWC is acquiring C&J Canada’s service and swabbing rig assets at the following transaction metrics: (see metrics data here).

STRATEGIC RATIONALE

Management and the board of directors of CWC believe that the Transaction will provide many strategic benefits including:

The Transaction is expected to be accretive to CWC on an Adjusted EBITDA, cash flow and earnings per share basis;
CWC will be the largest service rig contractor by operating hours in the WCSB working with a superior customer list of over 175 exploration and production (“E&P”) companies with 58% of the revenue generated by the combined top 10 customers comprised of senior and intermediate E&P companies;
The combined assets are expected to result in SG&A expense synergies of approximately $4.3 million annually;
In addition to SG&A expense synergies, CWC will own real estate properties in four of its strategic operating locations thereby eliminating current leasing costs of approximately $0.6 million annually;
The ability to capture additional operating synergies through economies of scale; and
Built-in capacity to increase active service rig count without the need for additional growth capital, by putting a combined 39 inactive service rigs to work when future demand warrants.

PRO FORMA SUMMARY, TRANSACTION TERMS AND CONDITIONS

Upon closing of the Transaction and assuming the completion of a fully subscribed Rights Offering (as defined and described below), CWC expects to have the following pro forma characteristics:

149 service rigs (110 CAODC registered and marketed) comprised of 77 singles, 58 doubles and 14 slant rigs with depth ratings from 1,500 to 5,000 metres;
9 telescopic double drilling rigs (9 CAODC registered and marketed) with depth ratings from 3,200 to 5,000 metres;
10 coil tubing units (9 marketed) with depth ratings from 1,500 to 4,000 metres;
14 swabbing rigs (9 marketed);
Basic common shares outstanding of approximately 520,595,123;
Market capitalization of approximately $109 million based on the October 27, 2017 closing price of $0.21 for CWC’s common shares;
Long-term debt including transaction costs associated with the Transaction of approximately $47 million;
Enterprise value of approximately $156 million; and
Strong balance sheet with total debt to combined pro forma 2018E Adjusted EBITDA of approximately 2.0:1.
The Transaction contains customary terms and conditions for a transaction of this nature, including representations and warranties of C&J Canada and C&J Parent and covenants until closing of the Transaction regarding the operation of the acquired assets. The Transaction is expected to be completed on or about November 6, 2017.

GMP FirstEnergy and CIBC World Markets Inc. acted as financial advisors to CWC on this Transaction.

EXPANDED CREDIT FACILITIES

CWC and its syndicated lenders have agreed to the Company’s exercise of the accordion feature to expand its credit facilities from $65 million to $100 million. The expanded credit facilities provide financial security and flexibility to July 31, 2020. The syndicate lenders have also provided consent to permit the acquisition of the C&J Canada assets with the expanded credit facilities. The expanded credit facilities will initially be used to complete the Transaction and upon the successful completion of the Rights Offering, will subsequently be available to assist the Company in completing further acquisitions, financing capital expenditures and for general working capital purposes.

EQUITY RIGHTS OFFERING

To repay a portion of the debt incurred to complete the Transaction, CWC will be offering (the “Rights Offering”) rights (“Rights”) to holders of its common shares (the “Common Shares”) of record at the close of business on November 15, 2017 (the “Record Date”). The Rights issued under the Rights Offering will expire on December 11, 2017 (the “Rights Expiry Date”). The Rights Offering will be conducted in all of the provinces and territories of Canada. A fully subscribed Rights Offering is expected to generate gross proceeds of approximately $26 million.

Each registered shareholder of Common Shares on the Record Date will receive one (1) Right for each Common Share held by such shareholder. Three (3) Rights plus the sum of $0.20 will entitle the Rights holder to subscribe for one Common Share. The Rights issued under the Rights Offering will be evidenced by transferable rights certificates (each, a “Rights Certificate”), and will expire at 4:30 p.m. (Toronto time) on the Rights Expiry Date, after which time unexercised Rights will be void and of no value.

The Rights will be listed on the TSX Venture Exchange (“TSXV”) under the trading symbol “CWC.RT” and will be posted for trading on the TSXV until 10:00 a.m. (Calgary time) on the Rights Expiry Date.

Eligible shareholders are entitled to subscribe for additional Common Shares, subject to certain limitations set out in the Company’s rights offering circular (the “Rights Offering Circular”). A copy of the Rights Offering Circular will be filed on www.sedar.com, together with a rights offering notice (the “Rights Offering Notice”). The Rights Offering Notice and accompanying Rights Certificate will be mailed to each of the eligible shareholders of the Company on the Record Date. Registered shareholders wishing to exercise their Rights must forward the completed Rights Certificates, together with the applicable funds to Computershare Trust Company of Canada, the rights agent of the Company, on or before the Rights Expiry Date. Shareholders who own their Common Shares through an intermediary, such as a bank, trust company, securities dealer or broker, will receive materials and instructions from their intermediary.

Brookfield Capital Partners Ltd. and certain of its affiliates (collectively, “Brookfield”), the Company’s significant shareholder which controls approximately 72.7% of the outstanding Common Shares, has indicated to the Company that provided that the Transaction is completed, it intends to participate in the Rights Offering to the fullest extent possible. As a result, Brookfield’s ownership interest in the Corporation may increase if the Rights Offering is not fully subscribed by all holders of Common Shares.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in the United States or in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such province, state or jurisdiction. The securities referenced herein may not be offered or sold in the United States except in transaction exempt from or not subject to the registration requirements of the United States Securities Act of 1933, as amended, and applicable state securities laws.

About CWC Energy Services Corp.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the Western Canadian Sedimentary Basin with a complementary suite of oilfield services including drilling rigs, service rigs, and coil tubing. The Company’s corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Red Deer, Drayton Valley, Lloydminster, Provost, and Brooks, Alberta. The Company’s shares trade on the TSX Venture Exchange under the symbol “CWC”.

For further information: CWC Energy Services Corp., 610, 205 – 5th Avenue SW, Calgary, Alberta T2P 2V7, Telephone: (403) 264-2177, Email: info@cwcenergyservices.com; Duncan T. Au, CPA, CA, CFA, President & Chief Executive Officer; Craig Flint, CPA, CA, Chief Financial Officer

Photo courtesy of C&J Energy Services Inc