Sikanni Services Ltd.

Sikanni Services Ltd.

January 29, 2007 13:51 ET

Sikanni Services to Acquire Twilight Oilfield Hauling for $37 Million

RED DEER, ALBERTA--(CCNMatthews - Jan. 29, 2007) - Sikanni Services Ltd. (TSX VENTURE:SKI) Rod MacDonald, President and Chief Executive Officer of Sikanni is pleased to announce that Sikanni Services Ltd. has entered into a share purchase agreement to acquire all of the issued and outstanding shares of 1288070 Alberta Ltd. ("Newco"). Closing of the acquisition (the "Acquisition") is expected to occur in late February 2007 but with an effective date of January 31, 2007.

Newco was incorporated under the Business Corporations Act (Alberta) on December 14, 2006 in order to facilitate the Acquisition. Prior to closing, certain assets of four family-owned and operated companies, headquartered in Grande Prairie, Alberta, will be transferred to Newco pursuant to the rollover provisions of the Income Tax Act (Canada) in exchange for shares of Newco. The four companies are: (i) Twilight Oilfield Hauling Ltd.; (ii) MMC Contracting Ltd.; (iii) Tower General Trucking Ltd.; and (iv) 721757 Alberta Ltd. (collectively, the "Twilight Oilfield Hauling Group"). The Twilight Oilfield Hauling Group has operated in the oilfield services industry since 1988, specializing in the transportation of oil and gas drilling rigs in Western Canada. The assets being transferred to Newco consists of all trucks, trailers, and miscellaneous rolling stock and equipment utilized by the Twilight Oilfield Hauling Group.

The Twilight Oilfield Hauling Group has a strong reputation with a diversified customer base, including major Canadian exploration and development companies. For the twelve months ended December 31, 2005, Twilight Oilfield Hauling Group generated total revenues and normalized earnings before interest, income taxes, depreciation and amortization ("Normalized EBITDA") of approximately $24.7 million and $6.4 million, respectively. For the nine months ended September 30, 2006, Twilight Oilfield Hauling Group generated total revenues and Normalized EBITDA of approximately $24.4 million and $7.1 million, respectively.

Rod MacDonald, said, "The acquisition of Newco capitalized with the assets of the Twilight Oilfield Hauling Group is financially accretive to Sikanni and will provide an attractive strategic platform on which to pursue additional growth opportunities in Western Canada. Sikanni has a clear, disciplined approach to evaluating acquisition opportunities, and Twilight met or exceeded all of our criteria. We are very excited to be adding a well managed industry leader that is highly complementary to our existing business. This acquisition provides immediate and long-term value to our shareholders, value and convenience to our customers, and opportunity to our employees".

The purchase price for Newco post roll-in of the assets of the Twilight Oilfield Hauling Group is $37 million (Cdn.) payable by way of $19,000,000 in cash and $18,000,000 through the issuance of 14,400,000 common shares of Sikanni at a deemed price per share of $1.25. The purchase price is subject to closing adjustments relating to prepaid expenses and working capital. The common shares of Sikanni issued to the Twilight Oilfield Hauling Group pursuant to the Acquisition will be placed into escrow and will be released as to 10% thereof upon issuance by the TSX Venture Exchange of its final bulletin approving the Acquisition, and 15% every six months thereafter. Details respecting the financing of the cash portion of the Acquisition price will be provided in a later press release. On a pro-forma basis, common shares of Sikanni issued to the Twilight Oilfield Hauling Group pursuant to the Acquisition will represent approximately 31% of Sikanni's outstanding common shares.

This Acquisition is subject to the parties obtaining regulatory approvals, including that of the TSXV and customary closing conditions. The Acquisition is arms' length and will not result in a change of control or a change in management of Sikanni. Subject to TSXV approval, Sikanni will grant options to acquire an aggregate of 900,000 Sikanni common shares to certain principals of the Twilight Oilfield Hauling Group for a term and at an exercise price to be determined.

The boards of Twilight and Sikanni have unanimously approved the Acquisition.

Benefits of the Proposed Acquisition

The transaction is expected to be immediately accretive to Sikanni.

Historic Results for Twilight Oilfield Hauling Group

Income Statement Data Nine Month Period Ended Year Ended
September 30, 2006 December 31, 2005
(unaudited) (audited)
Revenue $ 24,417,245 $ 24,696,574
Expenses 17,793,074 19,051,001
Gross Profit 6,624,171 5,645,573
Net Income 198,530 112,121
EBITDA (1) $ 7,142,660 $ 6,355,755

Reconciliation of Net Income to normalized EBITDA for the nine months ended
September 30, 2006 and the year ended December 31, 2005.

Nine Month Period Ended Year Ended
September 30, 2006 December 31, 2005
(unaudited) (audited)
Net Income $ 198,530 $ 112,121
Add: Income tax 26,554 48,991
Amortization 688,954 1,062,364
Interest 75,622 124,529
EBITDA (1) 989,660 1,348,005
Normalization adjustments
Management bonuses 6,543,000 5,527,750
Economic salaries (150,000) (200,000)
Premises rent (240,000) (320,000)
Normalized EBITDA (1) $ 7,142,660 $ 6,355,755

(1) EBITDA is calculated from the consolidated financial statements of
Twilight Oilfield Hauling Group for the interim period ended September
30, 2006 (unaudited) and the year ended December 31, 2005 (audited)
and has been defined as earnings before interest, income taxes,
depreciation and amortization, normalized for non-recurring expenses.
EBITDA is not a defined measure under Canadian Generally Accepted
Accounting Principles (GAAP) and may not be comparable to similar
measures provided by other companies.

The Acquisition is expected to provide the following benefits to Sikanni:

- Expand Sikanni's existing oilfield trucking and transportation business division, providing the division with immediate critical mass through a larger trucking fleet.

- Combine its current operations with an established company with a history of stable and growing operating cash flow.

- Provide opportunities to cross sell Sikanni's other key oilfield services such as wheeled frac tank rentals to a broader customer base.

- Expand Sikanni's business to include oil and gas rig hauling services to major Canadian oil and gas companies.

- Enhance consolidated profitability and cost savings resulting from improved fleet utilization and operational economies of scale.

- Maintain a strong operating management team which will continue to manage and operate the business.

Gilbert Francois, co-owner and President of Twilight Oilfield Hauling Group, will be joining Sikanni as a general manager and director. Mr. Francois's continued involvement will allow Sikanni to seamlessly bridge the relationships Twilight Oilfield Hauling Group has developed with its oil and gas customer base over the past 20 years. "This is a very exciting and positive transaction for all concerned," said Mr. Francois. "I am committed to Sikanni and believe that the combined business will be able to capitalize on an aggressive growth and acquisition strategy over the next several years. Our employees will continue with Newco and form an integral part of a publicly-traded organization with extensive operations in Western Canada."

Board of Directors and Insiders

After giving effect to the Acquisition the directors, officers, and insiders of Sikanni will hold approximately 30,251,760 common shares out of a total float of 46,734,420 common shares of Sikanni, or approximately 65% of Sikanni's total common shares. The following individuals, with the exception of Mr. Francois, are currently directors and officers of Sikanni:

Rod MacDonald President, Chief Executive Officer and Director
Thomas Lewis Chief Financial Officer
Paul Colborne Director
James Pasieka Director
David Heighington Director
Scott Harkness Director
Gerald Feschuk Director
Gilbert Francois Proposed Director

About Sikanni Services Ltd.

Sikanni commenced operations as an oil and gas service company in 2005 with offices in Red Deer and Grande Cache, Alberta. Sikanni's business is strategically focused on four segments of the oil and gas service sector: (i) oilfield waste management services; (ii) wheeled tank rentals; (iii) oilfield hauling and transportation; and (iv) mud distribution services.

Forward-Looking Statements

Certain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes and plans and objectives of or involving Sikanni. Many of these statements can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues", or similar words and include but are not limited to, statements regarding the accretive effects of the acquisition and the anticipated results and expected benefits of the acquisition upon closing thereof. Sikanni believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in Sikanni's continuous disclosure documents. Such forward-looking statements necessarily involve known and unknown risks and uncertainties and other factors, which may cause Sikanni's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; refining and marketing margins; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; changes in environmental and other regulations; and other factors, many of which are beyond the control of Sikanni. Any forward-looking statements are made as of the date hereof and Sikanni does not undertake any obligation, except as required under applicable law, to publicly update or revise such statements to reflect new information, subsequent or otherwise.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Sikanni Services Ltd.
    Rod MacDonald
    President & Chief Executive Officer
    (403) 348-2172
    (403) 348-0451 (FAX)
    Sikanni Services Ltd.
    Thomas E. Lewis, CA
    Chief Financial Officer
    (403) 348-2172
    (403) 348-0451 (FAX)
    Sikanni Services Ltd.
    208, 4711 - 51st Avenue
    Red Deer, Alberta T4N 6H8