Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

May 06, 2009 21:46 ET

Pure Energy and Canadian Sub-Surface Announce Business Combination

CALGARY, ALBERTA--(Marketwire - May 6, 2009) - Pure Energy Services Ltd. (TSX:PSV) ("Pure Energy") and Canadian Sub-Surface Energy Services Corp. (TSX:CSE) ("Canadian Sub-Surface") announced today that they have entered into a definitive agreement (the "Agreement") to combine their businesses through a share exchange transaction under which Canadian Sub-Surface will exchange all of its outstanding Class A common shares for common shares of Pure Energy (the "Combination").

The Combination will be effected by way of a plan of arrangement under the Business Corporations Act (Alberta) whereby Canadian Sub-Surface shareholders will receive 0.3017 of a Pure Energy common share for each Canadian Sub-Surface Class A common share. On completion of the Combination, the current shareholders of Pure Energy will own approximately 67% of Pure Energy's outstanding common shares, and the shareholders of Canadian Sub-Surface will own approximately 33% of Pure Energy's outstanding common shares. Pure Energy's common shares will continue to trade on the Toronto Stock Exchange under the symbol "PSV". The board of directors of each of Pure Energy and Canadian Sub-Surface have unanimously approved the Agreement.

Shareholders representing approximately 35% of the outstanding Class A common shares of Canadian Sub-Surface have signed lock up agreements in support of the Combination. The proposed Combination is subject to customary stock exchange, court and regulatory approvals as well as approval by 66 2/3% of the shareholders of Canadian Sub-Surface voting in person or by proxy at a meeting of Canadian Sub-Surface shareholders to be scheduled for late June, 2009. The Combination is expected to close shortly thereafter. An information circular pertaining to the Combination will be mailed by Canadian Sub-Surface to its shareholders in late May, 2009.

Mr. Kevin Delaney, the President & CEO of Pure Energy, stated "This transaction will enhance value for Pure Energy shareholders by further strengthening our management team and providing the operational capability to deliver services to our customers operating in key oil and gas exploration and production plays in western Canada and the U.S. Rocky Mountain region. The combined company will be the largest independent provider of wireline and testing services in Canada, and the transaction will also facilitate our continued growth in the Rocky Mountain and other selected regions of the United States."

Mr. Brad Gabel, the President & CEO of Canadian Sub-Surface, stated "This transaction is an ideal opportunity for Canadian Sub-Surface shareholders to grow the value of the core business lines in which Canadian Sub-Surface is currently very successful, and also to achieve the immediate diversification of those business lines into regions of the United States in which Pure Energy is experiencing similar success. This share exchange transaction will allow Canadian Sub-Surface shareholders to participate in the sound prospects and anticipated future growth of the combined company."

Expected Benefits of the Combination

The Combination is expected to provide the following benefits:

Market leadership

The combined company's wireline and production testing fleet will be among the largest in Canada with 86 wireline units, 10 swabbing units and 85 production testing units. Pure Energy's United States wireline and production testing fleet will consist of an additional 7 wireline units and 36 testing units.

Expected operating efficiencies

In addition to measures recently implemented by each of Pure Energy and Canadian Sub-Surface to streamline their respective operating structures, the Combination will provide significant near term cost savings from further operational efficiencies achieved through consolidation and economies of scale. Management also expects to achieve considerable corporate and administrative synergies.

Platform for future growth

The combined company's asset base and management team will enable the combined company to effectively entertain growth opportunities in both Canada and the United States with major emphasis placed on the unconventional resource plays in the respective areas. The combined company should be able to execute this plan with little or no capital investment which will increase the overall utilization of the existing equipment fleet.

Exposure to many play types

In addition to being positioned to service all conventional exploration and production areas proximate to its field offices in Canada and the United States, the combined company will be strategically positioned to service the Montney and Horn River natural gas plays in northeast British Columbia, the Bakken light oil play in southeastern Saskatchewan and in North Dakota, as well as unconventional natural gas plays in both Colorado and Wyoming.

Broad geographic coverage

The combined company will have complete wireline and production testing coverage of the Western Canadian Sedimentary Basin ("WCSB") through 17 field offices. Pure Energy's US operations will continue to be headquartered in Denver, Colorado and be operated out of three field offices located in Colorado, Wyoming, and North Dakota.

Modern equipment fleet

The combined equipment fleet will consist largely of modern, built-for-purpose equipment that is in higher demand by its customers. The majority of the assets owned by the combined company are "state of the art" equipment, and there should not be any major capital expenditures required for maintenance in the near term.

Diversified services

The well-established drilling and fracturing operations of Pure Energy, which represented approximately one third of combined fiscal 2008 revenue, will continue to provide a prudent diversification of the combined company's revenue base. Pure Energy will continue to operate ten drilling rigs in Canada and three fracturing spreads in the United States.

Attractive customer base

The combined company's customers will include the majority of the top oil and natural gas production and exploration companies in the WCSB and the Rocky Mountain region of the United States. Management expects that the greater size and enhanced capabilities of the combined company and its presence in all major exploration and production areas will allow it to compete for additional contracts from potential customers that are not currently amongst its major customers, certain of which require that their service providers have a presence in all of their geographic areas of operation.

Stable balance sheet

The senior lender to both Pure Energy and Canadian Sub-Surface has committed to providing Pure Energy with new credit facilities as described in further detail below Management expects that the new credit facilities will continue to provide sufficient liquidity to finance on-going operations and the conservative planned combined capital expenditure program. Pure Energy expects to divest of certain redundant real estate and non-core assets in due course upon completion of the Combination, and the proceeds from any such divestitures would be used to reduce overall indebtedness.

Executive Leadership & Corporate Governance

The combined company will be led by an experienced executive team including:

- Mr. Delaney as Chief Executive Officer

- Mr. Gabel as President, Canadian Completion Services

- Mr. Rutger Niers as President, Drilling and U.S. Completion Services

- Mr. Brian Peters as Chief Financial Officer

- Mr. Paul DeBonis as President of Pure Energy Services (USA), Inc., Pure Energy's wholly owned subsidiary

The board of directors of the combined company will consist of four members of the existing board of directors of Pure Energy, and three members of the existing board of directors of Canadian Sub-Surface. The five independent members of the board of directors of the combined company will be Mr. Harold Allsopp, Mr. Jim Smith, Mr. Bob Wilkinson, Mr. Miles Lich, and Mr. Harry Knutson. The two management members of the board of directors of the combined company will be Mr. Delaney and Mr. Gabel.

Committed Credit Facilities

Pure Energy has obtained a commitment from the senior lender to both Pure Energy and Canadian Sub-Surface to provide a secured $18 million demand revolving operating credit facility ("Operating Facility") and a secured $80 million one year extendible revolving credit facility ("Revolving Facility"), subject to the completion of the Combination and the negotiation and execution of a definitive credit agreement. The Revolving Facility is subject to renewal on March 31, 2010, and if not extended would term out with 25% of the outstanding balance being repaid over one year and the remaining balance due upon expiry of the one year amortization period. Borrowings under the Operating Facility will bear interest at either: (i) the lender's prime rate plus 1.50%, or (ii) bankers acceptance rates plus 2.75%. Borrowings under the Revolving Facility will bear interest at either: (i) the lender's prime rate plus 2.50%, or (ii) bankers acceptance rates plus 4.00%. The other terms of the new facilities, including financial covenants and borrowing limits, are similar to those contained in Pure Energy's current credit facilities. The commitment from the senior lender expires June 30, 2009.

As of March 31, 2009, Pure Energy and Canadian Sub-Surface had aggregate short and long term bank indebtedness of approximately $76 million net of cash balances, and positive working capital of approximately $27 million.

Other Terms of the Combination

The Agreement contains customary terms and conditions for a transaction of this nature, including:

- representations and warranties regarding the respective businesses of Pure Energy and Canadian Sub-Surface and covenants applicable to each such entity until closing of the Combination regarding their respective business and affairs;

- a prohibition upon both Pure Energy and Canadian Sub-Surface from soliciting or initiating any discussion concerning any other business combination or similar transaction prior to the completion or termination of the Combination;

- the right of both Pure Energy and Canadian Sub-Surface to match any unsolicited superior proposal received by the other party; and

- a reciprocal termination fee of $1.0 million is payable to either Pure Energy or Canadian Sub-Surface, as the case may be, in certain circumstances.

Raymond James Ltd. is acting as financial advisor to the board of directors of Canadian Sub-Surface and has provided a verbal opinion as to fairness from a financial point of view of the Combination as it pertains to the shareholders of Canadian Sub-Surface.

Peters & Co. Limited is acting as financial advisor to Pure Energy.

Conference Call Details

A joint conference call for investors, financial analysts and other interested persons will be hosted by Pure Energy and Canadian Sub-Surface at 10:00 a.m. MDT on May 7, 2009 to discuss the Combination. To call in, interested parties should dial 1-866-225-0198 (toll free) or 416-340-8061. A replay of the conference call will be available until midnight on May 14th, 2009 by dialing 1-800-408-3053 (toll free) or 416-695-5800, and entering passcode 4006694.

Pure Energy is an oilfield services company that provides completion and drilling related services to oil and gas exploration and development entities in the Western Canadian Sedimentary Basin and, through its wholly-owned subsidiary, Pure Energy Services (USA), Inc., in the Rocky Mountain region of the United States.

Canadian Sub-Surface is a Calgary-based oilfield services company operating from field locations in the Western Canadian Sedimentary Basin and in North Dakota, U.S.A. Canadian Sub-Surface provides cased-hole wireline, production testing, well optimization and swabbing services to junior, intermediate and senior oil and gas exploration and production companies.

Cautionary Statement Regarding Forward-looking Statements and Information

This press release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements.

In particular and without limitation, this press release contains forward looking statements and information pertaining to the following: completion of the Combination and the operations, business strategy, future development and growth opportunities, capital expenditures, prospects and asset base of the combined company; expected benefits of the Combination; synergies, operating efficiencies and cost savings; redeployment of equipment and equipment utilization; and new credit facilities and liquidity of the combined company. Although Pure Energy and Canadian Sub-Surface believe that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward looking statements and information because Pure Energy and Canadian Sub-Surface can give no assurance that they will prove to be correct.

The forward-looking statements and information contained in this press release reflect several major factors, expectations and assumptions of Pure Energy and Canadian Sub-Surface, including without limitation, that the combined company will continue to conduct its operations in a manner substantially consistent with past operations of Pure Energy and Canadian Sub-Surface; the general continuance of current or, if applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) taxation, royalty and regulatory regimes; certain commodity prices and other cost assumptions; certain conditions regarding natural gas storage in North America; the availability of adequate debt and/or equity financing, including under the new Operating Facility and the Revolving Facility, and cash flow from the combined company's operations to fund its capital and operating requirements as needed; the achievement of synergies, cost reduction and benefits from the resulting economies of scale; and the extent of its liabilities. Many of these factors, expectations and assumptions are based on Pure Energy and Canadian Sub-Surface management's knowledge and experience in the industry and on public disclosure of industry participants and analysts relating to anticipated exploration and development programs of oil and gas producers, the effect of changes to regulatory, taxation and royalty regimes, expected active rig counts and industry equipment utilization in the WCSB and the United States Rocky Mountain region and other matters. Pure Energy and Canadian Sub-Surface believe that the material factors, expectations and assumptions reflected in the forward-looking statements and information are reasonable; however, no assurances can be given that these factors, expectations and assumptions will prove to be correct.

Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: general economic conditions in Canada and the United States; changes in the level of capital expenditures made by oil and natural gas producers and the resultant effect on demand for oilfield services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; risks inherent in the ability of the combined company to generate sufficient cash flow from operations to meet its current and future obligations; increases in debt service charges; the combined company's ability to access external sources of debt and equity capital; changes in legislation and the regulatory environment, including uncertainties with respect to implementing binding targets for reductions of emissions; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; competition; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; ability to integrate technological advances and match advances of competition; credit risk to which the combined company will be exposed in the conduct of its business; and changes to the royalty regimes applicable to entities operating in the WCSB or the United States Rocky Mountain region.

There are risks also inherent in the nature of the proposed Combination, including: failure to realize anticipated synergies, operating efficiencies and cost savings, risks regarding the integration of the business, personnel and operations of Pure Energy and Canadian Sub-Surface; incorrect assessments of the values of the other entity; inability to successfully negotiate a definitive credit agreement in respect of the Operating Facility and the Revolving Facility, on terms satisfactory to Pure Energy and Canadian Sub-Surface or at all or to satisfy any conditions to borrowing thereunder; inability to satisfy the conditions of the Agreement; and failure to obtain the required security holder, court, regulatory and other third party approvals on a timely basis or at all.

This news release also contains forward-looking statements and information concerning the anticipated completion of the Combination. Pure Energy and Canadian Sub-Surface have provided these anticipated times in reliance on certain assumptions that they believe are reasonable at this time, including assumptions as to the time required to prepare meeting materials for mailing, the timing of receipt of the necessary regulatory and court approvals and the time necessary to satisfy the conditions to the closing of the Combination. These dates may change for a number of reasons, including unforeseen delays in preparing meeting materials, inability to secure necessary regulatory or court approvals in the time assumed or the need for additional time to satisfy the conditions to the completion of the Combination. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this press release concerning these times. Readers are cautioned that the foregoing list of factors is not exhaustive.

Additional information on these and other factors that could affect Pure Energy's, Canadian Sub-Surface's or the combined company's operations or financial results are included the respective annual information forms and management's discussion and analysis of Pure Energy and Canadian Sub-Surface which may be accessed through the applicable corporate profiles of Pure Energy and Canadian Sub-Surface on the SEDAR website (www.sedar.com). The forward-looking statements and information contained in this press release are made as of the date hereof and Pure Energy and Canadian Sub-Surface undertake no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Contact Information

  • Pure Energy
    Kevin Delaney
    President & CEO
    (403) 262-4000
    or
    Canadian Sub-Surface
    Brad Gabel
    President & CEO
    (403) 262-3247