Xtreme Drilling and Coil Services

Xtreme Drilling and Coil Services

April 27, 2016 08:45 ET

Xtreme Announces Sale of XSR Coiled Tubing Services Segment to Schlumberger for C$205 Million and Repositions Xtreme as a Pure Tier 1 Contract Driller

CALGARY, ALBERTA--(Marketwired - April 27, 2016) - Xtreme Drilling and Coil Services Corp. ("Xtreme" or the "Company") (TSX:XDC) today announces that it and certain of its affiliated companies have entered into a definitive agreement (the "Agreement") with two affiliated companies of Schlumberger (collectively, the "Purchasers"), pursuant to which the Purchasers have agreed to acquire all of the assets, including 11 XSR coiled tubing units and associated intellectual property, of Xtreme's XSR Coiled Tubing Services Segment (the "Transaction") for total proceeds of C$205 million, subject to an inventory closing adjustment and an escrow fund of C$10,000,000 for a period of six months from the date of closing of the Transaction to cover any potential claims, in accordance with the Agreement. Xtreme's Coiled Tubing Services Segment includes well intervention services in the United States and coiled tubing drilling in Saudi Arabia. Xtreme will be retaining its XDR Drilling Segment and its fleet of XDR rigs.

Pro Forma Highlights

The conclusion of the Transaction will result in significant optionality for Xtreme and a focus on the contract drilling business through the XDR Drilling Segment. Post transaction, Xtreme will:

  • Continue to own a fleet of 21 tier 1 advanced AC Electric XDR Drilling Rigs with current operations in North Dakota, Colorado and Oklahoma.
    • The XDR rigs have been top performers due to AC automation, fast moving modular rig designs and have been optimized to operate in most resource plays in North America.
    • Historically, the Company has operated XDR Drilling Rigs internationally in Mexico and most recently India.
  • Possess one of the strongest balance sheets in the oilfield services sector which will provide maximum optionality for the Company.
    • Anticipate having zero debt with a net cash balance of approximately C$100-C$115 million (inclusive of a C$10 million escrowed purchase amount).
  • Have access to certain XSR intellectual property via a shared intellectual property agreement with Schlumberger.
    • Potential for hybrid drilling operations with Schlumberger globally.
    • Right to commercialize the hard rock mining application of the intellectual property.
  • Have the ability to right size operations and cost structure in conjunction with the Transaction and reflect the current commodity price environment.

"This transaction validates our decision to develop the largest and most advanced AC electric coiled tubing units in the world. We believe that the value derived from the transaction will allow Xtreme to take advantage of the many opportunities that the current downturn will present to the well capitalized pro forma company. We anticipate oilfield service activity levels will likely remain relatively low in 2016 with the potential for increased activity in 2017. This transaction, and repositioning of Xtreme, provides us with a great deal of optionality and flexibility to operate and add shareholder value in the context of the current market environment. We understand the importance of cost management and a strong balance sheet and believe that the transaction well positions Xtreme going forward with a significant cash position relative to our peers and a fleet of 21 AC tier 1 drilling rigs," commented Tom Wood, Xtreme CEO.

As a result of the optionality and flexibility provided through the completion of the Transaction, the management and Board of Xtreme will be reviewing all available strategic alternatives available to Xtreme which may include potential acquisitions, merger or combination, international growth program, sale of Xtreme or its assets, return of capital via a dividend, a substantial issuer bid or a combination thereof.

Unanimous Approval of the Board

The board of directors of Xtreme (the "Board") formed a committee of directors (the "Special Committee") to, among other things, review and evaluate the terms of the proposal from the Purchasers, review and consider alternatives to the Transaction, negotiate the terms and conditions of the Transaction and make a recommendation to the Board in respect of the Transaction and other related matters.

Peters & Co. Limited is acting as the exclusive financial advisor to Xtreme in connection with the Transaction, and has provided the Special Committee and the Board with its verbal opinion that, as of the date thereof, subject to the review of the final form of documents effecting the Transaction, and certain assumptions, limitations and qualifications contained therein, the consideration to be received by Xtreme pursuant to the Transaction is fair, from a financial point of view, to Xtreme (the "Fairness Opinion").

Following an extensive review and analysis of the Transaction and the consideration of other available alternatives, the Fairness Opinion and the recommendations of the Special Committee, the Board, after consulting with its financial and legal advisors, unanimously determined that the Transaction is in the best interests of Xtreme. The Board has approved the terms of the Transaction and unanimously recommends that all holders (the "Xtreme Shareholders") of common shares of Xtreme (the "Xtreme Shares") vote in favour of the Transaction at the special meeting of Xtreme Shareholders to be called to consider the Transaction and the related change of name of the Company to "Xtreme Drilling Corp." (the "Meeting").

Members of the Board and officers of Xtreme, who collectively own approximately 7.7% of the outstanding Xtreme Shares, have entered into voting support agreements pursuant to which they have agreed to vote their Xtreme Shares in favour of the Transaction, subject to the provisions thereof, at the Meeting.

Shareholder Approval and Other Conditions

The Transaction is subject to customary conditions and the approval of at least 66 2/3% of the of the votes cast by Xtreme Shareholders, present in person or represented by proxy at the Meeting. The Meeting is expected to be held on or before June 30, 2016. A management information circular in connection with the Transaction is expected to be mailed to Xtreme Shareholders before the end of May, 2016, with closing of the Transaction expected to occur shortly after the Meeting.

The Agreement includes customary non-solicitation provisions of Xtreme, subject to the ability of Xtreme to respond to and accept a superior proposal and further subject to the rights of Schlumberger to match a superior proposal. Xtreme has agreed to pay a termination fee of C$8,200,000 in certain circumstances including where the Transaction is terminated due to a superior proposal.

Shared IP Agreement

Under the terms of the Agreement, Xtreme and Schlumberger shall, at closing, enter into a "Shared Intellectual Property Agreement" that allows for the licensing of certain patents, technologies and intellectual property to Xtreme from Schlumberger related to drilling involving coiled tubing. In addition, pursuant to the Shared Intellectual Property Agreement, Xtreme will retain certain rights to the developed hard rock mining intellectual property. This is a business that the Company will now have the time and resources to develop and potentially commercialize.

Operations Post-Closing

The Transaction focuses Xtreme as a well-capitalized contract driller with a fleet of advanced tier 1 AC drilling rigs that can operate in the majority of the key conventional and unconventional resource plays in North America. The Company continues to analyze several international markets where it has been positioning itself to enter over the past six months.

Xtreme's XDR drilling rigs are focused in the Rocky Mountain region with a significant presence in the Bakken and Niobrara unconventional shale plays. The rig fleet is one of the youngest high specification fleets in the land drilling industry and is ideally suited for unconventional resource plays. These rigs have consistently demonstrated optimized drilling and mobilization efficiencies through AC equipment, top drives, high horsepower mud pumps, integrated skidding packages, small footprint design and minimized crane-less loads. The Company currently owns 21 XDR rigs with operating contracts in North Dakota, Colorado and Oklahoma.

For the XDR division for the twelve months ended December 31, 2015, rig utilization was 58% on 4,458 operating days; revenue was C$131.2 million (C$2.7 million from Canada, C$103.7 million from the United States and C$24.8 million internationally); operating expenses were C$82.3 million and gross margin was C$48.9 million, or 37.3%. The XDR division had total assets of C$320.8 million as at December 31, 2015.

First Quarter Results and Conference Call

The Company expects to discuss the Transaction as well as announce first quarter 2016 financial and operating results after market close on Wednesday, May 4, 2016 with a follow‐up conference call planned for Thursday, May 5, 2016 at 9:00 am (MDT), 10:00 am (CDT). Tom Wood, Chief Executive Officer, will host the conference call with participation from Matt Porter, President and Chief Financial Officer, and will answer questions from analysts and investors.

To participate in the conference call, please dial in as follows approximately ten minutes before the start time in your time zone.

+1 800-952-6845 (North America Toll‐Free) or +1 416-340-8527 (Alternate)

Webcast Link: http://www.gowebcasting.com/7460

An audio replay of the call will be available until Thursday, May 12, 2016. To access the replay, call +1 800‐408‐3053 or +1 905‐694‐9451 and enter pass code 5000344.

A copy of the Agreement will be filed on Xtreme's SEDAR profile and will be available for viewing at www.sedar.com.

Reader Advisory

Cautionary Note on Forward Looking Statements

This press release contains forward-looking statements within the meaning of Canadian securities laws. These forward-looking statements contain statements of intent, belief or current expectations of Xtreme. Forward-looking information is often, but not always identified by the use of words such as "anticipate", "believe", "expect", "plan", "intend", "forecast", "target", "project", "may", "will", "should", "could", "estimate", "predict" or similar words suggesting future outcomes or language suggesting an outlook.

The forward-looking statements included in this press release, including statements regarding the Transaction, the receipt of necessary approvals, the Xtreme Shareholder vote, the anticipated timing for mailing the management information circular, holding the Meeting, completing the Transaction, repayment of debt, the nature of Xtreme's post-closing operations and execution on any of the potential post-closing strategic alternatives are not guarantees of future results and involve risks and uncertainties that may cause actual results to differ materially from the potential results discussed in the forward-looking statements. In respect of the forward-looking statements and information concerning the completion of the Transaction and the anticipated timing for completion of the Transaction, Xtreme has provided such in reliance on certain assumptions that it believes are reasonable at this time, including assumptions as to the time required to prepare and mail Meeting materials, the ability of the parties to receive, in a timely manner and on satisfactory terms, the necessary regulatory and other third party approvals and the ability of the parties to satisfy, in a timely manner, the other conditions to the closing of the Transaction. These dates may change for a number of reasons, including unforeseen delays in preparing Meeting materials; inability to secure necessary shareholder, regulatory or other third party approvals in the time assumed or the need for additional time to satisfy the other conditions to the completion of the Transaction. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release concerning these times.

Risks and uncertainties that may cause such differences include but are not limited to: the risk that the Transaction may not be completed on a timely basis, if at all; the conditions to the consummation of the Transaction may not be satisfied; the risk that the Transaction may involve unexpected costs, liabilities or delays; the risk that, prior to the completion of the Transaction, Xtreme's business may experience significant disruptions, including loss of customers or employees, due to transaction-related uncertainty or other factors; the possibility that legal proceedings may be instituted against Xtreme and/or others relating to the Transaction and the outcome of such proceedings; the possible occurrence of an event, change or other circumstance that could result in termination of the Transaction; risks related to the diversion of management's attention from Xtreme's ongoing business operations; risks relating to the failure to obtain necessary shareholder approval; risks related to obtaining the requisite consents to the Transaction; other risks inherent in the oil and gas industry. Failure to obtain the requisite approvals, or the failure of the parties to otherwise satisfy the conditions to or complete the Transaction, may result in the Transaction not being completed on the proposed terms, or at all. In addition, if the Transaction is not completed, and Xtreme continues as an independent entity, the announcement of the Transaction and the dedication of substantial resources of Xtreme to the completion of the Transaction could have a material adverse impact on Xtreme's share price, its current business relationships (including with future and prospective employees, customers, distributors, suppliers and partners) and on the current and future operations, financial condition and prospects of Xtreme. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Xtreme's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

The forward-looking statements in this press release are made as of the date it was issued and Xtreme does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that outcomes implied by forward-looking statements will not be achieved. Xtreme cautions readers not to place undue reliance on these statements.

About Xtreme

Xtreme Drilling and Coil Services Corp. designs, builds, and operates a fleet of high specification drilling rigs and coiled tubing well service units featuring leading-edge proprietary technology including AC high capacity coil injectors, deep re-entry drilling capability, modular transportation systems and continuous integration of in-house advances in methodologies.

Currently Xtreme operates two service lines: Drilling Services (XDR) and Coil Services (XSR) under contracts with oil and natural gas exploration and production companies and integrated oilfield service providers in Canada, the United States, and Saudi Arabia. For more information about the Company, please visit www.xtremecoil.com.

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