Foreign Exposure
In 2005, Saxon Energy Services was a small firm, newly gone public. Then a new management team jumped aboard from a downsizing competitor, and everything changed – quickly
by Bruce Weir
In Calgary’s go-go business culture many people – executives and employees alike – pride themselves on being at their desks bright and early. Ask these pre-dawn risers why they do it and many will cite a relatively carefree commute or the possibility of getting some work done before the phone starts ringing.
Afew years ago in the corporate suites of Saxon Energy Services Inc., however, the firm’s employees had greater motivation. “When we joined there were six offices and 11 people in total,” says president
and CEO Dale Tremblay. “We used to have to get in early to get an office.” What’s more, senior vice-president and CFO Mick McNulty worked out of the boardroom, meaning “if we were having a meeting, he was participating whether he liked it or not.”
Times have changed since those days, way back in 2005. The company now has more than 1,700 employees, including field workers who operate Saxon’s fleet of 59 drilling and service rigs. Its growth by other measures has been equally dramatic: sales have gone from a little over $15 million two years ago to $170.4 million in 2006; in that same time, net earnings have climbed from $359,000 to $22.7 million. And, while many employees are still early arrivers, they no longer have to fight for space; the offices now occupy almost two floors in its downtown Calgary headquarters.
That spread within the building is mirrored by Saxon’s geographic reach – it operates rigs in Canada, the United States, Mexico, Ecuador, Peru, Colombia and Venezuela – a key part of its corporate strategy. That strategy is overseen by a management team that, in addition to Tremblay and McNulty,
includes senior vice-president and COO Mark Helmer and Tim Braun, vice-president of operations. All four previously worked at oilfield services giant Precision Drilling, where they gained valuable experience and a taste for international operations.
And that meant when Precision converted to a trust focused on Canada in late 2005, all four were looking for new challenges. “Quite honestly, once the decision was made to shrink Precision we lost all interest,” McNulty says. “Everything we’d done since we’d been there had been to grow the
organization.” At the time, Saxon was in need of these skills. The company was founded by Walter
Dawson, who remains the chairman of the board, and its big move came in 2000 when it acquired a service company in Ecuador. It went public in 2004 and used funds to acquire rigs in Venezuela and Peru, but some people in the investment community felt that more experienced managers were
needed to run the growing enterprise. “I think the perception was that it wasn’t really fitting together,” Tremblay says. “You needed somebody who’d done that before to really pull it together. That’s where we came in.”
The new management team showed its stuff within weeks of taking over. In December 2005 Saxon acquired Drillers Technology, a Calgary firm with rigs in Canada, the U.S. and Mexico. This brought much needed diversity, but most of the new assets were in Mexico, meaning that more deals were
always part of the plan. In the short term, the new team needed to find some new customers because
previous management had decided to build new rigs. “Those rigs were not contracted to anybody,” McNulty recalls. “That was really against our better judgment at Precision. We would generally not build rigs on spec.” In November 2005 and March 2006 Saxon signed deals with SouthWestern
Energy Company and EOG Resources Inc., respectively. Both deals were for seven rigs. Those contracted to SouthWestern are at work in Arkansas; the EOG rigs are in Texas.
Those deals were followed by one announced in June 2006 to acquire Kinnell Drilling and its associated consulting business for $61.5 million. The deal gave Saxon another seven rigs in Canada. “That gave
us a reasonable base in Canada, because up until then we basically had three rigs in Canada,” Tremblay says. “We were more of a ma-and-pa shop than a real drilling contractor.” Beyond bringing an almost freakish balance to Saxon’s operations – in the first nine months of 2007 revenues from North American operations were $86,393,000, a mere $1,000 more than those from South America – the deals brought other benefits. Chief among these was a relationship with Schlumberger Limited, the world’s No. 2 oilfield contractor, acquired with Drillers Technology.
Saxon currently operates 10 rigs in Mexico and one in Colombia in a joint venture with Schlumberger (Saxon owns a 51% stake in the rigs). “It works well because it gives them some control over the delivery of the rigs and we can tie into Schlumberger and the growth opportunities they can provide
us,” McNulty says. The common element in all these deals, and in Saxon’s approach to business, is new technology.
“Producers today are looking for newer technology and better rigs,” says John Tasdemir, an analyst at Tristone Capital. “That’s who they want to drill their wells.” Tasdemir cautions that this trend is playing out across the industry, and “it’s not like Saxon has the only cool new rigs.” But the company’s ATS (Advanced Technology Single) rigs offer quicker set-up and drill times and a smaller footprint than older rigs. They’re also safer because they can be operated by a single employee using a joystick
in an air-conditioned control booth rather than by rig hands on the drilling platform.
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