Western Energy Services is number one on the Fast Growth 50
Drills, baby, drills: now it’s at the top of this year’s Fast Growth 50 because of strong teamwork and an appetite for acquisitions
by Michael Ganley
An increase in revenue from four million two years ago to $263 million this year. Employees up from 24 to more than a thousand during the same period and total assets on a similar trajectory. There’s no denying it’s been a good couple of years for Western Energy Services, good enough to put it at number one on this year’s Fast Growth 50 list.
Photograph John Gaucher
Its business strategy? Consolidate small drilling companies that were held by income trusts and weren’t getting the capital they needed to take advantage of changes in the market. Those changes included a shift to drills that can go deeper, further and horizontally. “A lot of the assets we acquired were newer assets,” says company CEO Dale Tremblay. “We were able to take a rig to a new level by adding bigger pumps and top drives and heavy-weight pipe quicker than [the trusts] would have done it, and we ended up with one of the best fleets in the industry.”
But that is just the beginning of what Tremblay and his top lieutenants, president and COO Alex MacAusland and CFO Jeffrey Bowers, have done to build up Western so quickly.
The story begins with their common background.
The three worked together at Precision Drilling, with Tremblay serving as the company’s CFO. “I was involved in the entire company,” he says. “Jeffrey put together all the pieces in the service side and Alex was involved in the drilling and the service rig side. But we all had the same general understanding of what was required to build a great company and attract great people, which in the service sector is really the heart and soul of our business.” Precision sold about half its business to Weatherford International in 2005 for $2.3 billion.
The three moved on, with Tremblay heading to Saxon Energy where he was CEO through its sale in 2008 to Schlumberger for $592 million. MacAusland went to a rig service company and then to a small drilling company, Horizon Drilling. Bowers went first to a fracking company, then to join MacAusland at Horizon.
But, after the Saxon sale, all three were at companies controlled by private equity funds, and they were getting itchy feet. All found the lack of capital to expand frustrating.
That’s when Tremblay was asked by a colleague if he’d be interested in recapitalizing a struggling company. He was intrigued. It can be easier to recapitalize a company than to launch one from scratch. There are underlying assets and contracts and revenues that make it easier to get started. “All you hope is that there aren’t too many skeletons in the closet,” Tremblay says. “You have to remember when a company gets to that position, it’s short of cash so a lot of staff doesn’t stay around. You worry about all the accounts payable being booked into the ledger. Are there lawsuits you don’t know about? What you focus on is what could cause you difficulties or cost you money once you take it over.”
One night, he approached MacAusland. “We had a beer and I explained recapping and what it meant and the risk,” Tremblay says. “I told him we would need a CFO. The next day he talked to Jeffrey, who quickly agreed. So the three of us went down the path of narrowing down the scope of companies to look at and we landed on Western Energy.”
What did the team find attractive about Western? “There’s nothing attractive about [a target for recapitalization],” Tremblay says, laughing. “The uglier they are, the better, because you want to be in a position to easily sway management to agree to your terms.”
Western was in just such a position. It was public, but company managers had sunk a lot of their own money into it. Tremblay says loans were about to be called by the bank. “In simple terms their business model was not working,” he says. “They were too scattered. They were in Canada, Texas, Mexico and Nicaragua.”
The three men raised $7 million between themselves and proposed new board members who were friends and family of theirs. They bought the company, took over management, installed the new board and charted a new direction for Western.
They sold some assets, retrenched in Alberta and went on a shopping spree. They started by buying Horizon and its eight rigs, which both MacAusland and Bowers knew well. Soon after, they bought Cedar Creek Drilling, with its three telescopic double rigs, Impact Drilling (four rigs) and Pantera Drilling Income Trust (seven rigs). The biggest deal closed in June 2011, when Western bought Stoneham Drilling Trust’s 19 “efficient long-reach” drills in a deal valued at $236 million. “We look at all of them as very important in our growth plans,” MacAusland says of the purchases, “but Stoneham was the biggest and it took us into the U.S.” It also made Western the sixth largest contract driller in Canada.
The company now owns long-reach drills almost exclusively. MacAusland says they’re well designed, capable of handling top drives and large mud pumps and they can drill the horizontal wells needed in today’s resource plays. “The average age of the fleet is less than five years, and 96 per cent is rated to 3,000 metres or deeper,” he says. “That’s a vertical rating. In horizontal capacity, they can drill quite a bit further.”
The company took another significant step last year when it listed on the TSX. It had been on the TSX Venture, but the move to the bigger exchange has been crucial to the company’s growth. “There are some investors that can’t invest in a venture company,” Bowers says. “A lot of the portfolio managers we were meeting with in Toronto didn’t want to invest in a venture company – they wanted a TSX company.” Western also issued a 20-1 reverse split on its stock, which made it more attractive to the many portfolio managers who can’t invest in penny stocks. Because it had used equity to fund every one of its purchases, Western had more than a billion shares outstanding at the time of the reverse split. “We had to consolidate,” Bowers says.
Now, the company has a head office in Calgary and two operational centres, one in Leduc and one in North Dakota. The majority of the company’s rigs are in Alberta, but it also works in the U.S., Saskatchewan and B.C., “pretty much all the plays up and down the Western Canadian Sedimentary Basin,” MacAusland says. “We work a lot for Baytex, CNRL, Husky and some other big players.”
There have been challenges along the way. Integrating the various business cultures has been one of them, as has handling the complexities of growth. “The field side of our business comes together fairly easily,” Tremblay says. “Every rig is basically the same. The challenge as you grow is that you have to keep improving your systems and procedures. Your accounting becomes more complex, your taxes get more complex, your insurance gets more complex.”
And, despite their track records, the three men had to earn their way back into the boardrooms of the big clients. “When you start with 11 rigs like we did, you can’t just walk into Devon or CNRL or Husky and say, ‘Hey, we’re back,’ ” MacAusland says. “You have to earn your way in and prove to them you have the safety, the operations and the inventory to replace parts and engines in the event of a premature failure.”
But clearly, Western has figured out how to overcome these challenges, and all three men credit teamwork as the single most important factor in doing so. “Business is too big and too complex for any one person to deal with it all,” Tremblay says. “You want a group or a team that can focus on their particular strengths, but at the same time all must understand what’s going on in the field and have generally the same beliefs on how you’re going to do business. That includes everything from how much debt you’re willing to take on to how you control costs to what you’re willing to spend on all aspects of your business.”