FA L L 2 0 1 1

INVESTORS IMPRESSED BY SERVICES SECTOR GOLFING FOR EDUCATION MAXIMIZING COMPANY VALUE

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FA L L 2 0 1 1

CONTENTS
4 7 8 16 18 20 22

Departments
MESSAGE FROM THE PRESIDENT 2011 CANADIAN DRILLING ACTIVITY FORECAST UPDATE
Activity levels continue rising in the Western Canadian Sedimentary Basin

IN THE FIELD
News and notes from the industry

BUSINESS MATTERS
Be prepared: more mergers and acquisitions are expected in the patch

PSAC IN ACTION

11

Advocacy and outreach initiatives from PSAC spread far and wide

Features
Investment dollars are owing into Canadas petroleum services sector and opportunities for capitalizing are spanning the globe

MEMBER PROFILE

22
COVER

Bri-Chem Steel Corp. builds a new plan for supplying pipe

11

ALL ABOARD

COMMUNITY MATTERS
United Centrifuge helps keep a Saskatchewan city busy

14 15

INVESTMENT SYMPOSIUM
PSAC member companies showcase the services sector in front of a very eager crowd

SWINGING FOR CHARITY

PSACs Education Fund gets a big boost during a day at the golf course

07
PETROLEUM SERVICES NEWS

15
3

MESSAGE FROM THE PRESIDENT

Keeping the Good Times Rolling

Ts Fun again. Thats what a senior executive from one of our member

companies told me over the phone recently when discussing the mood of our industry. I agree because its been a year since I came to the Petroleum Services Association of Canada (PSAC) and the time has flown by! This past year has been an eye-opening experience for me. One of the most significant lessons Ive learned is how PSAC came about as a national organization 30 years ago and why our efforts continue to be needed. The introduction of the National Energy Program was the impetus for creating PSAC and over the years the organization has worked tirelessly to strengthen the voice of the services sector. The changes in Albertas royalty regime a few years ago solidified what we knew the need to champion the interests of the sector with government was greater than ever. Additionally, PSAC recognized the community at large had lost sight of how the energy industry functions. The sectors voice had to become stronger and more widespread. We have successfully increased awareness and understanding of the sector and its leadership in industry. Mark Salkeld, Psac President Looking ahead, PSACs presence will be important to ensure policy-makers stay mindful of the need to balance fiscal stability, productivity gains, health and safety performance, and environmental protection, especially as discussions continue about a Canadian energy strategy. These discussions will hopefully lead to a greater participation by industry in setting the stage alongside government for Canadas energy future whilst avoiding policy that could deliver significant unintended consequences. This stands true in consultations regarding labour issues, tax programs and education policies aimed to improve the economic viability of our sector. So as I close out my first year, I have increasing appreciation and respect for the reasons PSAC exists and the important role we play. My goal is to keep the upstream petroleum services sector at the forefront of all industry and community discussions. PSAC represents a sector that is second only to the exploration and production industry in contributions to Canadas GDP, taxes paid and employment levels. We made this point clear while participating at the summer meeting of Canadas Minsters of Energy and Mines in Kananaskis regarding a Canadian energy strategy. PSAC will also continue advancing its leadership position across industry. While each industry association has their specific sector-defined mandates, we all share issues that require attention, such as the shortage of skilled labour, emerging policy discussions about multi-stage fracing, and the disparate lack of understanding of the contributions made by Canadas oil and gas industry to many communities and to our nations economy. All these concerns require a cohesive response from industry and we will continue to work with our peers to engage in meaningful dialogue to ensure workable policies are developed. Finally, a tenet of my vision is to continue growing PSACs membership. Members tell me that joining PSAC offers them credibility worth more than the price of membership. I also hear consistently that members appreciate the additional benefits PSAC offers: participation on committees, involvement in industry events, and receipt of regular communications that apprise them of key trends. We will carry on building these initiatives to provide members with new opportunities to showcase their business acumen, leadership and community spirit. As we celebrate our 30th anniversary, I see a bright future for PSAC and we look forward to sharing in the collective successes of our members and all our stakeholders. Sincerely,

Mark Salkeld PSAC President

4 Fall 2011

PETROlEuM sERvicEs nEws

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FALL 2011 VOL 11 No.2

The Petroleum Services Association of Canada is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. PSAC represents a diverse range of over 250 member companies, employing more than 58,000 people and contracting almost exclusively to oil and gas exploration and production companies. PSAC member companies represent over 80 per cent of the business volume generated in the petroleum services industry. PETROLEUM SERVICES ASSOCIATION OF CANADA 1150 800 6TH AVENUE SW CALGARY, AB T2P 3G3 TEL: 403.264.4195 FAX: 403.263.7174 PRESIDENT AND CEO: MARK SALKELD DIRECTOR OF COMMUNICATIONS: KELLY MORRISON MANAGER OF COMMUNICATIONS AND EDITOR: HOLLY KERR

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DRILLING ACTIVITY FORECAST UPDATE

No Slowing Down
DRILLING ACTIVITY CONTINUES TO INCREASE WITH SASKATCHEWAN LEADING THE PACK
Canadian Drilling Activity Forecast third quarter update, released in July by the Petroleum Services Association of Canada (PSAC), forecasts another increase in Canadian drilling activity levels. PSAC is now forecasting 13,325 wells drilled (rig released) for 2011, up GRAPH 375 wells from Aprils mid-year update. This amounts to an increase Hed: 2011 Drilling Activity Forecast (number of wells) of 10 per cent over the total wells drilled across Canada in 2010. PSAC British Columbia: 554 Alberta: 8,732 is basing its updated 2011 Forecast on Saskatchewan:natural gas prices of average 3,043 Manitoba: 587 CDN$3.75/mcf (AECO) and crude oil prices of US$99/barrel (WTI). Total in Canada: 12,950 All signs going forward indicate a continuing positive outlook for the services sector, given new technologies, innovations and efciency gains that accompany strong oil prices, says Mark Salkeld, President of PSAC. Despite severe wet weather in south eastern Saskatchewan and Alberta: 8,390 British due to Manitoba, the increase in rigs released was largelyColumbia: 700a shift of Saskatchewan: 3,075 Manitoba: Saskatchewan. activity to other areas, most notably to west-central550 Canadian Total: 12,750 Despite tough weather conditions and a prolonged breakup, the

HE PSAC 2011

services sector continues to meet the need to shift to other operating areas, ensuring drilling activity is staying on course so that efciency and productivity goals are being met, Salkeld says. On a provincial basis for 2011, PSAC expects the greatest increase in well count to take place in Saskatchewan with 3,273 wells, an increase of 17 per cent over 2010. Manitoba slightly trails with a predicted 14 per cent increase to 590 wells. Alberta will keep pace at 8,761 wells to be drilled, an 8 per cent increase, and B.C. will see a slight increase of 2 per cent with 660 wells to be drilled.

ALBERTA: 8,761

SASKATCHEWAN: 3,273 BRITISH COLUMBIA: 660 MANITOBA: 590 TOTAL IN CANADA: 13,325

PUBLIC OUTREACH PROGRAM

Public Exposure

O
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PSACS EFFORTS TO CONNECT THE SERVICES SECTOR AND THE COMMUNITY ARE WELLRECEIVED
continues to spread the word. For about a year, weve been distributing PatchWorks, our series of short, monthly articles that provide information, facts and statistics to industry employees and the public. Weve received terric feedback about topics that readers want covered, and indications the publication is being read far and wide among PSAC member company employees, other industry employees, oil and gas associations, educational institutions, and other stakeholders. PatchWorks can be downloaded directly at PSACs public website www.oilandgasinfo.ca/patchworks. COMMUNITY PARTNERS PSAC, along with our upstream oil and gas industry partners, launched the new industry-wide Community Partners program on June 1 in Weyburn, Saskatchewan at the Saskatchewan Oil & Gas Show. As well, PSAC welcomed Prairie Mud Service, United Centrifuge and Encana to the program. Encana joins Anderson Energy and Elkhorn Resources as part of the growing list of exploration and production companies working to help strengthen relationships between industry and community members. Companies that

UR PUBLIC OUTREACH PROGRAM

sign on with Community Partners receive recognition as participants in this important program by having their logo and a link to their website posted on the Community Partners site (www.communitypartners.ca). Throughout the spring and summer, PSAC board members and senior staff delivered presentations about the Community Partners program to Canadian Association of Petroleum Producers Executive Saskatchewans Minister of Energy and Resources Bill Policy Groups (EPGs), including Boyd spoke about Community Partners importance to the Alberta, Saskatchewan and industry and communities in the province. Northern Canada EPGs. More producers have now expressed interest in signing on to the program. The next phase of Community Partners will be rolled out this fall. Dont forget Community Partners offers a collection of tools that will help remind employees and contractors about respectful behaviour in the eld. A one-minute catchy jingle can be found on www.communitypartners.ca and also on YouTube by searching PSAC community partners. Also on www.communitypartners.ca, collateral items including vehicle air fresheners, windshield decals, tailgate magnets and hard hat stickers are available for companies to order and distribute to their employees.

in the field
COMinG eVenTS
PSAC Pre-drilling Season Meeting September 14, 2011 Pomeroy Hotel Fort St. John, B.C. www.psac.ca/events enform Power line Safety and Awareness Workshop September 20, 2011 Nisku, Alberta and November 15, 2011 Calgary www.enform.ca PSAC 2012 drilling Activity forecast and industry Outlook November 3, 2011 TELUS Convention Centre, Calgary www.psac.ca/events

News, events and activities in the industry

PSAC Annual General Meeting November 3, 2011 TELUS Convention Centre, Calgary www.psac.ca/events PSAC industry dinner with Keynote Speaker Robert Johnston of the eurasia Group November 3, 2011 TELUS Convention Centre, Calgary www.psac.ca/events

Logan International) Sure Shot Wireline

Associate Members
Audit Tree Canadian Society for Unconventional Gas Coreworx Mentor Engineering Mobile Data Technologies Oil and Gas Recruitment PwC (Pricewaterhouse Coopers) The RSC Group Prime Essential Systems SAIT Polytechnic SGS Canada Travelers Canada

PSAC Members Shine in the Community

schlumberger recently donated a software package worth
more than $69 million to SAITs MacPhail School of Energy. The software will enable students in the Bachelor of Applied Petroleum Engineering Technology and Petroleum Engineering Technology programs learn how to help the industry improve business performance by reducing risk in exploration and development. Precision Drilling reached a cumulative charitable milestone of $1.8 million on June 22 when they presented STARS with $1 million to be donated over the next five years. Precision Drilling is the first oil and gas service company to reach this level of donation with STARS. A total of $500,000 will be given as a direct donation, while the other half will be a gift-in-kind to be auctioned off at the annual STARS & SPURS Gala presented by PSAC. Flint Energy Services was named by Alberta Venture magazine as one of Albertas Best Workplaces for 2011, leading the way in the Health and Safety category. The award was presented specifically for Flint Energys excellence in employee safety, benefits and wellness.

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DALE DUSTERHOFT, CEO, Trican

INVESTMENT DOLLARS ARE FLOWING INTO CANADAS PETROLEUM SERVICES SECTOR AND OPPORTUNITIES FOR CAPITALIZING ARE SPANNING THE GLOBE
ith all the talk of economic recovery and new life being breathed into the oil and gas industry, service operators might have collectively held their breath when the $5.4 billion deal between Encana and PetroChina was called off. After more than a year of negotiations, the two companies walked away in June from a planned joint venture to tap natural gas assets in B.C.s Cutbank Ridge region. More notably for the services sector, cause for concern might have risen after Clean Harbors offered $247 million for Badger Daylightings business in January, only to see the deal fall through. It turns out, the inability of those deals to close is looking more like the exception, rather than the rule. Capital for companies looking to change hands is available to the industry and businesses with technology developed in western Canada are receiving top dollar around the world. WWW.PSAC.CA

All Aboard
A recent report from Probity Capital Advisors, providing a rundown of merger and acquisition activity during the rst half of the year, noted 20 transactions in the oileld services sector worth a total of $1.6 billion, an average of $80 million per deal. The majority of the activity took place in the second quarter, as companies looked to come out of spring breakup with the manpower and equipment to secure more work. Its not just that theres more work in the patch either, but drilling is becoming more complex as new technology is deployed. As activity in western Canada shifts to horizontal wells and gas operations are using unconventional methods to focus on oil reserves, the length of holes being drilled is getting deeper. The amount of uid being used is also increasing as multiple hydraulic fracturing stages are applied to get the most out of a reservoir. Once the industry realized they could use the same technology from horizontal drilling and fracing in shale gas for oil, that really invigorated activity since producers

11

operations were expanded into coiled tubing. The IPO helped increase research and development, so Trican could further expand into fracing. The technology to service deeper and harder-to-drill wells earned Trican a larger market share in the WCSB, and international expansion followed. First was the Russian market in 2000 by purchasing a service company operated by ex-patriots. Next, seven years later, Trican entered the U.S.

I THINK A LOT OF CANADIAN OPERATIONS BENEFIT FROM BEING BIG ENOUGH TO BE BEST IN CLASS, BUT NOT BIG ENOUGH TO BE A FACELESS CORPORATION ROBERT JOHNSTON
market by purchasing a fracing company. As well as providing an established entry point in a market, local knowledge of a region is acquired through the purchase. We are strong believers in having strong local management, Dusterhoft says. We dont know Russia better than Russians and we dont know Texas better than Texans. Canadian technology is well respected and looked at as innovative, Dusterhoft says, but it still has to be adapted to each region as geological formations are different around the world. Local management also helps Tricans international operations manage equipment utilization, which Dusterhoft says can be quite different from how its handled in North America. Despite the hurdles, he insists its the best way to grow. The strategy to having lots of operations in the world is similar to having lots of legs holding up a table, says Dusterhoft. Even if one is shaky, you still have the others. There are lots of cycles and you need to ensure they are not all down at the same time. You have to be global to survive, says Mark McNeill, President of Master Flo Valve and Stream-Flo Industries. You look at two years ago when the industry crashed here and North America came to a grinding halt, we were able to soften the blow and took advantage of doing business internationally. There are some global markets that are tougher to survive in events earlier this year in Libya and Egypt highlighted this fact so McNeill says its important to spread out international operations. Being diversied in different markets allowed us to protect our territory, he says. The Edmonton-based company is a global veteran. Stream-Flo began manufacturing swing check valves out of Albertas capital city in 1962. The company was looking to expand into other regions of the world when they acquired Master Flo, another Edmonton-based manufacturer, in 1984. The companies continued to run independently, but when a London facility opened in 1986 both Master Flo and Stream-Flo had a presence. Between the two companies, there are now 14 global offices with more than 1,000 employees. The private companys expansion has come from self-financed acquisitions and organic growth. Weve been through six or seven downturns in the oil and gas industry, so our company is very conservative, says McNeill. By self-nancing its MADE IN CHINA BANKING
The Bank of China is expanding its presence in Canada with the opening of a branch in Calgary. It will be the banks third location in Canada after Toronto and Vancouver and a presence in Alberta from the worlds third largest bank will likely benet the provinces energy sector. China is the second largest trading partner to Alberta after the U.S. and Chinas three largest state-owned energy companies CNPC, SinoPec and CNOOC have their Canadian head ofces in Calgary.

PHOTO: DARREN JACKNYSKI

Mark McNeill, President of Master Flo Valve and Stream-Flo Industries looks to global markets to insulate his business from economic downturn.

could get more for oil by repurposing key technology for more lucrative markets, says Robert Johnston, Director of Global Energy and Natural Resources with the Eurasia Group. Canadian-born, Johnston has been working in the U.S. since heading south to study for a doctorate degree at American University in Washington, D.C. Hes been covering the energy industry since 1997 and says Canadian companies operating in the sector and more specically from Alberta are being recognized around the world like never before. One key point is Canadian rms have had to deal with the Western Canadian Sedimentary Basins tough formation, Johnston says. Between the WCSB and big plays in the U.S., North America has been a proving ground for the rest of the world. Unlocking new reserves and increasing output from old plays with advanced technology has brought international attention to Canada. More importantly perhaps, this attention brings investment dollars that allow domestic companies to continue pushing the industry forward in new directions. Our business is a capital intensive business, says Dale Dusterhoft, CEO of Trican. There are two ways to grow: through cash ow or through investment. Its no small task keeping up with investor demands or trading company shares on the open market, but Trican made the decision to do it back in 1996. The Calgary-based company listed on the Toronto Stock Exchange, raising $13.9 million. It was the start of a restructuring and a move to expand the service companys reach. Starting off as a cementing company,

12 FALL 2011

PETROLEUM SERVICES NEWS

BUY IN expansion, Master Flo can focus on labour and integration, rather than responding to investor needs, like maximizing shareholder value in the short-term. One thing McNeill does point out is that they have to look for deals all the time. If you do it just when the economy here is slow, youll fail, says McNeill. Dont forget about international operations when business picks up at home. I think a lot of Canadian operations benet from being big enough to be best in class, but not big enough to be a faceless corporation, says Johnston. Canadian rms have a reputation for offering customized solutions and being responsive and innovative. Innovation will become more prevalent as companies will have to prove that new technology is not only effective, but environmentally friendly. As oil producers increase usage of horizontal drilling and fracing, some environmental groups are raising concerns. These concerns have halted
The ve biggest transactions in the oileld services sector during the rst six months of 2011 PURCHASING COMPANY ACQUISITION TRANSACTION VALUE Western Energy Services Stoneham Drilling $237 million Clean Harbors Peak Energy Services $200 million Tuscany International Drilling Caroil S.A.S. $196 million Essential Energy Services Technicoil $178 million Secure Energy Services Marquis Alliance Energy Group $131 million
Source: Probity Capital Advisors

THE STRATEGY TO HAVING LOTS OF OPERATIONS IN THE WORLD IS SIMILAR TO HAVING LOTS OF LEGS HOLDING UP A TABLE. EVEN IF ONE IS SHAKY, YOU STILL HAVE THE OTHERS DALE DUSTERHOFT
fracing operations in Quebec and New York until more environmental testing can be conducted. Companies have to keep an eye on operational safety and the security of people, adds Johnston, as well as health and the

environment. There are lots of regions, however, that are comfortable with the level of sustainability offered by Canadian companies. Were seeing Alberta companies taking these technologies to Poland, Saudi Arabia, Australia, China, Columbia, Argentina, South Africa and France, says Johnston. Perhaps the biggest opportunities are in Asia, notes Johnston, where energy demand is growing, foreign exchange rates are favourable, the region is primarily politically stable and the geology is good. And, Johnston points out, its not just China. Japan, Korea, Thailand and Malaysia all offer opportunities. Something like 25 to 30 per cent of service company revenue is coming from international work, says Johnston. Its globalizing very quickly. Barriers, it looks like, would be the exception and not the rule for Canadian service companies competing in global markets and for global dollars.

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13

Spot
PETROLEUM SERVICES SECTOR OFFERS HOT INVESTMENT PICKS
HE FUTURES SO BRIGHT I gotta wear shades,

Bright
Roger Serin of TD Newcrest offers reasons to be optimistic about investing in the services sector in his Industry Overview.

says an enthusiastic Roger Serin, Managing Director and Head of Energy Research for TD Newcrest. Serins optimistic comments opened PSACs 17th annual Petroleum Services Investment Symposium held June 17 and 18 in Calgary. He was referring to TDs current assessment of the petroleum services sector, and adds, this is the most bullish TDs been in some time.

The audience of investors at this years Investment Symposium included buy-side analysts, institutional investors, portfolio managers, diversied fund managers, industry sell-side analysts and credentialed retail brokers. They came to hear about the service sectors rebound from the recession and whats behind the strong economic recovery and healthy growth. This growth is powered by a number of contributors, says Serin, including increased drilling activity of deeper, longer and more complex horizontal wells; foreign investment in the Western Canadian Sedimentary Basin (WCSB); the pursuit of oil due to high oil prices; and innovations in drilling and completion technologies. Changes in Albertas royalty regime are also having an impact on this growth. Most horizontal wells today are receiving royalties of ve per cent a big driver for an upsurge in activity on the horizontal side and an increase in land sale dollars. There is also a proliferation in total land parcels and in dollars per acre. Land sale prices are trending up and total more than $3 billion per year across B.C., Alberta and Saskatchewan. Large companies are buying large parcels of land at very high costs, and as Serin notes, this is not a mom and pop activity; its for the big boys. As well, technology and new play types are impacting the shift in activity. Serin says horizontal and directional wells now account for 75 per cent of all wells being drilled. He attributes this to two drivers: a horizontal multi-stage fraced well provides signicantly higher productivity and lower royalties, and coupled with longer drilling, result in better royalty breaks in some cases, so there exists a bias to drill longer wells and horizontal wells. Additionally, western Canada offers very good shale plays and even better hybrid plays of low permeability rock that was productive conventionally, but is much more productive and economically viable when drilled unconventionally with horizontal wells and multi-stage fracing. The implementation of new technologies and innovations is an ongoing exercise and experiment between the producers and service companies, says Serin, allowing the service companies to provide value-added services to their

customers. An example is Pason Systems, an oileld data solutions provider that has developed software thats woven into its rig system. It decodes mud pulses using measurement while drilling (MWD) tools that previously would have been handled by incongruent directional and MWD tools. David Holodinsky, Pasons General Manager for Canada, told the audience, We think the interest in remote drilling is going to be enhanced by people off-site having the same information as the people on-site helping to make decisions. This may minimize rig costs and possibly personnel costs as well. Canadian Energy Services and Technology (CES), another innovator, provides drilling uid services to oil and natural gas producers. Tom Simons, President and CEO of CES, explains that the company has patented a number of drilling uid technologies for horizontal drilling. CES designed these technologies for a broad range of drilling scenarios, aiming to help customers eliminate inefciencies in the drilling process and assist them in meeting operational objectives and environmental compliance obligations. Typical savings for an operator when they use our drilling uid system containing one of our patented productsis 30 per cent to 40 per cent, says Simons. In addition to new technologies and play types impacting the sector, Serin indicates that oil sands work is also a signicant part of the service industrys business in western Canada. It is expected that oil sands work will generate more than $15 billion in the next few years, and will be a driver of activity in Alberta and in Canada overall. In terms of investment, Serin explains that, As companies have a much higher prospect inventory with the resource play focus, there is increased strategic and economic need for new sources of capital, and capital from outside Canada is lling that need and developing assets. Last year, $10 billion in new money was injected into the WCSB, translating to signicant activity. Serin also notes the petroleum services sector is not only driven by what goes on in western Canada its also fuelled by activity outside of Canada. Today, 40 to 50 per cent of the sectors revenue is from outside of Canada. International operations are very important to this sector and will continue to be in the years to come. In terms of areas service providers will need to pay attention to, it comes as no secret the skilled labour shortage is and will continue to be an issue causing concern. Also, health, safety and the environment (HS&E) are areas where companies need to increasingly demonstrate strengths and should be prepared to publicly communicate their strategies. Ultimately, petroleum service sector companies that can offer solutions in each of these areas and have the ability to operate outside of Canada will fare very well in the future, as oil and gas activity grows and expands internationally.

14 FALL 2011

PETROLEUM SERVICES NEWS

Fore!
PSAC GOLF TOURNAMENT RAISES THOUSANDS FOR STUDENTS

Roger Soucy presents the PSAC Roger Soucy Legacy Scholarship funded by KPMG to Northern Lakes College student Morgan Holman of Slave Lake, Alberta.

HE PETROLEUM SERVICES Association of Canadas

PSAC EDUCATION FUND GOLF CLASSIC
MAJOR SPONSORS ATB Corporate Financial Services Calfrac Well Services Ltd. Derrick Exhibit JuneWarren-Nickles Energy Group Import Tool Corp. Ltd. KPMG National Oilwell Varco Probity Capital Advisors Inc. Smith Bits, a Schlumberger Company Sterling Western Star Trucks Alberta Ltd. Stream-Flo Industries Ltd. Tenaris Global Services Canada Unicom Graphics Weatherford Canada Partnership HOLE SPONSORS ARC Financial Corporation CEDA International Corp. Cole Group CMA Alberta ComplyWorks Ltd. Halliburton Group Canada Pajak Engineering Ltd. Sanjel Corporation Spira Data Trojan Safety Services GREEN SPONSORS Canamara United Supply Canaccord Genuity Inc. Doran Stewart Oileld Services DYNAenergetics Canada Inc. Ensign Opsco Energy Industries Guardian, A ShawCor Company RBC Royal Bank of Canada Strike Energy Services Inc. Topco Oilsite Products Ltd. EDUCATION FUND DONORS AND SUPPORTERS Calgary Elks Lodge and Golf Club Community Natural Foods Crowfoot Liquor Hyatt Regency Calgary Janet Horbacio Photography Ketek Group Inc. Promore, a Division of Core Laboratories Tesla Exploration Ltd. The Westin Calgary

(PSAC) Education Fund just became about $50,000 richer. The money was raised through the annual PSAC Education Fund Golf Classic on July 21, as 136 golfers took to the fairways at the Calgary Elks Lodge and Golf Club. The event included a presentation to some of the 2011 Regular Member scholarship winners: Stuart Harris, a University of Calgary engineering student; and Tiffany Huard, a University of Calgary student studying commerce and marketing. Along with Stuart and Tiffany, three other students were awarded the $1,000 PSAC Regular Member scholarships: Shivangi Nagarajan, a University of Alberta dentistry student; Clinton Potts, a University of Alberta engineering student; and Chelsea Ritter, a University of Alberta engineering student. During the tournament, the inaugural PSAC Roger Soucy Legacy Scholarship was handed out. The $2,500 scholarship was awarded to Morgan Holman, a Northern Lakes College power engineering student. This Legacy Scholarship is funded by KPMG and is awarded to a postsecondary student studying in a petroleum-related or trades-related program who is contributing to their community. Since its inception in 2001, the PSAC Education Fund has awarded more than $175,000 in scholarships and grants to students. More information on the PSAC Education Fund can be found at www.psac.ca/community/education-fund.

L-R: Gary Kirkpatrick of Prodrill Fluid Technologies; Stuart Wyman of Canamara United Supply; PSAC Board Chair Brian Coston of Canamara United Supply and Gerry Leis of Advantage Mud.

Tiffany Huard and Stuart Harris, two of five 2011 PSAC Regular Member scholarship recipients, are awarded their scholarship cheques by Education Fund Committee Chair Travis Strube.

WWW.PSAC.CA

15

BUSINESS MATTERS

Lets Make a Deal

BY STEVE MACLEOD

BOARDROOM DEALS ARE RAMPING UP, BUT PLENTY OF PREPARATION IS REQUIRED BEFORE SIGNING ON THE DOTTED LINE
o buy or sell? This is the question that is returning to the minds of oil and gas services sector owners. With horizontal wells being drilled deeper and more fracing stages boosting production, more hours are being spent on each well. Companies will look to add more iron and more people to their operations to take advantage of the increased activity, and acquisitions provide an immediate boost. KPMG Corporate Finance recently released its 2011 energy services update and while the level of transactions might not reach 2007s high, where nearly 100 companies changed hands, this year has already been busier than the previous three. The global audit, tax and advisory rm predicts that between May 2011 and May 2012 about 45 transactions will close, compared to only 24 deals done in the 12 months before. More capital is available to nance these deals and the more money a company needs, the easier it is to get nancing. At $1 million, there are not many institutional based funds that look at it, but at $25 million, there are numerous institutions that will do that deal, says Rhys Renouf, Senior Vice President and Director of KPMG Corporate Finance in Calgary. Also, if Im selling, its good because the fundamentals of the services sector are strong. The economics are favourable and so are the demographics. The rst baby boomers turn 65 in 2011, says Trevor Conway, Managing Partner and Director of Probity Capital Advisors. Twelve thousand Americans and 1,300 Canadians will turn 65 every day for the next 15 to 20 years. Lots of private businesses will be changing hands.

Whether acquiring a company or planning to be acquired, the preparation needed to get to the negotiation stage is similar. The best time to start preparing is the day the business is launched, but just in case foresight isnt an area of expertise, here are a handful of areas to focus on. BACK UP Many entrepreneurs are driven, which helps get a business off the ground. After that, a company that runs solely on the strength of the owners relationships will make a transition to new ownership more difcult. A business that is 100 per cent dependent on the owner/operator is a difcult business to sell, if it can be sold at all, says Conway. Its someones worst nightmare when they write a cheque and the next day all the employees and customers leave. To prevent this scenario, a solid management team should be assembled. A company tied to their business and not to their owner will have a greater chance of succeeding during a change of ownership. Having a second tier of managers who are ready to run the business after its sold is very advantageous in maximizing value, says Renouf. CLEAN UP Its a good business practice to keep paperwork organized and up-to-date. If these are the kinds of tasks that get pushed to the backburner during daily operations, it will be a bigger job getting everything in order pre-sale. This includes making sure all licences and permits are in order, policy and procedure manuals are updated, and trademark, copyright, patents and intellectual property contracts are in place. Business restructuring could also be arranged to maximize one-time capital gains, suggests Renouf, including transferring land to a separate holding company. Sometimes owners of private companies have personal assets in the business, Renouf says. These should be stripped out to make the balance sheet clean.

16 FALL 2011

PETROLEUM SERVICES NEWS

ROUND UP A company might be competition in the eld, but business advisors like to call them strategic buyers. Businesses are worth more to some people than others, says Conway. To strategic buyers in the same sector, it could be worth more. Having unique processes, proprietary technology, intellectual property or a good chunk of the market share is a good way to attract offers and the more the merrier. The best way to maximize value is to create a competitive process, marketing the company to several different buyers, Conway adds. Then youll see what the company is worth and not what someone thinks they can get away with. If there are four buyers, leverage is on your side and value is correlated to leverage. WIND DOWN After spending a lifetime building a business, the decision to sell is not easy. Staying on during the transition period might ease the shift to a new stage of life. Very few owners show up at closing, pick up a cheque and never look back, says Conway. Theres a lot of second guessing, but at the end of the day its really about planning your exit and preparing for the next stage. The sooner, the better.

TO DO LIST
Here are a few other items Probity Capitals Trevor Conway suggests looking after when preparing a business for sale
Review and consider tax implications of alternative deal structures Update minute books and corporate records Update the corporate website Ensure all material contracts are in order and easily accessible Document and justify all research and development projects Ensure compliance with occupational health and safety standards Avoid or settle outstanding litigation Make facilities clean and presentable Ensure equipment is in good working order Put in place reporting systems to track key performance indicators

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17

PSAC IN ACTION
PSAC CONTINUES TO KEEP THE SERVICES SECTOR FRONT AND CENTRE THROUGH ADVOCACY AND OUTREACH
PSAC ATTENDS SPECIAL ROUNDTABLE ON CANADA/U.S. ENERGY REGULATORY COOPERATION At the invitation of the Energy Council of Canada, the World Energy Council and the United States Ambassador to Canada David Jacobson, PSAC attended the Special Roundtable on Canada/U.S. Energy Cooperation held in June in Calgary. This initiative is part of the Regulatory Cooperation Council announced by Prime Minister Stephen Harper and President Barack Obama on February 4. The roundtable discussion focused upon the competitive impacts of existing regulatory differences in the energy sector, lessons from past efforts in support of regulatory harmonization and a potential path forward for our integrated industries. PSAC participated in the discussion about the regulatory realities that complicate oil and gas trade across our borders. Expected outcomes of the roundtable will be a compilation of actionable impediments to trade in the oil and gas sector. PSAC CONTINUES TO PARTICIPATE IN ALBERTAS REGULATORY ENHANCEMENT PROJECT PSAC attended a workshop in June held by the Alberta Department of Energy to further the recommendations of the provincial Regulatory Enhancement Project. Recommendations of the project were published in a December 31, 2010 report titled, Enhancing Assurance. The June workshop included participation by Alberta Energys Deputy Minister Peter Watson and Parliamentary Assistant Diana McQueen, as participants discussed ways and means to ensure the new system addresses all the issues and meets the goals of a single and integrated energy resource regulator. PSAC MEETS WITH ALBERTAS NEXT PREMIER Through the summer months, PSAC staff and board members held meetings with Albertas Progressive Conservative Party leadership candidates to initiate discussions and put a spotlight on the issues of importance to the petroleum services sector. PSAC provided an overview of the oileld services industry including the sectors economic, technological and social contributions. PSAC also discussed the pressing issues facing its members, including current labour issues, the elimination of the TEFU/PROP rebates and the emerging discussions related to a Canadian energy strategy. PSACs goal is to ensure that Albertas incoming premier has a fulsome understanding of the challenges, opportunities and impacts of the sector on the province and on the rest of Canada. SAIT MACPHAIL SCHOOL OF ENERGY AND EDUCATION ROUNDTABLE EVENT PSAC participated in a half-day roundtable session with producers, government ofcials and Southern Alberta Institute of Technology (SAIT) representatives along with the Dean of SAITs MacPhail School of Energy in Calgary to discuss the role that education can play in meeting the workforce development needs of the energy industry, and recognizing the current and growing skilled labour shortage. SAIT plans to collaborate with industry members to nd solutions to meet industrys current and future workforce needs.

PSAC President Mark Salkeld welcomes guests to the PSAC Barnstorming Breakfast at the Saskatchewan Oil and Gas Show.

PSAC MEETS WITH U.S. CONSUL GENERAL PSAC met with U.S. Consul General Laura Lochman in June to discuss the growing skilled labour shortage for oileld service companies and to explore avenues for collaboration on easing cross-border labour mobility issues. The U.S. is keen to work with Canada in response to the need for skilled labour as this will assist the country in addressing their high unemployment. Further discussions are planned and updates will be provided. PSAC ATTENDS PEACE REGION AND SASKATCHEWAN OIL SHOWS PSAC attended the bi-annual Peace Region Oil Show on May 17 and 18 in Grande Prairie, Alberta, and met with PSAC members and other industry stakeholders. This provided PSAC with the opportunity to discuss current issues of concern and to help support the voice of members in the Peace Region. PSAC also attended the bi-annual Saskatchewan Oil and Gas Show on June 1 and 2 in Weyburn, Saskatchewan, with the goal of connecting with members in the Saskatchewan region. In addition to very good attendance at their Community Partners launch, PSAC enjoyed a huge turnout at their bi-annual Barnstorming Breakfast on June 2 as part of the oil shows activities. Members, sponsors and other show attendees arrived at the early morning breakfast to enjoy a hot meal, the talents of local entertainers and many prizes. Special thanks to Ray Frehlick of Prairie Mud Service and sponsors Calfrac Well Services, Canalta Hotels, Derrick Exhibit, Firemaster Oileld Services, HSE Integrated, Probity Capital Advisors, Smith Bits, United Centrifuge and JuneWarrenNickles Energy Group. PSAC ATTENDS ENERGY AND MINES MINISTERS CONFERENCE FOCUSING ON A CANADIAN ENERGY STRATEGY In July, PSAC attended the Energy and Mines Ministers Conference held in Kananaskis, Alberta, hosted by Alberta Energy Minister Ron Liepert. Ministers from across Canada, including the Hon. Joe Oliver, the new federal Minister of Natural Resources, came together to discuss and map a framework to guide the development of a Canadian energy strategy. PSAC had the opportunity to have one-on-one discussions with government representatives and to provide highlights of the economic impact and contributions of Canadas upstream petroleum services sector, outlining the important elements that will make a collective energy strategy workable for PSAC member companies. PSAC also made contact with Olivers Chief of Staff who agreed to arrange a future meeting for PSAC with the federal minister. PSAC plans to attend next years ministers conference to continue our active engagement in this important initiative.

18 FALL 2011

PETROLEUM SERVICES NEWS

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19

MEMBER PROFILE

Pipe Dreams
INSTEAD OF CONTINUING TO SOURCE STEEL PIPE FROM ASIA, BRI-CHEM STEEL HAS BECOME THE SOURCE
BY LUKE MUISE
mporting supplies for the oil and gas industry has its challenges. Bri-Chem Steel Corp. has been wholesaling steel pipe in the oil and gas industry since 2003. The Edmonton-based company knows rst-hand that not only does it take time for product to make its way across the Pacic Ocean, there are the risks of lost, stolen and damaged loads. And, regulatory red tape rarely expedites the process. Rather than continuing to wade through international anti-dumping laws by importing steel pipe from China, the subsidiary of Bri-Chem Corp. decided to take matters into their own hands.

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Some of these mills became very difcult to operate in their country, says Don Caron, CEO of Bri-Chem. One of the things we talked about was, does it make sense to talk to one of our manufacturers owners and see if theyre interested in crating up their entire mill, putting it on a boat and shipping it over here, and we could set it up for them in Canada? It made sense to Wuxi Huayou Special Steel Co. Strict anti-dumping laws in China and North America were making it difcult for the Chinese company to export their steel pipe. Anti-dumping laws basically prevent a company from exporting a product at a lower price than they would charge in their domestic market. Most countries enact this trade measure to protect their home grown industries. In Canada, more than one-third of anti-dumping measures in place deal with Asian countries and about two-thirds of those measures regard metal products. Neil Rasmussen, President of Bri-Chem Steel, says that Chinese manufacturers have been basically blocked out of the U.S. market due to anti-dumping laws. Since the U.S. is one of Chinas most important export markets, many companies are moving their factories out of China in an attempt to avoid dumping issues. Some of those companies even tried moving their operations to North America, but with little success, says Rasmussen. He relates this to the differences in business culture between China and North America. As a result, when Bri-Chem Steel approached Wuxi Huayou, Rasmussen says the Chinese company was instantly intrigued because they would gain a partner familiar with the North American market and avoid anti-dumping issues. Negotiations for the partnership began in June 2010. Wuxi Huayou packed a manufacturing facility into crates and put it on a freighter to Canada. Just over one year and about 14,000 kilometers later, the mill began production of steel pipe from its new home in Edmonton in mid-July. While jumping into a new line of business comes with a whole new set of risks, the partnership between Bri-Chem Steel and Wuxi Huayou is designed to ease the burden for both parties. With a 70 per cent stake in the operation, Bri-Chem Steel will provide working capital and initial inventory, while Wuxi Huayou will contribute the equipment, installation, training and engineering. The mills output will mostly consist of large diameter pipe in the 24 to 36 inch range for use as pipeline tie-ins at reneries or water piping. The plant, however, is small compared to an average steel mill. Bri-Chem Steels micro-mill has capacity for just 24,000 to 30,000 tons annually. Despite its small size, Caron likes the versatility of the micro-mill. The mill can change the size of the pipe it manufactures in about two hours and small orders, such as 300 feet of 26 inch pipe, are economically viable. We can supply a greater variation of products in a faster period, says Caron. And Bri-Chem Steel wont have to import the steel pipe from across the ocean to sell it.

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8/4/11 11:22:15 AM

PETROLEUM SERVICES NEWS

Petroleum ServiceS ASSociAtion of cAnAdAS 2011 induStry inSightS forum Moving Towards new Horizons

Join senior leaders and industry representatives at this premier event that will provide information and insights to fuel your business planning for the year ahead
1:30 pm 2:10 pm PSAC Annual General Meeting Celebrating 30 Years (for PSAC Members only) 2:30 pm 4:30 pm 2012 Drilling Activity Forecast & Industry Outlook - Hear an overview of PSACs drilling activity forecast for 2012 plus hear from both analysts and experts including the Canadian Association of Petroleum Producers about the issues and opportunities for your business in the year ahead.
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6:00 pm 8:30 pm Industry Insights Dinner Keynote Speaker Robert Johnston, Director, Global Energy and Natural Resources, Eurasia Group - Robert (RJ) Johnston is the director of Eurasia Groups Global Energy & Natural Resources practice, specializing in oil, gas, power generation, metals and agricultural research. He will be speaking to the current issues, challenges, risks and opportunities across domestic and foreign markets for Canadas oil and gas industry.

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21

COMMUNITY MATTERS
United Centrifuge employees accept the companys 2010 Weybex Award, including from left to right, Tim Bowers, Operations Manager; Dan Richards, Shop Manager; Cherisse Warburton, Ofce Administrator; Wayne Ebel, General Manager; and Damon Warawa, Shop/Field Technician.

UNITED WE

OUTSIDE OF URBAN CENTRES, COMPANIES LIKE UNITED CENTRIFUGE HELP COMMUNITIES THRIVE

Stand
BY STEVE MACLEOD
initiatives that led to United Centrifuges recognition. It was a great honour and Im happy they recognized what we do, but thats not our motivation, he says. Im very proud of our employees because its easy to give away money when times are good, but by being involved and cooking burgers and putting down sandbags, its their award not mine. The oileld equipment rental company chips in to benet a number of local organizations, including minor soccer, baseball and hockey leagues; the Weyburn Rodeo and Weyburn High School Rodeo; the Weyburn Young Fellows; the Weyburn Beavers; the local 4-H Club; the Weyburn Legion branch; and Big Brothers Big Sisters of Weyburn. We think its important to give to these local projects because we believe all kids should be involved, Ebel says. There are so many young people in town now and we have to keep them busy. By us showing involvement and working with others, it mentors them to do the same for somebody else.

southeastern Saskatchewan city to set aside land so they could build an outdoor park for the community. The Don Mitchell Paddling Pool emerged, which also features a playground, green space and spray park. After the Young Fellows nished construction, the city was responsible for operations and maintenance. A few years ago, with budget constraints squeezing Weyburn, city council was unable to pay for a lifeguard to monitor the site and they were forced to decide between charging admission or closing the park. I told them, Id pay for the lifeguard, but you better have one out there tomorrow, says Wayne Ebel, President of United Centrifuge. It wasnt the rst charity act for Ebel and it certainly wont be the last, but that doesnt mean hes comfortable talking about it. Since hes not a limelight guy, Ebel doesnt brag about winning the 2010 Weybex Award for Community Involvement (given by the Weyburn Chamber of Commerce) or the community

N 1998, the Weyburn Young Fellows got their

22 FALL 2011

PETROLEUM SERVICES NEWS

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