Saxon Energy Services to Acquire Kinnell Drilling

Saxon Energy Services

Saxon Energy Services' subsidiary has entered into a definitive agreement to purchase all of the assets of Kinnell Drilling Ltd. and Kinnell Resource Consultants Ltd. including seven drilling rigs, an operating base and spare equipment for an aggregate purchase price of Cdn. $61.5 million cash. The acquisition is structured as an asset purchase and will provide Saxon with full tax basis in the drilling rigs. The purchase is scheduled to close on July 1, 2006 subject to standard closing conditions including completion of final due diligence. One of the rigs is in the process of being constructed and is expected to be completed at the vendor's expense on or about November 1, 2006. Senior management of Kinnell, John D. Inverarity and Jaysen Inverarity, have agreed to join Saxon after the closing and will be responsible for managing the day to day operations of the business. Saxon is financing this acquisition out of its available cash flow, the proceeds of warrants recently exercised, and its expanded credit facilities described below.

The acquisition marks a significant expansion of Saxon's Canadian rig fleet, increasing its total rigs in the country to nine. Upon closing, Saxon will have a total rig count in North America of 29 (25 net), with a further seven drilling rigs contracted and under construction. While Saxon maintains an active fleet of 27 rigs in South America, presently working at 93% utilization, this Canadian rig acquisition reinforces the Company's strategy of building up a strong North American operating base.

Dale Tremblay, President and Chief Operating Officer of Saxon, said: "The expansion in Canada is an important step for the Corporation and fulfills a corporate goal to establish a substantive operational and revenue base in the country. We are really impressed by the quality of the equipment and the integrity and experience of the Kinnell management team. We are also happy that the employees of Kinnell have this opportunity to join a rapidly expanding international organization, while continuing to operate in a well- regarded Canadian drilling entity".

Saxon also announces expansion of its credit facilities with a syndicate of lenders led by Standard Bank Plc. Saxon has entered into a credit agreement which will increase the existing medium term facility from US$45 million to US$55 million on improved terms, and will create a new US$50 million revolving facility. The medium term facility has a remaining term of approximately four and one-half years. It is repayable in equal quarterly installments of principal plus interest, commencing February 2007 with the final payment due in late 2010. This facility will now bear interest ranging from LIBOR plus 2.25% to 3.25% based upon Saxon's Debt to EBITDAS (earnings before interest, taxes, depreciation and amortization, and stock based compensation). The revolving facility is interest payments only and is for a term of 364 days renewable yearly at the option of the lenders and bears interest ranging from LIBOR plus 1.75% to 3.00% based upon Saxon's Debt to EBITDAS ratio.

Saxon is an emerging international oilfield services company operating a well-established drilling and well servicing business, with a substantial presence in Colombia, Ecuador, Mexico, Peru and Venezuela with a rapidly growing presence in Canada and the United States. Saxon focuses on providing contract drilling and workover services to major and intermediate oil and gas companies and plans to grow revenue by both the acquisition of existing companies operating in its areas of interest and the construction of new technology rigs. Following this acquisition, Saxon's active fleet of rigs will be comprised of 41 (net 37) drilling and 15 workover rigs, with a further seven drilling rigs contracted and under construction.

Saxon is listed on the Toronto Stock Exchange under the trading symbol "SES".


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