BUSINESS
11/11/2011 02:11 EST | Updated 01/11/2012 05:12 EST

TransForce beefs up energy presence with US$110M oil rig relocation acquisition

MONTREAL - Delivery and transport company TransForce Inc. will become one of the largest oil rig relocation service providers in the United States after purchasing I.E. Miller Services for US$110 million.

Last year's acquisition of Hemphill-Speedy strengthened TransForce's presence in the U.S. Rockies. I.E. Miller expands that reach to Texas, Louisiana, Oklahoma, Colorado and North Dakota.

"We want to be a national player in the U.S. so we needed that market in the south," president and CEO Alain Bedard said in an interview Friday.

The transaction, made through its U.S. subsidiary following six months of discussion, is expected to close in the fourth quarter.

I.E. Miller, a subsidiary of Complete Production Services, Inc. (NYSE:CPX), handles all the stages of rig relocation, including the disassembly, transportation and reassembly.

The relocations require the right tools and highly skilled workers.

Giant cranes costing up to $4 million a piece, and weighing up to 250 tons, help to dismantle the rigs while large trucks, costing $250,000 to $500,000, transport flatbeds carrying the pieces to new drilling sites where they are reassembled.

The entire process can take one to two weeks to complete.

"It's very different than a truck driver that hauls a 53-footer from Toronto to Texas," Bedard said.

The I.E. Miller acquisition includes more than $75 million of equipment. That's on top of the $35 million of assets operated by Hemphill-Speedy.

The company has about 400 staff and generates about US$25 million in cash flow from US$138 million of annual revenues.

TransForce (TSX:TFI) will become the number one or two largest oil rig relocation companies in the U.S. with about $300 million of revenues.

Its North American oil rig workforce will grow to about 1,250 people, including 350 in Canada. TransForce's total workforce will increase to more than 22,000.

The acquisition complements its smaller Canadian oil rig relocation business, which generates about $60 million in revenues from operations outside Edmonton in the Drayton Valley region.

Subsidiaries Kos Oilfield Transportation and Rebel Transport are the third-largest oil rig relocation providers in Canada after Mullen Group Income Fund (TSX:MTL.UN) and Flint Energy Services Ltd. (TSX:FES).

Unlike the Canadian operations which operate about six months of the year because of weather, U.S. rigs are moved nine to 10 months of the year.

The politics of drilling for natural gas and oil onshore is also shifting following the environmental catastrophe of the BP explosion in the Gulf of Mexico, Bedard added.

"I think now they understand that they have to do more with natural gas, more with oil within the U.S. and maybe not as much offshore," he said.

Compared to some 30 offshore rigs, there are about 2,000 onshore operations in the United States, that are moved every few months at an average cost of $500,000.

Benoit Poirier of Desjardins Capital Markets said the transaction gives TransForce "critical mass" in the energy sector.

It will add 45 cranes to the 35 already in operation and add a strong management team.

Poirier said the acquisition, funded by TransForce's line of credit, could add 12 cents per share of earnings next year.

"As the company's revenues continue to shift toward high-margin businesses, we expect multiple expansion in the long-term — this is one of the reasons why we believe TransForce remains a very compelling story," he wrote in a report.

Bedard said the acquisition aligns with TransForce's strategy of servicing the growing energy sector in Canada and the United States.

He sees more acquisitions in the energy and Dynamex parcel service next year as the high Canadian dollar provides TransForce with discount for deals south of the border.

"Something is going to happen soon but nothing before probably the mid to the end of 2012," he said.

TransForce operates a number of parcel, trucking and logistics businesses across Canada and the United States.

On the Toronto Stock Exchange, its shares gained 69 cents, or 5.6 per cent, at C$130.7 in afternoon trading.