Buying a drilling and well services company in Canada

Buying a drilling and well services company may mean buying a capability that cannot be run from a distance on the first day: the rig needs someone who can operate it, and the work is done on customers’ land. This page is for someone weighing a particular opportunity. It looks at signs of a sound company and of a weak one, what a seller may not mention, and what the buyer must be able to do personally. The checks that follow an accepted offer are set out in the due diligence guide.

Signs of a sound company, and of a weak one

A sound company may have a rig whose depth capability and design match the ground it works in, with a service history showing how it has been kept; work from several customers, some of whom have come back; a maintenance book that is a real list of well owners rather than a few remembered names; more than one person who can run the rig; and job files that show what was drilled, what was found and whether the customer was satisfied. A weak company may show the opposite: one machine carrying the whole business, revenue from one or two developers, an owner who does everything and records that live in the owner’s head.

Why you are buying decides what good means

The best opportunity depends on who is buying and why. A buyer interested mainly in rig capacity, one interested in the maintenance customers, one interested in territory and an owner-operator entering the trade will each weigh the same company differently. It helps to settle which of these describes the buyer before reading the numbers.

What a seller may not volunteer

A sales summary is prepared for the seller, so a buyer can ask directly about matters it may not cover.

• Wells that gave less water than the customer expected, or water-quality problems, and whether any dispute is still open.
• Abandoned wells the company drilled, and what is known about their condition and decommissioning.
• How much of the work depends on the owner personally, including the owner’s knowledge of local formations.
• The rig’s hours and age, and the major repairs coming due, since accounts show only repairs already made.
• Whether the person who holds the certification plans to stay, and for how long.

What the buyer must qualify for personally

Any authorization to carry on well work cannot be assumed to arrive with the company. Whether it moves to a buyer, must be applied for again or cannot move at all is for the provincial authority to say, and the question belongs before the offer rather than after it. Our answer on trade licences on a sale explains how certifications can belong to a person, and the one on share purchases and licences shows why the deal structure does not settle the matter. If the company or its crew operate commercial vehicles, carrier registration is a second layer. Transport Canada notes that commercial-vehicle regulation across Canada rests on National Safety Code standards, and Ontario says that anyone who operates a commercial vehicle in the province must have a valid CVOR certificate, subject to the exceptions it lists (trucks plated in another province, for example, need that province’s safety certificate instead), a registration under which the province monitors operators’ safety records. Ontario describes a CVOR abstract as a summary of a carrier’s or driver’s safety performance, including collisions, convictions and inspections, so a buyer can ask the seller for one.

The crew comes with the company

Where qualified technicians are hard to find, the crew is part of what is being bought, and a company without one may have only a rig. In Ontario, section 9 of the Employment Standards Act, 2000 provides that when an employer sells a business and the purchaser employs an employee of the seller, the employment is deemed not to have been terminated or severed for the purposes of the Act, and the employee’s time with the seller counts as time with the purchaser. A buyer who takes the crew therefore takes their service history for those purposes. The Act’s exception applies if the purchaser hires the employee more than 13 weeks after the earlier of the employee’s last day of employment with the seller and the day of the sale. Other provinces have their own employment standards laws.

Why the seller’s knowledge matters

A driller’s knowledge can be local: how formations behave in a township and where earlier wells found good water. That knowledge may sit with the owner and the crew, and leave with them if the sale is a clean break. BDC notes that buyers may insist on a reduced price when a seller cuts all ties, and that in a 100%-cash-out deal the buyer takes on more risk because the seller is no longer involved. A staged handover, with the seller introducing customers and staying available for a period, is one way to move this knowledge across, and it is worth raising early.