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Oil-field service firms seeing new signs of life

Star Valley joins a Canadian oil-field service sector making a slow recovery out of the oil-price rout of the past two years – a period that has seen numerous companies in Western Canada go out of business.

Frank Pimiskern/Star Valley Drilling

As Alberta's economy tumbled into an oil-price slump, Frank Pimiskern spent months combing through industrial yards of idled equipment, looking for drilling rigs he could snap up for 10 or 20 cents on the dollar.

His plan: Start a drilling company when everyone was running away from the capital-intensive business.

In Fort Macleod, Alta., Mr. Pimiskern, 45, found his prize – a "beautiful" mechanical rig stored in a gravel pit. By the end of 2015, he and a small group of well-connected backers, with friends and family, were able to raise $18-million to outfit his newly created Star Valley Drilling Ltd. with a total of five rigs. Throughout 2016, the private firm's approximately 50 field workers were sometimes paid less than the industry-standard rates to win jobs.

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There have been many sleepless nights for Mr. Pimiskern in his now-remortgaged Calgary home. He said people in the industry have variously labelled him "brilliant" or "a total idiot," for starting a drilling business during the worst downturn in a generation.

Star Valley joins a Canadian oil-field service sector making a slow recovery out of the oil-price rout of the past two years – a period that has seen numerous companies in Western Canada go out of business.

In the drive to slash costs and win work, oil-field service companies have cut employees, implemented three- or four-day work weeks, and cut their rates. Many of those who have survived through 2015 and 2016 are well-established names, with experience muddling through a recession.

But smaller, scrappier firms have also fought through the downturn by seizing on an opportunity to buy equipment on the cheap, or find niche revenue streams.

Oil-field service companies do the drilling, transport, waste disposal and many other jobs for oil and natural gas firms. And because the sector makes money only when there is activity in the energy business, it is particularly vulnerable to any commodity price-driven slowdown. With that in mind, many service companies have looked outside their traditional customer base – hauling companies are now transporting wind turbines as well as oil-field equipment, and fuel providers have expanded beyond supplying the oil and gas sector.

And firms such as Certarus Ltd. and Ferus Inc. have found a niche delivering natural gas to drilling rigs and other industrial sites. While diesel has been used to run drilling rigs for decades, now low-priced and lower-emission natural gas is increasingly being used to power the rigs that drill for crude and natural gas.

Ferus chief executive Dick Brown said his private company has broadened its offering of drilling and fracking services in the downturn, and at the same time has seen significant growth in its compressed and liquefied natural gas business as companies look to cut their fuel costs.

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"One of the positives of 2016 was a focus on costs … and also on value," said Mr. Brown, who counts producers such as Seven Generations Energy Ltd. and Tourmaline Oil Corp. amongst his customers.

"In 2014, people didn't look at it so much because they were so busy," he said of the use of natural gas.

Even the industry group for oil-field service firms has been forced to restructure. Mark Salkeld, president and chief executive of the Petroleum Services Association of Canada, said the group has lost 65 member companies due to the downturn – or more than one-quarter of its membership. The drop has come due to mergers and bankruptcies, or because firms have added the association dues to their cost-cutting efforts.

In a major break from the past, the association will this year broaden its own reach and invite energy service companies of all stripes to become members, including those who serve geothermal, wind and solar panel companies.

"We will advocate on behalf of responsible Canadian energy, in all its forms," Mr. Salked said.

"You have to change with the times."

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For his part, Mr. Pimiskern's ability to raise money for Star Valley has benefited from the direct involvement of Surge Energy Inc. chief executive Paul Colborne, and drilling veteran Randy Charron.

He has also looked to oilman Murray Edwards's model of investing in the energy sector when the market is low (on full display last week as Mr. Edwards's Canadian Natural Resources Ltd. swooped up Royal Dutch Shell PLC oil sands assets). Mr. Pimiskern saw this play out first hand in his past role as a sales and marketing vice-president at Ensign Energy Services Inc. – a service company Mr. Edwards helped to create.

As oil prices jumped early this year, Star Valley workers got a salary increase and the company is considering another capital raise. But the market is still fragile, and Mr. Pimiskern isn't yet ready to declare any success.

"We're not out of the woods yet."

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