Canada player buys drilling technology company as sector M&A continues

Toronto-listed contractor Cathedral Energy Services has struck a US$41 million deal to acquire a Texas-based drilling technology business, boosting its directional drilling services offering to clients.

The deal is the latest in a number of M&A transactions in the North American oilfields services market, with further consolidation expected.

A research note from Barclays last week stated that “services consolidation is required to drive integration, diversification and scale (and) allows the service companies to keep up with the E&Ps, create an opportunity for multiple expansion and attract a bigger set of investors”.

Directional drilling specialist Cathedral said its acquisition of Rime Downhole Technologies comprises US$21 million in cash and US$20 million in promissory notes, and expects the deal to pay for itself within two years.

Founded in 2012, Rime specialises in manufacturing products for the downhole measurement-while-drilling (MWD) industry, including a broad array of proprietary components such as pulsers, pulser drivers, shock isolators and gamma modules.

Cathedral chief executive Tom Connors said: “We are… excited to expand the technical moat around our business with (Rime’s) high-performance products and capabilities.”

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He stated that Rime’s technology “has a reputation for high reliability and standard-setting performance” which has been adopted “by many of the larger and more active players in the industry”.

Rime’s founders Manoj Gopalan and Robert Weber will continue to lead the business, saying they “felt” the deal with Cathedral “gave us the best opportunity to grow our business and our technology”.

Connors said that given the high level of market acceptance and recognition of Rime technology, “we anticipate a relatively efficient rollout of a commercial MWD platform into our US directional drilling business over the next 12 to 18 months”.

Cathedral plans to invest up to C$14 million (US$10.6 million) to enhance its MWD capabilities and predicts it could save C$34 million by reducing its reliance on renting products, all of which should boost profit margins.

The Canada-based buyer estimates that about 40% of active drilling rigs in the US onshore use Rime technology.