Enerflex Combination With Exterran Is A Win For Canadian Customers: Rossiter
Enerflex Ltd. is responding — with its newly-announced combination with Exterran Corporation — to market forces demanding service providers have the right cost and capital structures to tackle the larger, increasingly complex problems of consolidated, cost-conscious E&P companies, says Marc Rossiter, president and chief executive officer.
“It’s a consolidation play, and a lot of the economics work because we need the pro forma business to have a cost structure that’s appropriate for the market. Our customers are asking us to be more and more competitive every day,” he told the Bulletin. “And so, we must make sure we drive the pro forma to as competitive a cost structure as possible.”
According to Rossiter, proponents are aiming for $40 million in synergies to be realized within 12-18 months of the deal. The majority of those costs will come from personnel costs. However, he noted, it is premature to announce specifics in terms of staff-reduction numbers, location or office closures. The deal should close in Q2 or Q3, though, with the head office of the combined entity (to carry the ‘Enerflex’ moniker) to be in Calgary.
“We’re going to keep a Calgary presence,” Rossiter said. “We love the Canadian capital markets, and the support they’ve given us. We like governance frameworks that are supported in Canada. There’s a lot of things about keeping a Canadian domicile that we like about the business.”
He added: “We’re going to maintain a big presence in Houston. It’s our U.S. headquarters. It’s our Latin American headquarters. And so, we’re not diminishing our presence in Houston anytime soon.”
Two becomes one
Exterran is a global systems and process firm offering solutions in the oil, gas, water and power markets. From its Houston headquarters, it operates in approximately 25 countries. Whereas Exterran does not have a large presence in Canada currently, Rossiter said he is excited about bringing the company’s deep experience in deep-cut plants and its produced-water capabilities to the Canadian marketplace.
“For our existing customers, this should be really good. They should view it as quite the positive. They’ve been asking for us to come up with bigger, more complex solutions to help them with their energy transition needs.”
As for Enerflex, it is a single-source supplier of natural gas compression, oil and gas processing, refrigeration systems, and electric power generation equipment, as well as related engineering and mechanical service expertise. Broad in-house resources enable the engineering, designing, manufacturing, construction, commissioning, operation and servicing of hydrocarbon handling systems.
The combination transforms Enerflex’s business to ownership of energy infrastructure on a global basis, which provides earnings stability, added Rossiter. “This is a transformative deal, and the integration task ahead for us is significant if we want to do it right, which we do.”
Bigger is better
Size matters, suggested the CEO, as a service company’s capabilities are frequently limited by the size of both its balance sheet and the corporate entity itself. Therefore, creating a bigger entity through a combination means Enerflex can solve bigger problems — bigger from a complexity, cost and human resources perspective.
“It’s really important that management makes sure bigger is better. A lot of our customers have been consolidating in the last couple of years, and in Canada there has been significant consolidation,” he said, adding that E&P customers want their service providers to offer the sorts of better products and services created through consolidations. “We heard loud and clear from the market that they just needed us to do more.”
Enerflex and Exterran have been working on the deal for more than a year, Rossiter told the DOB, believing the “macro backdrop” was ripe for such a merger, and stabilized share prices offered an attractive deal for shareholders. “We think [Exterran’s] experience will open doors for us, but it’ll be up to us in the combined entity to walk through those doors and serve the customers as best we can.”
- Enerflex Ltd.