Flint Energy shares jump 66 per cent after $1.25 billion takeover announced

CALGARY - Oilpatch construction firm Flint Energy Services Ltd. says it expects to win more business from oilsands customers it already serves once it becomes part of San Francisco-based construction and engineering giant URS Corp. later this year.

Calgary-based Flint (TSX:FES) will operate as a new oil and gas-focused division, to be headed up by Flint's current CEO Bill Lingard, after the $1.25-billion friendly deal closes during the second quarter.

The move will enable it to provide both engineering and construction services to the likes of Suncor Energy Inc. (TSX:SU) and Husky Energy Inc. (HSE) as they build new oilsands projects — something neither Flint nor URS could do on its own.

"The clients have all been looking for that integration of engineer and constructor so that they'll get a smooth delivery on projects," Lingard told a conference call Tuesday to discuss the deal.

"Our clients have been asking for that, so we think there's tremendous potential."

The vast majority of Flint's oilsands activity is currently focused on constructing steam-assisted gravity drainage, or SAGD, oilsands projects, in which steam is injected into wells to soften up the bitumen, enabling it to flow to the surface.

The engineering capabilities URS brings to the table should help it win more business from those same customers building upgraders, complex multibillion-dollar facilities in which oilsands bitumen is processed into a lighter type of crude refineries can handle.

One of the reasons Flint was so attractive to URS was its exposure to Canada's growing oilsands industry.

"The oilsands, gas and oil shale industries that Flint serves are expected to be among the fastest growing segments of the North American economy over at least the next decade," said URS CEO Martin Koffel on the call

Flint gets about 80 per cent of its revenues from Western Canada and the rest from the United States. Of its Canadian revenues, about half come from heavy oil and bitumen development in northern Alberta.

Koffel sees the United States becoming a big source of growth for his company in the future, as that country looks to grow its own domestic oil and gas supplies.

"When I sort of get a pad of paper and a pencil and start doodling, I sort of imagine a Flint business in the United States as big as the existing Flint business in Canada," he said.

"That would be the next priority. I think we do have the capabilities to do that."

Shares in Flint jumped more than 66 per cent on Tuesday to close at $24.79, just shy of URS' offer price of $25 per share. The last time it traded so high was the summer of 2008, before the financial crisis hit.

"We believe the offer from URS represents solid value for Flint and the probability of succeeding is high given: (1) the implied premium and valuation; (2) URS' right to match any superior offer; and (3) support of Flint's board of directors and tendering of eight per cent of the outstanding shares," wrote CIBC World Markets analyst Jeff Fetterly in a research note.

As part of the deal, URS is also assuming $225 million of Flint's debt.

Moody's Investors Service said Tuesday it is placing Flint Energy under review for a potential upgrade of its debt after the URS deal was announced, saying the U.S. company has a much stronger credit profile.

Flint employs 10,000 people and is a key player in building and servicing oilsands projects. Its operations stretch from northeastern B.C. and Alberta down to Texas.

URS provides engineering, construction and technical services for power, infrastructure, industrial and commercial, and federal projects and programs. It has some 47,000 employees in more than 40 countries.