In November of 1996, Daniel Halyk, a 28-year-old securities lawyer at Bennett Jones LLP in Calgary, founded Total Energy Services Inc. (originally named Anorak Capital Corporation). Incorporated as a junior capital pool company on the Alberta Stock Exchange, Total completed its initial public offering in the first quarter of 1997, raising $260,000 at $0.10 per share in a blind pool. At the time, it had exactly zero paid employees.
“The original business plan was to establish a presence in northwest Alberta to capitalize on what we thought was going to be a pretty significant uptick in drilling activity with the construction of the Alliance Pipeline,” explains Halyk, who was initially chairman of Total and then became CEO in 2002, from his office in downtown Calgary. “But we wanted to balance the seasonality and cyclicality of drilling with a production-based gas-focused business, namely the compression business. So right from the beginning, we set out to establish a presence in the rental business in northwest Alberta, as well as the gas compression business in Western Canada.”
One year after founding Total, Halyk started the private limited partnership Trident Capital Partners with Bruce Pachkowski, the current chairman of Total. Trident provides venture capital and hands-on management assistance to companies in the energy, real estate and hospitality industries across North America. Halyk and Pachkowski are the only two investors in Trident.
With the birth of Trident and the continuing growth of Total, Halyk left Bennett Jones in late 1997 to pursue his businesses full time.
Twenty-two years later, Total is a publicly-traded diversified energy services provider, still based in Calgary, with 15 wholly-owned subsidiaries/limited partnerships involved in four separate businesses – contract drilling services, rentals and transportation services, compression and process services, and well servicing – in Canada, the United States and Australia. It employs between 2,000 to 3,000 people (depending on the time of year).
Trident, meanwhile, remains privately held and has provided great returns over the years, says Halyk. It has also given him valuable insight as CEO of Total. “It helps me be the CEO of Total which is a public company because I, in essence, sit on the other side of the table at Trident and give people – management teams – capital,” he says. “So, I know what I expect of those management teams, and certainly I expect nothing less of myself, sitting on this side of the table at Total.”
The stories of both Total and Trident are a testament to the opportunities Calgary, Alberta and Canada have provided for businesses in the energy industry in the past. Their most recent chapters (comprising just the last three-and-a-half years) however, are significantly less rosy on this city, province and country.
Total embarked on its growth path in 1997, with the acquisition of two separate companies in the oilfield rentals business, one of which was Total Oilfield Rentals. After changing Anorak’s name to Total, it made its first foray into the compression business in early 1998 with the purchase of Bidell Gas Compression.
It then entered the drilling business in early 2000 with the acquisition of three rigs operated by Chinook Drilling.
In 2010, it entered into the gas process equipment business as Spectrum Process Systems. “The process business was a logical extension of our gas compression business,” Halyk explains. “Bidell was continuing to grow and a lot of our customers were asking us to build process equipment in addition to compression equipment. While most of our competitors manufacture compression and process equipment under the same name, we chose to pursue the process side as a separate entity, in order to remain focused on being the best at what we do.”
In June of 2017, Total acquired the Savanna Energy Services group of companies, a Calgary-based contract drilling, rental services and well-servicing company, dramatically increasing the company’s international exposure which roughly doubled its size.
Total (through various subsidiaries) has five manufacturing plants – four in the Calgary area and one in Weirton, West Virginia – which manufacture gas compression and process equipment. It also provides after-sales parts and service support through field branch locations.
While Total is the parent, its subsidiaries manage themselves to a large degree. “Every business segment has their own management team and financial statements,” Halyk explains. “We evaluate them independently.”
For 2018, 49 per cent of Total’s business came from the compression and process division, 24 per cent came from the contract drilling services division, 18 per cent was from the wells servicing division, and nine per cent was from the rental and transportation services division.
Revenue by country, in particular the change in this breakdown, tells a greater, ominous tale. “Only four years ago, less than 10 per cent of Total’s revenue came from outside Canada,” Halyk says. “For 2018, 50 per cent of our revenue was from Canada, 30 per cent was from the U.S., and 20 per cent was from Australia. Keeping in mind, a lot of the Canadian revenue was actually equipment sold internationally but manufactured here. But for the first quarter of this year, for the first time ever, a majority of our revenues came from outside Canada.”
Indeed, for the first quarter of 2019, only 43 per cent of Total’s revenue was from Canada, while 57 per cent (34 per cent from the U.S. and 23 per cent from Australia) came from outside this country. Halyk has no doubt why: “The destruction of the industry in Canada,” he decries. “It’s frankly pretty sad to watch.”
And he has a bird’s-eye view. “Our business in Canada is pretty slow these days, but the U.S. and Australia business is a lot stronger,” he says. “We definitely see a disparity between Canada and the rest of the world over the last three-and-a-half years. In all of our business lines, we see the continuing recovery in markets outside of Canada, and the continued challenges in Canada.”
For instance, he says, year-to-date drilling activity in Canada for 2019 compared to 2018 is off by roughly 30 per cent, whereas in the U.S. it’s flat. “I think the issue is going to get more pronounced,” he warns, “rather than less.”
His reasoning? “The current federal government has implemented a number of pieces of legislation and regulation that discourages energy investment in Canada. That’s just a fact. Almost 60 per cent of our revenue came from outside Canada during Q1 this year, during what should be the busiest quarter in Canada. If that trend continues, capital will ultimately go to where the opportunities are.
“We’ve remained profitable throughout 2018 and 2019,” he confirms, “but largely thanks to our international business. In Canada, we’re just hunkering down. That’s not pleasant. You’d rather be growing than cutting costs, but you do what you need to.”
Halyk is greatly encouraged by some of the changes that have occurred under the new provincial UCP government, but has little nice to say about the City of Calgary. “It is a very difficult place to do business,” he laments. “Try to build a manufacturing plant here. The regulatory red tape, the cost, the taxation. I compare it to opening a factory in Weirton, West Virginia, and it’s night and day.”
In Weirton, he says, it took six months to acquire and convert a 100-year-old steel mill site that hadn’t been occupied in 20 years into a manufacturing plant, with the state and city backstopping all the environmental liabilities.
“You’d never get that done in Calgary,” Halyk says bluntly. “The building permits and zoning requirements – the city can get away with it when people are making money, but as we’ve increased our international presence it’s been an eye-opener to see how inefficiently we manage and regulate things here. And it’s a challenge because at the end of the day, it adds to the cost and time. We’ve got our work cut out for us in this country to retain our competitive footing.”
While Halyk declines to speculate about relocating Total’s head office to elsewhere, he notes several Canadian energy and energy service companies that are no longer Canadian headquartered. “It’s not hard to see why,” he says.
Though Total remains in Calgary, many of its employees have moved. “We’ve had layoffs in Canada,” Halyk says. “We’ve also relocated a lot of Canadians, primarily to the U.S., but also to Australia. Higher-level people who we just didn’t have enough work for here. Rather than lose them, we found opportunities for them internationally. Those are one-time relocations and another factor that’s going to haunt the industry in Canada. And it’s not just us. There’s been a pretty significant exodus of senior people and that’s your mind and management leaving the industry. It’s going to make it challenging if and when we get back to busier times.”
Rig crews have also been relocated, primarily to Texas. “Canadian oilfield workers are second to none,” Halyk says proudly. “When we move them down to Texas, they want more of them. It’s their work ethic – the degree of professionalism in Canada that you don’t see in other jurisdictions.” Plant workers have also been relocated to Total’s manufacturing plant in West Virginia. “The quality of our labour force really helps us compete internationally and certainly helps increase productivity when we relocate these people to other jurisdictions.”
All in all, Total’s workforce is becoming less Canadian and more international. “It’s getting to the point where our international employees are numbering what we have in Canada, even though our corporate and most of our manufacturing space is in Canada,” Halyk reflects.
What’s needed, he continues, is profound change in public policy at all levels of government, notably federal and civic. “Any government that’s more free enterprise would certainly be helpful,” he says. “Bills C-69 and C-48 are disastrous pieces of legislation that will be the death of any future pipelines. And without future pipelines, this basin is going to be constrained for some time.”
Total, he reflects, was built in a different time, when the barriers to building pipelines in Canada were much less. “And thankfully, because otherwise we would have been a dud.”
In the meantime, Halyk has not given up on Canada. “Our people have done a pretty good job tightening up here and controlling what they can,” he offers. “2016 was the first year in Total’s history that we weren’t profitable, but we’ve now been profitable since the back half of 2017, largely through cost cutting in Canada and improved profitability outside of Canada. I tell people: when you’re going through hell, just keep going.”
Hell, one nonetheless hopes, may be eventually overcome.
