Oil-and-gas to rebound, but job return will be slow: Mullen Group

Calgary Herald ^ | October 30, 2009 | Dan Healing

[thackney]

The oil and gas services industry of Western Canada hit bottom in the second quarter and is now making its slow way back, the chairman and CEO of transport and oilfield services company Mullen Group declared Thursday.

But the rehiring of 1,100 Mullen employees and contractors--some 20 per cent of its staff--whose jobs disappeared in the past 12 months will not occur until "ridiculously stupid" pricing by competitors is halted, said Murray Mullen.

"We have, in my opinion, seen the bottom. It is tough, at times it's ugly. It's particularly difficult on our people. But we are survivors of what can only be classified in many cases as an undisciplined market," Mullen said in a conference call with analysts.

He said his firm, which he admits has lost market share because of its refusal to cut prices below costs, will reinvest through acquisitions and organic growth as customers ramp up spending during the winter drilling season, likely led by Saskatchewan.

"With our business units generally rightsized to where this business cycle is, we can now start to think about where we can deploy our over $200 million worth of cash we currently have on hand," said Mullen.

Mullen Group reported net income of $31 million, off 15 per cent from third quarter 2008, as revenue fell by 35 per cent to $230 million. Operating income was $46 million, down 38 per cent from $74 million.

Mullen shares closed at $15.75, up nine cents.

"Activity levels were bad in the second quarter. It couldn't be much worse," said Kevin Lo, an analyst with FirstEnergy Capital Corp., who agreed that any recovery in oilfield services will be slow.

Mullen completed two small "tuck-in" acquisitions during the quarter for about $4 million. Lo said there are plenty of companies in the sector that may be willing to sell.

"There are still a lot of small companies out there to be acquired, for sure," he said. "I don't know of any large ones that would require the $200 million."

He said the third-quarter results were lower than he was expecting because of the loss of market share, but added he agrees with the strategy to avoid what could become long-term markdowns of basic prices.

Mullen blamed lower revenue in the trucking-logistics branch on slow demand for freight services, especially in Western Canada, as well as less fuel surcharge revenue due to lower prices. Oilfield transportation services had lower revenue due to less drilling activity, while transportation of fluids and well servicing was down due to some wells being shut-in and lower pricing