The following is a Stockhouse Q&A with Kevin Roycraft, President and CEO of
Aveda Transportation and Energy Services (
TSX: V.AVE,
Stock Forum).
Can you give us a brief outline on why people should think of investing in Aveda right now?
Following a re-branding in mid-2012, Aveda has quickly emerged as a unique play on the North American oilfield services sector, moving drilling rigs and other equipment for energy and petroleum companies who had previously been served by small mom and pop companies.
The aim is to provide consistent service, with a big emphasis on safety and reliability, to drilling and E&P companies that are active in the drilling large oil formations such as the Bakken, Permian or Marcellus. For investors looking for a pure play on rig moving, Aveda is really the only option.
How did you become a leading player in this field in such a short time?
Since Chairman David Werklund made the decision to focus on the U.S., growth has been driven primarily by customers who could see that we were able to cut hours, and even days off the time it had taken to move their drill rigs. Growth has also been driven by recent acquisitions, including the purchase of North Dakota-based
M&K Rig Moving Service Inc. and
M&K Hotshot & Trucking Inc. in January 2014. That was followed by the July 2014 acquisition of the U.S. rig moving assets of
Precision Drilling Corp. (
TSX: T.PD,
Stock Forum).
Aveda’s extensive fleet permits operation in a variety of conditions, from major lane multi-lane highway to a muddy, remote lease.
What sets you apart from the competition?
The key factors are speed, size of equipment, safety and consistency throughout our locations. We estimate a 20% faster rig moving time than the majority of our competitors.
This is because our equipment size adds efficiency to speed.
In North America we are able to go to blue chip energy and petroleum companies in a number of different plays and say the frustration you have been experiencing can be alleviated if you come to us. That’s because we have one policy and we do things the same way at all our locations.
What are the big ticket equipment items involved in moving rigs?
Cranes that are needed to move the rigs and flatbed trucks. We added 16 cranes to our fleet in 2014. Our flatbed trucks make the difference and cost about double what the competition is using. The trucks pay for themselves in efficiency and through the hourly rates that we can charge for use.
Other key pieces of equipment include trucks that have winches on them, and regular hauling equipment.
How many rigs can you move in a day?
Between 20 and 25 rigs in a day throughout our organization is a good estimate.
Roughly 85% of our business involves moving rigs. But the company can also transport oilfield equipment, either in conjunction, or independently from relocating drill rigs. In addition, Aveda offers equipment rental and can haul heavy and oversized commodities for companies engaged in oil extraction, mining, pipelines, utility construction and petrochemicals.
Have falling oil prices had any noticeable impact on your business at the moment?
They haven’t yet. Activity levels have remained high and September was a record month from a revenue perspective. If oil prices were to trade in the low US$70s (per barrel) area, we likely wouldn’t see any impact until 2015. We are a new company and we have been gaining market share, so we have been growing year over year.
Aveda has also benefitted from an industry trend towards horizontal drilling and the use of pad drilling (rigs that are capable of drilling multiple holes instead of just one). That has been good for Aveda because the larger size rigs are a better fit for our equipment. This really separates us from the smaller operators with smaller equipment.
How does Aveda benefit when the Canadian dollar falls against the U.S. dollar?
We report our financial results in Canadian dollars. So obviously we benefit from 80% of our business coming from operations in the United States, meaning that the majority of our revenue is denominated in U.S. dollars, which must be converted to enable us to report in Canadian dollars.
Can you give us a run down on your background and tell us what led to the opportunity that you have now at Aveda.
I’m from Indianapolis and graduated from Purdue University with a degree in Organizational Leadership and Supervision. Prior to joining, Aveda, I was vice-president of operations with privately-owned Liquid Transport Corp. Based in Indianapolis, it is one of the largest build oil/chemical transportation companies in North America. My career also includes leadership roles at Roadway Express, Watkins Motorlines and others.
I got a call out of the blue from David Werklund, someone I had never heard of at the time. But when I saw his background, I knew it was worth having a conversation with him. I also recognized that he had a real passion for the company. I was convinced that the combination of his entrepreneurial skills, my expertise in transportation, and Chief Financial Officer Bharat Mahajan’s public market and acquisition experience would create a powerful team.
What was the opportunity that you saw?
Dave is the founder of Canadian Crude Separators (CCS), a $3.7 billion corporation with 4,000 people on the payroll, and which is now part of the Tervita Corp. group of companies. He explained that since the oil rig moving industry was so fragmented, we could achieve similar success by doing accretive acquisitions, enabling Aveda to offer consistency and safety across the board to large energy and petroleum firms.
Aveda is already the largest publicly traded pure play on rig moving. Does it want to become the largest overall?
Dave Werklund was quoted in the Calgary Herald as saying that he wanted Aveda to achieve $300 million in annual revenue with a 20%, or greater EBITDA margins. If we achieve our goals with respect to safety and efficiency, our profit and revenue goals will take care of themselves.
Financial analysts who follow the company expect Aveda to generate anywhere from $120 million to $160 million in revenue in 2014. That would be up from $85 million in 2014.
Is there any advantage, from an investor perspective, in being the largest pure play on rig moving?
There is a lot of fear in oil markets because no-one knows what’s going to happen. But we have been able to achieve consistent growth, quarter over quarter in all types of environments over the past two years. That is the real advantage of being the largest.
You have made a big commitment to safety. Can you give us a sense of what that involves from and operations standpoint and how it pays off in the from a bottom line standpoint.
The biggest benefit is that our employees go home safe to their families. Over the last two years, we have seen a big increase in the number of customers that we can do business with because we are changing our culture and focusing on safety. It starts with a commitment from our board and our senior management team. Before any rig is moved, we hold a safety meeting. We also document the training that is given to our people in the field.
How do you get bigger than you are now?
It will be a combination of organic growth, ideally based on customer driven opportunities, and accretive acquisitions. We are working in a fragmented industry and there are lots of acquisition opportunities out there. We will continue to look at those and find acquisitions that culturally are a fit for us and are accretive to our shareholders.
What are your major accomplishments so far this year?
The acquisition and implementation of the Precision Drilling assets. That was an acquisition that came through very quickly and we were able to have those assets up and running and literally producing revenue two days after the acquisition closed.
What are your goals for next 6 months?
We want to continue our journey towards world class safety, while continuing to integrate our equipment and acquisitions over the short term. The Precision Drilling acquisition changed the face of company. There are opportunities to achieve the efficiencies that we hoped to attain when we bought those assets.
How much cash does the company have right now?
We are working with an asset-based lending facility of $125 million. Of that amount, about $50 million had been drawn down at the end of the second quarter. We still have a lot of dry powder on our credit line. So if we find an asset that makes sense, we could still move forward with it.
Who are the company’s major shareholders?
Chairman Dave Werklund is the biggest single shareholder with 33%. Over 70% of our stock is held by institutions or insiders. ABC Funds out of Toronto has 14%, and there are a handful of institutions with just under 10%. There are currently just under 20 million shares outstanding.
FULL DISCLOSURE: Aveda Transportation is a client of Stockhouse Publishing.