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Major oilsands contractor restructures

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A major oilsands construction contractor, North American Energy Partners (NAEP), is undertaking a significant corporate restructuring and developing a new business strategy in response to serious financial problems in the last two years

A major oilsands construction contractor, North American Energy Partners (NAEP), is undertaking a significant corporate restructuring and developing a new business strategy in response to serious financial problems in the last two years.

“After a thorough review, we have determined that the pipeline business is not consistent with our strategy and desired risk profile going forward,” said NAEP’s president and CEO, Martin Ferron.

“The proceeds from this transaction will help to further reduce debt and improve our balance sheet.”

NAEP is selling off all of its assets related to pipeline construction, including equipment, inventory and contracts for $16 million.

The divestment of the pipeline business is part of an overall corporate restructuring and debt reduction strategy, which began when Ferron was hired to lead NAEP in May.

A highly competitive contracting environment impacted its pipeline construction activity. Some companies scaled back plans for new pipeline construction and expansion projects, while others in the late planning stages moved forward. However, competition for these projects was intense and involved a number of bidders willing to assume more risk at lower profit margins.

As a result, NAEP posted losses, or broke-even on pipeline work in 2011 and 2010.

The company is also involved in mining, heavy construction, tailings management and mine reclamation services, underground services installation for industrial projects and piling.

“While we expect to see even further reduced demand in the oilsands for much of the remainder of the fiscal year, we believe we are taking the appropriate steps to help us remain profitable at lower volumes,” said Ferron.

In the third quarter of 2012, NAEP reported a fall in revenue to $204.2 million, compared to $245.4 million during the same period last year.

The change in revenue reflects lower heavy construction and mining revenue, due to a reduced demand for oilsands mine support services and project delays, as NAEP’s clients re-assess their mine plans and evaluate the timing of expansion projects. The company’s principal oilsands customers include Syncrude, Suncor, Shell and Canadian Natural Resources Ltd.

The fall in revenue was partially offset by growth in commercial and industrial construction, which is being driven by strong piling activity, as well as above-ground construction work performed at the Mt. Milligan Copper/Gold project in northern BC.

As a result of these factors, NAEP has reported weaker-than-expected financial performance over the past two years.

For the year ended March 31, 2012, NAEP achieved gross profit of $60.9 million compared to $58.1 million in 2011, $139.3 million in 2010, $170 million in 2009 and $163 million in 2008.

In response to this decline in profitability, it has restructured two core business segments: heavy construction and mining, and commercial and industrial construction. Other activities related to the restructuring initiative include eliminating more than 60 salaried positions to align with this new business model, as well as closing the corporate office in Calgary, Alberta and relocating the senior executive team to an office in Acheson.

In addition, NAEP has reduced outsourced equipment maintenance activities and increased the utilization of the Acheson maintenance facility.

This has allowed for more cost effective self-performance of major equipment overhauls and reduced hourly equipment maintenance labour costs through a restructuring of the maintenance shift schedule and overtime strategy.

NAEP operates one of the largest fleets of equipment of any contract resource services provider in the oilsands. The total fleet (owned, leased and rented) includes about 900 pieces of heavy construction equipment supported by more than 750 pieces of ancillary equipment.

The company also reduced its site related overhead and camp accommodation costs in Fort McMurray.

by Richard Gilbert

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