Lonestar West thrives amid pipeline boom
Hydro-vac a 'high-growth' business as oil and gas infrastructure expands
Blasting the earth with a high-pressure stream of water, then sucking up the mess with a truck-mounted vacuum, may seem like a strange way to dig a trench.
But for James Horvath, president and chief executive officer of Lonestar West Inc., the technique makes perfect sense. If you want to move dirt, any old excavator will do. “But if you want to do any skilled excavating, a hydro-vac out-digs a track hoe,” Horvath says.
The Sylvan Lake, Alberta-based company’s skilled excavating techniques are increasingly in high demand. Horvath’s business has benefited as pipeline builders scramble to bury steel along fresh corridors from new basins. Fully 70 per cent of the firms contracts are tied to the oil and gas industry. First-quarter revenues climbed 45 per cent in 2012 to $5.8 million, up from $4 million for the year-prior period.
Lonestar has a fleet of 33 hydro-vac trucks. More than two-thirds of them are owned by lease operators. The units take a more delicate approach to excavating by washing over buried electrical, water and sewer lines, reducing the chances of a dig fouling underground infrastructure and existing pipelines at project sites.
Horvath’s company trains independent operators to run the trucks. He uses a franchise business model – Lonestar books jobs and provides administrative support for truck operators, who use the company name, in exchange for a percentage of their revenue – that is common to the trucking industry.
It means companies can expand their fleet without taking on the capital cost of buying new equipment – an important distinction, Horvath says, because a brand new hydro-vac truck can cost up to $400,000.
The business model also makes for more efficient service, Horvath says. “When a big-inch pipeline fires up, like a TransCanada line or an Enbridge line going across the countryside, it can wipe out a fleet as far as utilization is concerned,” he says.
“Having lease-operators provides more mass for Lonestar and allows us to bid on big jobs without leaving the rest of our customers high and dry.”
Horvath started in the oilfield trucking business in 2000. He moved into the excavating business not long after, purchasing a 1989 Kenworth vacuum truck for just over $100,000 to remove and dispose of drilling fluids. In August 2007, Lonestar earned roughly $3 million in revenue with a fleet of six trucks. One year later, the company debuted with a $1.2-million initial public offering.
Soaring light oil and shale gas production from new basins in the United States and Canada, plus continued growth in Alberta’s oil sands, all require new pipelines.
TransCanada Corp. was recently selected to build a $4-billion pipeline in connection with a massive liquefied natural gas project proposed for Canada’s West Coast. Transportation rival Enbridge, meanwhile, expects to spend in excess of $17 billion on new projects by 2015, according to a June investor presentation.
The hydro-vac business is “a high-growth industry today, as the whole infrastructure for the oil sands and the whole gas industry expands,” says David Prussky, a Lonestar director.
Lonestar is not counting exclusively on the oil and gas sector. It is also targeting business from companies that install utility lines, fibre optic cables and electrical power lines. “Not just in Calgary and Edmonton, but across the country and across North America,” Horvath says. “There are some other things we’re working on to diversify our customer list.”