Patterson-UTI Energy Inc. agreed to acquire NexTier Oilfield Solutions Inc. in an all-stock deal worth $1.9 billion that forms one of the shale sector’s biggest providers of drilling and fracking services.
NexTier shareholders will receive 0.752 shares of Patterson-UTI common stock for each share they own, meaning Patterson-UTI investors will hold about 55% of the combined company.
The deal, which values NexTier at $8.40 a share based on Wednesday’s close, delivers zero premium, an increasingly common feature in shale transactions. Patterson surged as much as 12% after the announcement Thursday while NexTier rose almost 6%.
“As we consider the future of the North American energy market, we believe diversification will be a key competitive differentiator for our company,” NexTier Chief Executive Officer Robert Drummond said during a conference call with analysts.
Drummond will be vice chairman of the new company while his counterpart at Patterson-UTI, Andy Hendricks, will serve as CEO.
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Patterson-UTI operates the second biggest fleet of onshore-drilling rigs in the US, trailing only Helmerich & Payne Inc. NexTier, meanwhile, has been expanding its fracking capabilities since the middle of the last decade by acquiring business lines and equipment from several rivals. A combination of the companies’ pressure-pumping units would make it the No. 2 fracker with control of almost one-fifth of the market, according to industry data provider Spears & Associates.
What Bloomberg Intelligence Says
Patterson-UTI’s agreement on a nearly $2 billion all-stock acquisition of NexTier Oilfield Solutions refutes any beliefs that it may exit pressure pumping to focus exclusively on land drilling, which has historically been more profitable.
— Scott J Levine and Laura Ballestas, BI analysts
Oilfield-service companies are facing slower growth in demand for their services as oil and natural gas explorers grapple with lower productivity from some shale wells. In addition, the exploration sector is undergoing a wave of consolidation, which ultimately means fewer customers seeking drilling and fracking services.
“Larger North American oilfield services companies will be more efficient at delivering integrated well site solutions at scale to a more consolidated E&P customer base,” Evercore ISI analysts including Jason Bandel wrote Thursday in a note to investors after the deal was announced.
After a 50% surge in prices for everything from frack sand and pumping gear to steel pipes, Permian Basin explorers are forecast to see a 10% drop in drilling costs next year as a slowdown in the search for gas frees up rigs and crews, according to Citigroup Inc.
Investors are generally watching to see if oilfield contractors return to the old days of flooding the market with more gear in hopes of gaining more market share at lower service prices. A possible write down on any excess frack gear is not imminent, Hendricks said, refuting claims that it had idle pumps sitting on the sidelines.
“There’s an underappreciation in the market for the size of the frack spread on location today,” Hendricks said. “We just have a lot more pumps at the well site than we did in the past, say three or four years ago.”
The merger is expected to close in the fourth quarter, pending approval by shareholders in both companies, regulators and other customary conditions. It’s expected to create $200 million in cost cuts, most of which will happen in the first nine months of next year.
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