Patterson-UTI, NexTier Combine to Create Oil Services Giant
U.S. oilfield service firms Patterson-UTI Energy PTEN and NexTier Oilfield Solutions NEX last week announced a definitive agreement to combine through an all-stock deal totaling $1.9 billion.
Specifics of the Deal
The “merger of equals” deal has been unanimously approved by both companies’ boards, though it is still subject to clearance by their shareholders and the regulators. The transaction is expected to close by the end of this year. The current stockholders of Patterson-UTI Energy will own approximately 55% of the combined company, with NEX shareholders owning the rest. The combined company will operate under the Patterson-UTI Energy name and trade under the ‘PTEN’ ticker, while its well completions brand will be called NexTier.
Under the terms of the agreement, NexTier shareholders will receive 0.7520 shares of PTEN for each NEX share they own. Should the deal go through, it will result in the formation of the second-biggest energy services provider in North America (behind Halliburton) with 172 super-spec drilling rigs, 45 active pressure pumping fleets, 3.3 million hydraulic fracturing horsepower, revenues close to $7 billion, around $2 billion in adjusted EBITDA and an enterprise value of nearly $5.4 billion.
Importantly, the combined entity will benefit from each other’s strengths. It will have a significantly improved drilling and completions profile in the highly attractive end markets (contract drilling, pressure pumping, and directional drilling) and geographies.
Benefits & Synergies
Per the companies, the deal will add to earnings per share and free cash flow per share in 2024. In addition, the combined entity’s management plans to continue to distribute a minimum of 50% of free cash flow to shareholders. Andy Hendricks, CEO of PTEN will retain his position in the merged company, while NexTier CEO Robert Drummond will take over as the vice chair. The new ‘Patterson-UTI Energy’ will be headquartered in Houston, where both companies are currently based.
The merged firm is expected to generate some $200 million worth of annual cost savings and operational synergies within a year and a half of closing. Investors should know that Patterson-UTI possesses the second-largest onshore drilling rig fleet in the United States, while NexTier has been boosting its fracking expertise over the last few years by way of inorganic growth. It’s worth mentioning that almost two-thirds of this newly combined fleet will be dual-fuel in nature - capable of running on both diesel and natural gas to enhance efficiency and reduce carbon emissions.
Apart from forming America’s No. 2 drilling and fracking provider controlling around one-fifth of the market, an increase in scale will help the combined company combat slower demand growth faced by the oilfield service providers. The bigger and better Patterson-UTI will also be better equipped to deliver efficient service to a more consolidated upstream customer base itself battling lower shale productivity.
Zacks Rank & Stock Picks
Both Patterson-UTI and NexTier Oilfield Solutions carry a Zacks Rank #3 (Hold) at present. Meanwhile, investors interested in the energy space might look at operators like Profire Energy PFIE and Eni S.p.A. E, each carrying a Zacks Rank #2 (Buy) currently.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Profire Energy: The 2023 Zacks Consensus Estimate for Profire Energy indicates 125% year-over-year earnings per share growth. PFIE has a trailing four-quarter earnings surprise of 11.1%, on average.
Profire Energy is valued at around $60.6 million. PFIE has seen its shares gain 1.6% in a year.
Eni: It is valued at some $50.8 billion. The Zacks Consensus Estimate for E’s 2023 earnings has been revised 17% upward over the past 60 days.
Eni, headquartered in Rome, Italy, beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. E shares have gained 12.9% in a year.
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Patterson-UTI Energy, Inc. (PTEN) : Free Stock Analysis Report
Eni SpA (E) : Free Stock Analysis Report
Profire Energy, Inc. (PFIE) : Free Stock Analysis Report
NexTier Oilfield Solutions Inc. (NEX) : Free Stock Analysis Report
