Patterson-UTI Energy to merge with NexTier Oilfield in latest oil-field-services sector tie-up

By Ciara Linnane

Deal will create a leading drilling and well completions business

Patterson-UTI Energy Inc. and NexTier Oilfield Solutions Inc. said Thursday they have reached an agreement to conduct a merger of equals in an all-stock deal with an enterprise value of $5.4 billion.

The deal comes after the Wall Street Journal reported that the two Houston-based companies were in talks earlier this week and comes at a time of consolidation in the oil-field-services industry.

Patterson-UTI's (PTEN) stock rose more than 11% on the news, while NexTier's (NEX) stock reversed early losses to trade up 5%. The deal is expected to boost Patterson-UTI's presence in fracking and allow it to expand beyond its core onshore-drilling services business.

Under the terms of the board-approved deal, NexTier shareholders will receive 0.7520 shares of Patterson-UTI stock for each share owned. Patterson-UTI shareholders will own about 55% of the combined company, while NexTier shareholders will own about 45%.

The deal is expected to close in the fourth quarter and to create a leading drilling and well completions business with 172 super-spec drilling rigs and a wells completion business with deployed capacity of 45 active spreads and 3.3 million hydraulic fracturing horsepower, the companies said in a joint statement.

"As one company, we will have a significantly expanded, comprehensive portfolio of oilfield services offerings across the most active producing basins in the United States, along with operations in Latin America," said Patterson-UTI Chief Executive Andy Hendricks.

The companies had combined revenue of about $6.9 billion on an annualized basis in the first quarter. The deal is expected to boost EPS and free cash flow per share in 2024. It's expected to generate annual cost savings and synergies of about $200 million within 18 months of close.

Hendricks will remain CEO of the combined company, while NexTier CEO Robert Drummond will be vice chair.

JPMorgan analysts said earlier this week that the deal may be a response to the deterioration in the North American macro picture with demand for drilling and fracking services fading against a background of lower commodity prices, notably for natural gas.

"On a year-to-date basis, frac levered stocks have meaningfully outpaced their U.S. land drilling peers as frac fundamentals have held in better than the demand for land rigs (NEX shares have declined by -11% YTD vs. -36% for PTEN and -10% for OSX )," they wrote in a note to clients.

" As such, we suspect PTEN shareholders may be more excited about a potential transaction with NEX than the other way around."

Benchmark analysts said Thursday the combined company will be second biggest fracking company in the U.S. after Halliburton Inc. (HAL)

"Post close, the top four players in the U.S. frac market will have 62% share versus 58% prior. Additional consolidation is possible and necessary," said analyst Kurt Holland.

"The operational scale bodes well for continued price discipline especially in frac and free cash flow generation and shareholder distributions through cycle," he added.

Energy companies have been searching for deals this year with Exxon Mobil (XOM) holding initial talks with Pioneer Natural Resources (PXD), according to a separate Wall Street Journal report.

In May, Chevron Corp. (CVX) acquired Colorado-based oil and gas producer PDC Energy Inc. in an all-stock deal valued at $6.3 billion, or $7.6 billion when including debt.

-Ciara Linnane

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06-15-23 1253ET

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