After reports of an impending deal, publicly traded Patterson-UTI Energy announced Thursday it agreed to merge with rival NexTier Oilfield Solutions to create an oil services firm valued at $5.4 billion.
While the combination is being billed as a merger of equals, the deal represents an equity value of about $1.93 billion, according to Reuters. The Wall Street Journal reported earlier in the week that the two companies were in talks over a potential merger.
NexTier shareholders will receive 0.7520 shares of Patterson-UTI Energy, leaving them with about 45 percent of stock compared with around 55 percent for the buyer. The deal is expected to close in the fourth quarter.
Luke Lemoine, a senior research analyst at Piper Sandler & Co., said in a note that it’s a positive transaction, as the oil service space needs larger companies from an investor standpoint, “and the continued consolidation in pressure pumping further improves the disciplined landscape that has dramatically improved over the past five years.”
He added that Patterson-UTI’s pumping business can now employ NexTier’s wellsite integration model, adding up to $7 million per fleet in incremental EBITDA over time, and he thinks the buyer’s fleet will likely be a beneficiary of target’s continued upgrade cycle.
Goldman Sachs & Co. advised Patterson-UTI and Moelis & Co. assisted NexTier.
Patterson UTI’s general counsel is Seth Wexler and NexTier’s GC is Kevin McDonald.
Wexler’s lieutenant, assistant general counsel Robert Wilson, worked on the deal with him.
Gibson, Dunn & Crutcher advised Patterson-UTI led by partner Tull Florey and including associates Jonathan Sapp, William Altabef, Michael Holmes and Gerald Kimani. Partner Michael Cannon and associate Josiah Bethards are counseling on tax and partner Krista Hanvey and associate John Curran are advising on benefits. Partner Stephen Weissman and of counsel Ryan Foley are advising on antitrust.
Gibson Dunn’s Florey has worked on several Patterson-UTI’s deals, including its purchases of MS Energy Services, backed by Denham and NGP, in 2017 for $215 million and Pioneer Energy Services in 2021 for $295 million; and its sale of its well service rig and wireline business (picked up as part of its purchase of Pioneer Energy Services Corp.) to ClearWell Dynamics last year for $43 million.
McDonald, executive vice president, chief administrative officer and general counsel of NexTier, quarterbacked the deal with in-house colleagues Scott Maddux, Scott Raynes, Austin Berliner and Robin Brice.
Kirkland & Ellis assisted NexTier led by corporate partners Sean Wheeler, Adam Larson and Camille Walker. The team included capital markets partner Julian Seiguer, antitrust and competition partners Ian John and Chuck Boyars, executive compensation partners Stephen Jacobson, Rob Fowler and Stephanie Jeane and tax partner David Wheat.
“Sean was selected for many reasons and very important reasons include his outstanding track record at successfully completing merger of equal transactions and vast experience with high profile M&A transactions in energy,” McDonald said of his lead outside counsel.
Kirkland’s Wheeler has worked on several big deals in the oil patch, most notably advising Oneok Inc. on its $18.8 billion purchase of Magellan Midstream Partners, Ranger Oil Corp. on its $2.5 billion acquisition by Baytex Energy Corp., Colgate Energy Partners III on its $3.9 billion merger of equals with Centennial Resource Development Inc., Whiting Petroleum Corp. on its $6 billion merger of equals with Oasis Petroleum Inc. and Noble Corp. on its $3.4 billion merger of equals with Maersk Drilling.
In addition, Larson counseled C&J Energy on its $1.8 billion merger with the Keane Group to create NexTier Oilfield Solutions Inc. in 2019.
David Cunningham and Jay Finney of Moelis were the the lead financial advisors for NexTier. Goldman’s Brian Haufrect in New York and Sal Pareja in Houston assisted Patterson-UTI.
Patterson-UTI CEO Andy Hendricks will be the CEO of the combination and NexTier CEO Robert Drummond will become vice chairman. Patterson-UTI’s current chairman Curtis Huff will remain in place.
“This merger unites two top-tier and technology-driven drilling and well completions businesses, creating a leading platform at the forefront of innovation,” Hendricks said in the news release announcing the transaction. “With our combined strong balance sheet, ample liquidity and greater free cash flow, we will be well positioned to continue to invest in technology, innovation and people while delivering strong cash returns to shareholders.”
The combined entity will have 172 super-spec rigs, 45 active frac fleets (33 from NexTier and 12 from Patterson-UTI) and a directional drilling business.
Cost and operational synergies are expected to be around $200 million within 18 months and
one-time costs to achieve these are estimated to be $80 million. The combined entity intends to distribute at least 50 percent of free cash flow through dividends and share repurchases.