US onshore rig contractor Patterson-UTI Energy Inc. has agreed to acquire wellsite services and equipment provider Seventy Seven Energy Inc. in an all-stock deal valued at $1.76 billion including debt.
The combined firm will operate 201 high-specification drilling rigs and have a pressure pumping fleet with more than 1.5 million hp of hydraulic fracturing. The deal, expected to close late in first-quarter 2017, could create “synergies in excess of $50 million,” Patterson-UTI says.
Houston-based Patterson-UTI’s current fleet comprises 161 APEX rigs, with subsidiary Patterson-UTI Drilling Co. LLC specializing in walking rig technology for pad drilling applications. The firm’s pressure pumping subsidiaries have more than 1 million hp in fracturing in Texas and the Appalachian region.
Oklahoma City-based Seventy Seven Energy owns a fleet of 40 high-spec rigs, 93% of which are pad capable, including 28 PeakeRigs. The remainder of its rig fleet consists of 51 SCR rigs. The firm also owns 500,000 hp of fracturing equipment in the Anadarko basin and Eagle Ford shale.
The merger also adds a new product line to Patterson-UTI through Seventy Seven Energy’s oil field rentals business, which has a fleet of premium rental tools and provides specialized services for land-based drilling, completion, and workover activities.
Opportunity in rebounding market
“As Seventy Seven Energy emerged from its recent financial restructuring, we saw an opportunity to engage a partner that is a great strategic fit for Patterson-UTI,” said Mark S. Siegel, chairman of Patterson-UTI.
Under the terms of the deal, Patterson-UTI will acquire all of issued and outstanding shares of common stock of Seventy Seven Energy in exchange for 49.6 million shares of common stock of Patterson-UTI.
Seventy Seven Energy emerged from bankruptcy in August after converting $1.1 billion of prepetition debt into equity. As part of the meger, Patterson-UTI will assume $336 million of Seventy Seven Energy's debt net of cash and warrant proceeds.
Patterson-UTI says it can repay Seventy Seven Energy’s indebtedness through a combination of cash on hand, borrowing under its $500-million revolving credit facility that’s currently undrawn, and the use of a $150-million senior unsecured bridge financing commitment arranged in connection with the deal.
Patterson-UTI expects, however, to issue additional equity in connection with closing the transaction to maintain its “historically conservative capital structure.”
The firm in November averaged 65 rigs operating in the US and 2 in Canada, compared with June averages of 54 in the US and 1 in Canada.
“We believe our industry has begun the initial stages of the recovery process, which began with smaller operators picking up rigs to drill less service intensive wells,” Siegel said during late October in Patterson-UTI’s third-quarter earnings report.
“We believe the market has transitioned in favor of higher-spec rigs, and we are encouraged by the recent increase in demand that is increasing utilization for this class of rig, especially in markets such as the Permian basin,” he noted. “Overall, we believe the market for higher-spec rigs has appreciably tightened.”
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