June 15 (Reuters) – Patterson-UTI Energy (PTEN.O) and Nexteer Oilfield Solutions (NextEer) agreed on Thursday to merge in an all-stock deal to create a $5.4 billion oilfield services company.
The merger combines Patterson-UTI’s large ground drilling business with NexTier’s well completions operations.
Analysts said the hydraulic fracturing power of 3.3 million horsepower would make it the largest pressure pump by capacity in North America, slightly larger than Halliburton (HAL.N).
NexTier shareholders will receive 0.752 shares of Patterson-UTI common stock for each share of NexTier common stock they own. Shares of Patterson-UTI rose about 12%, while shares of NexTier rose 6%.
Oilfield service companies are coming together as they grapple with operating and pricing challenges and meet the needs of clients who have cut spending on new wells in favor of investor returns.
Prices for onshore drilling and completion services in the United States are down nearly 5% year-to-date through the second quarter of 2023, according to Rystad Energy analysts.
Andy Hendricks, CEO of Patterson UTI, told Reuters that demand for oilfield services in the United States has fallen due to lower drilling activity, mainly driven by lower natural gas prices at the beginning of the year. He expects demand to pick up later this year and going into next year.
Evercore analysts said North America’s largest oilfield services company will be more efficient in providing integrated wellsite solutions at scale to a more consolidated exploration and production (E&P) customer base.
After the transaction closes, expected in the fourth quarter of 2023, Patterson-UTI shareholders will own approximately 55% and NexTier shareholders will own the remainder of the combined company.
Hendrix will serve as President and CEO of the combined company.
The transaction is expected to boost earnings per share and free cash flow per share in 2024 and generate annual savings of approximately $200 million within 18 months of closing.
The merger is also likely to lead to some simplification.
“It’s too early to say anything about potential layoffs because we may increase activity by the time we close the deal,” Hendricks said.
Additional reporting by Mrinalika Roy and Arunima Kumar in Bengaluru; Editing by Shilpi Majumdar
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