Patterson-UTI Energy Inc. agreed to acquire Pioneer Energy Services Corp. for approximately $295 million in a cash-and-stock deal, which includes the retirement of all Pioneer Energy Services’ debt.

San Antonio-based Pioneer Energy Services is a contract driller that also provides a number of well and production services.

Last year, the company voluntarily filed for Chapter 11 bankruptcy and completed a debt restructuring process. Shortly after emerging from bankruptcy in June 2020, Wm. Stacy Locke, who had served as president and CEO since December 2003, decided to step down. At the time, Matt Porter, founding partner at consulting firm Activos LLC and investment firm Allied Industrial Partners, had been named as interim CEO.

Patterson-UTI CEO Andy Hendricks described the acquisition of Pioneer’s fleet of 17 drilling rigs in the U.S., of which 16 are super-spec, as a “valuable addition” to Patterson-UTI’s current fleet of 150 super-spec drilling rigs in the U.S.

“Additionally, many of these rigs are capable of substituting cleaner-burning natural gas for diesel, a technology that is becoming increasingly important to operators for reduced emissions,” commented Hendricks in a company release. “Following the closing of this transaction, Patterson-UTI will own 166 super-spec rigs in the United States, with almost half of these rigs equipped to utilize alternative power sources for reduced emissions.”

Hendricks also noted the expansion of Patterson-UTI’s geographic footprint into international markets with the addition of eight rigs in Colombia, where Pioneer has worked for 14 years.

In addition to the U.S. and Colombian contract drilling businesses, the deal includes Pioneer Energy Services’ well service rig business consisting of 123 service rigs with a leadership position in the Gulf Coast region, which Patterson-UTI expects to divest following the closing of the transaction.

“Patterson-UTI believes this business would be better served as part of a larger well service rig business or as a focused standalone business,” the company said in the release.

Patterson-UTI expects the acquisition of Pioneer Energy Services to generate annual synergies of more than $15 million plus be accretive to cash flow per share and adjusted EBITDA per share.

The transaction values Pioneer Energy Services on a cash and debt free basis at approximately $295 million, assuming the issuance of roughly 26.3 million shares of Patterson-UTI common stock at the closing price of $10.14 on July 2, plus $30 million of cash.

All Pioneer Energy Services debt is being retired in the transaction with a portion of such shares and cash and with Pioneer Energy Services’ cash on hand determined in accordance with the acquisition agreement prior to closing.

Following its debt restructuring completed through a Chapter 11 reorganization in June 2020, Pioneer held $208 million of new debt consisting of $78 million of floating rate senior secured notes due May 2025, with 50% of the interest in the first year paid in-kind rather than in cash, and $130 million of 5% convertible notes due November 2025, with all interest paid in-kind rather than in cash.

Upon conversion of the convertible notes, and assuming the company does not incur additional debt, Pioneer would have $82.4 million of debt outstanding, which includes paid in-kind interest, according to a company release.

The transaction is expected to close fourth-quarter 2021, subject to regulatory approvals, customary closing conditions and the approval of Pioneer Energy Services’ stockholders. 

Gibson, Dunn & Crutcher LLP is serving as legal counsel to Patterson-UTI. Pioneer Energy Services is receiving legal counsel from Vinson & Elkins LLP.  Simmons Energy, a division of Piper Sandler. and Tudor, Pickering, Holt & Co. are the company’s financial advisers.

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