Patterson-UTI Energy Inc. (NASDAQ: PTEN) is adding to its tool chest with a deal to purchase Conroe, Texas-based directional driller Multi-Shot LLC, which does business as MS Energy Services, the companies said Sept. 5.
Houston-based Patterson-UTI will acquire MS Energy from Denham Capital Management LP and NGP Energy Capital Management LLC on a debt-free basis for about 8.8 million shares of its common stock and $75 million cash for a total of about $215 million. The deal is expected to diversify the company away from its drilling contractor roots as operators continue to become leaner in the oil patch.
Patterson-UTI has transitioned itself slowly and “somewhat methodical” over the years into a $3.4 billion oilfield service company with operations in all the major basins across North America, CEO Andy Hendricks said during a webcast of Barclay’s CEO Energy-Power Conference on Sept. 6.
“We still get classified sometimes as a contract driller or lately, since frack has been hot, as a pressure pumping company, but ... we are broader than that,” Hendricks said.
Patterson-UTI’s acquisition is the latest deal by a U.S. land driller seeking to augment traditional revenue streams as drilling efficiencies lead operators to deploy fewer rigs, Tudor, Pickering, Holt & Co. (TPH) analysts said.
“As lateral lengths extend in higher pressure/temperature unconventional reservoirs, directional drilling service capabilities are now more important than ever to the well construction process, so we view this transaction as an astute move by Patterson-UTI,” TPH said in a Sept. 5 report.
In April, Patterson-UTI solidified its position in the U.S. land drilling market with the acquisition of Seventy Seven Energy in an all-stock transaction valued at roughly $1.76 billion.
The purchase of MS Energy will add directional drilling, downhole performance motors, directional surveying, measurement while drilling and wireline steering tools to its portfolio.
Hendricks said the acquisition of MS Energy isn’t merely a strategic move.
“This is an ongoing and buyable business so while they have great technology, this was not the technology/strategic acquisition that you may read about,” he said. “This is a company that increases Patterson-UTI's exposure and broadens the footprint of what we offer for unconventional drilling in the United States.”
As the second largest directional drilling company in U.S. onshore, according to Spears & Associates, MS Energy will improve Patterson-UTI’s overall unconventional well costs and improve returns, said Mike Kelly, senior analyst with Seaport Global Securities LLC.
“While we applaud the diversification strategy away from contract drilling, we still believe it will take years of execution for that discount to compress,” Kelly said in a Sept. 6 report.
Patterson-UTI will pay $75 million with cash on hand and its revolver to cover transaction expenses and repay MS Energy’s the outstanding debt. As a result, Patterson-UTI will not assume any debt of MS Energy.
Following the close of the acquisition—expected in fourth-quarter 2017, MS Energy will remain a standalone business under Patterson-UTI Energy, Hendricks said.
After Patterson-UTI closes the deal, MS Energy CEO Allen R. Neel will head the company as president. Neel has served as the CEO of MS Energy since 2004. He and COO Paul Culbreth, who will also join Patterson-UTI, co-founded the company that purchased MS Energy from previous owners.
Neel has more than 37 years of experience in oilfield services and Culbreth has held various technical and leadership positions within the oilfield services industry since 1977, according to the release.
Denham Capital and NGP Energy were represented in the transaction by Piper Jaffray’s Simmons & Co. International, the release said.
Emily Patsy can be reached at firstname.lastname@example.org.
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