Keane Group’s Oilfield Deal Triples Frack Horsepower

Houston’s Keane Group, a private well completion services company, agreed Jan. 26 to acquire the U.S. assets of Canada’s largest pressure pumper that will more than triple its frack horsepower.

Keane said it will acquire Trican Well Service Ltd.’s U.S. assets in a deal worth $247 million. Keane will pay $200 million cash and give Trican a 10% stake and two seats on its board. Keane Group will be the eight largest pressure pumper in the U.S. after the deal closes, an analyst said.

James Stewart, Keane Group chairman and CEO, told Hart Energy the Trican acquisition could be the first of multiple deals for the company.

Stewart said the company’s financial backer, Cerberus Capital Management LP, wants to take advantage of the downturn to grow the company.

“We have a strong appetite to continuing rolling up things in a lower for longer market,” Stewart said.

Trican plans to use the net cash proceeds to reduce its outstanding debt. The company is also amending its credit agreement contingent on the deal closing.

Stewart noted that the Trican acquisition is a business, not just assets.

Keane said it will increase its available fracking power, acquire access to proprietary technology and expand in several basins.

The company will:

• Grow to more than 950,000 frack horsepower (hp) available for dispatch from 300,000 hp;
• Gain access to engineering capabilities and new services lines including cementing, coiled-tubing, nitrogen pumping and acidizing capabilities; and
• Expand in Texas and the Midcontinent, while increasing Keane's presence in the Permian Basin and the Bakken and Marcellus/Utica shales.

Stewart said Trican struggled in the U.S. for many years but has a large amount of well-maintained equipment. Keane took initiatives early on to cut back, including salary cuts in early 2015.

The 10% of Keane Group’s shares are worth an estimated $65 million at the midpoint of the range, “implying a company value of $650 million or about 68% of replacement value for Keane's pro forma pressure pumping fleet,” said Marc Bianchi, analyst with Cowen and Co.

“Trican will hold onto its Completion Solutions, Geological Services and Industrial Services U.S. businesses. According to Trican, financing has been secured by Keane,” Bianchi said.

Keane will acquire the majority of Trican's U.S. assets, including equipment, key employees and its engineering capabilities.

Trican’s U.S. business has stabilized after pricing has fallen 30% from peak rates. In October, the company shut down two fracturing crews in Texas to save about $4 million per quarter. The company also expected to operate 35% of its available equipment in 2016, according to a January investor presentation.

Stewart said the acquisition will strengthen its position as a leader in the completion services business across all key U.S. plays.

"With our expanded capabilities, Keane Group will have significantly greater scale that will enable us to provide all customers cost-effective completion services that will maximize the return on their assets in the current low commodity price environment,” Stewart said. “With a strong balance sheet and scalable platform positioned for continued growth, Keane looks forward to playing an active role in further industry consolidation.”

How that unfolds will depend on the market. Many service companies are over levered and are flirting with insolvency. What Keane acquires will depend on the assets and “how we would value that and how they fit culturally in what we do at Keane,” Stewart said.

The Trican culture fit well, he said. The company did not cannibalize equipment but instead kept it maintained and held on to assets and people, he added.

As with all North American oil and gas companies, Trican has battled low commodity prices and less demand for drilling and other oilfield services. In May, Trican suspended its dividend.

In the U.S., Trican has cut costs by 15-25% and reduced its employee base by 60%. It expects annual fixed cost reductions of $76 million.

Stewart said Trican’s U.S. employees fell to about 600 from 1,700.

Dale Dusterhoft, Trican’s CEO, said the proposed transaction will help the company focus on generating profits from its remaining businesses while benefiting its balance sheet.

“The cash proceeds from the transaction allow Trican to substantially reduce its overall debt levels and revise our covenant package to allow the corporation to manage through this point of the commodity cycle,” he said.

In addition to this cash consideration, Trican will receive 10% of the shares of Keane Group Holdings LLC, as well as certain economic interests in Keane that represent up to an additional 20% economic participation.

“The retained equity interest and additional economic interests in Keane provide Trican with upside leverage to a recovery in the U.S. pressure pumping sector and alignment with Keane's high quality, proven management team and platform,” Dusterhoft said. “I view the combination as a mutually beneficial transaction for both Trican and Keane.”

Houlihan Lokey is Keane’s financial adviser and Schulte Roth & Zabel is legal adviser in this transaction. RBC Capital Markets is financial adviser to Trican.

Closing of the transaction is expected by March 15, subject to Hart-Scott-Rodino Act approval as well as certain other customary conditions. A break fee of US$20 million is payable by Keane to Trican in the event of a financing failure. Trican will pay Keane US$55 million if the transaction is not completed in certain other limited circumstances.

Darren Barbee can be reached at dbarbee@hartenergy.com.