Nine Energy Service Inc. narrowed its focus through the divestiture of its production solutions business that CEO Ann Fox said will transform Houston-based Nine into a “pure-play, asset-light completions company.”

Brigade Energy Services LLC, a Denver-based company backed by Turnbridge Capital Partners, agreed to buy Nine’s production segment for about $17 million in cash. The transaction includes Nine’s fleet of 107 workover rigs, ancillary equipment and real estate associated with the 13 operating facilities located throughout the U.S. 

While the deal size won’t likely “fire folks up,” analysts with Tudor, Pickering, Holt & Co. (TPH) said they believe the transaction has multiple positive implications for Nine, which has seen its stock price plummet roughly 80% over the past year.

“Earnings headwinds and investor disinclination to own energy names with optically lofty debt balances drove painful equity performance for [Nine Energy Service] of late, but the sale of Production to Brigade Energy Services, reinforces our belief that this management team is intent on making the right strategic moves,” the TPH analysts wrote in a Sept. 3 research note.

In August, Nine reported solid results for the second quarter despite lackluster U.S. onshore activity/price levels.

The company’s second-quarter revenue of $237.5 million and adjusted EBITDA of $38 million were both in-line with Nine’s original guidance. Additionally, the company was able to nearly double its cash flow in a matter of months. As of Aug. 9, Nine had a cash balance of $59 million, up 95% from its balance of $17 million on June 30.

According to the TPH analysts, Nine’s sale of its production solutions segment will allow the company to focus on its core completions oriented businesses, which include cementing, completion tools, wireline and coiled tubing services. In comparison, Nine’s completion solutions segment reported revenues of $215.9 million for the second quarter vs. the $21.6 million of revenues generated by its production solutions segment.

The TPH analysts also said they believe the transaction is earnings per share, return on invested capital and EBITDA margin accretive.

“To frame the margin accretion, gross margins for [Nine Energy Service’s] completions biz were about 24% in 2018 vs. just 14% for production,” the analysts added. “Importantly, the deal also eliminates about 24% of [Nine Energy Service’s] employee base while only reducing revenue by about 10%...accretion indeed.”

The sale of Nine’s production solutions segment closed Aug. 30, according to the company press release.

As a result of the divestiture, Bruce Morgan, who had previously served as Nine’s president of production solutions, will become president of administration and operations. In his new role, Morgan will report to Nine COO David Crombie and providing input for business and strategic planning. 

Brigade is an oilfield services company focused on providing completion, intervention, maintenance and plugging and abandonment services to the growing population of extended-reach lateral, horizontal wellbores in the North American oil and gas industry.

“Brigade’s sole focus on excellence in the well service space, coupled with the Brigade management team’s strong leadership capability, gives us comfort our team will be in good hands,” Fox said in a statement on Sept. 3.

In late 2016, private-equity firm Turnbridge Capital Partners partnered with Brigade Energy Services’ management team to execute a multi-basin buy and build strategy which focused on top-tier assets optimally positioned to service the growing requirements of U.S. shale completion and remediation services. Since then, Brigade has been focused on driving innovation and industry consolidation in the domestic well servicing market, according to the company’s CEO, Justin Bliffen.

“We believe this transaction solidifies Brigade as the largest privately held well services provider in the U.S., enabling us to more rapidly scale up alongside our growing customer demand, while unlocking substantial synergies and economies of scale,” Bliffen said in a statement.

He added that Brigade will work with Nine to ensure a smooth operational transition, with minimal disruption to both customers and employees.

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