Patterson-UTI, NexTier Merging in $5.4B Deal

Patterson-UTI Energy Inc. and NexTier Oilfield Solutions Inc. will combine in an all-stock merger of equals transaction, resulting in a company with a combined value of $5.4 billion that will operate in the most active basins in the U.S.

The merger will create a comprehensive drilling and completions franchise in U.S. land with leadership positions in contract drilling, directional drilling and pressure pumping, Andy Hendricks, CEO of Patterson-UTI, Hendricks said on a June 15 call with analysts.

“This merger unites two top-tier and technology-driven drilling and well completions businesses, creating a leading platform at the forefront of innovation,” Hendricks said. “As one company, we will have a significantly expanded, comprehensive portfolio of oilfield services offerings across the most active producing basins in the United States, along with operations in Latin America. With our combined strong balance sheet, ample liquidity and greater free cash flow, we will be well positioned to continue to invest in technology, innovation and people, while delivering strong cash returns to shareholders."

As part of the agreement, shareholders of NexTier will receive 0.7520 shares of Patterson-UTI Energy common stock for each share of NexTier stock owned. The combination is expected to be tax-free to shareholders.

At closing, Patterson-UTI shareholders will own 55% of the combined company, while NexTier shareholders will own the remaining 45%.

The combined company, which will operate under the name Patterson-UTI Energy Inc., will have a fleet of 172 super-spec drilling rigs, 45 active frac fleets (33 NexTier, 12 Patterson-UTI) and directional drilling services.

Its combined 3.3 million horsepower will make Patterson-UTI the largest North American pressure pumper by capacity, slightly larger than Halliburton, analysts at Evercore ISI wrote in a June 15 research note.

The company’s well completions business will operate under the NexTier Completions brand.

"Our agreement to merge with Patterson-UTI brings together two complementary organizations to create a premier North American drilling and completions company,” said Robert Drummond, President and CEO of NexTier. “We believe offering a comprehensive suite of solutions on one integrated platform will position the combined company as the partner of choice for a greater number of customers across geographies and throughout the full well life cycle. We're confident that together, we will be able to drive efficiencies across the portfolio and unlock more value for shareholders and customers than either organization could achieve on its own."

Hendricks will lead the combined company as president and CEO after closing. Drummond will transition to vice chair of the company’s board of directors. Patterson-UTI board chair Curtis Huff will chair the combined board.

The combined board will include 11 directors—six from Patterson-UTI, including Hendricks, and five from NexTier.

Patterson-UTI will remain headquartered in Houston, Texas, after closing, which is expected to occur during the fourth quarter.

RELATED: Permian Paradox: Patterson CEO Says Fewer Rigs Demand More Workers

Driving synergies, shareholder returns

Patterson-UTI expects to realize yearly cost savings and operational synergies of around $200 million within 18 months of closing though operations integration, supply chain management and G&A savings.

Nearly two-thirds of the expected synergies will come from the combination of the well completions business, management said on the call.

The combined services company aims to distribute at least 50% of free cash flow to shareholders through dividends and share repurchases.

On a combined basis, the company would have generated $6.9 billion in revenue and $1.9 billion in adjusted EBITDA during first-quarter 2023. The deal is expected to be accretive to earnings per share and free cash flow per share in 2024.

“We believe that larger North American oilfield services companies will be more efficient at delivering integrated well site solutions at scale to a more consolidated E&P customer base,” Evercore ISI analysts wrote.

Analysts at Piper Sandler & Co. called the transaction “very positive” from an investor standpoint as the oilfield service sector continues to need larger companies and consolidation in the pressure pumping space.

Patterson-UTI’s pressure pumping business will now be able to employ NexTier’s wellsite integration strategy, which is expected to create as much as $7 million in adjusted EBITDA improvements and capital spending savings annually.

After closing at $11.13 per share on June 14, Patterson-UTI’s stock price closed up over 12% at $12.48 per share on June 15.

NexTier’s stock price closed up over 6% at $9.53 per share on June 15 after closing at $8.92 per share a day before.

Gibson, Dunn & Crutcher LLP is advising Patterson-UTI Energy.