US contractor buys drilling player for $370 million – weeks after unveiling $5.4 billion merger

US oilfield services player Patterson-UTI Energy has struck a $370 million deal to acquire privately owned Ulterra Drilling Technologies from affiliates of Blackstone Energy Partners.

This transaction – which also includes 34.9 million shares – came just one month after Patterson-UTI agreed a massive $5.4 billion merger with NexTier Oilfield Solutions.

Founded in 2005 and headquartered in Fort Worth, Texas, Ulterra designs, manufactures, sells and rents Polycrystalline Diamond Compact (PDC) drill bits, the work horses of the oilfield sector.

Ulterra also supports customers in more than 30 countries via sales, manufacturing and repair facilities throughout the Americas, the Middle East and Asia.

In North America, Ulterra is a leading provider of PDC drill bits, with operations across the most active basins in the US and Canada.

Commenting on the deal, Andy Hendricks, chief executive of Patterson-UTI, said: “Ulterra’s industry-leading position in the North American PDC drill bit market will expand our operational and technology portfolio and strengthen our position as a leading drilling and completions company.”

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The latest acquisition and Patterson-UTI’s 15 June announcement to merge with NexTier advance the company’s strategy to boost its drilling and completions capabilities, he said.

Amassing drilling data

Chief operating officer Mike Holcomb said, “Ulterra’s growing Middle East presence will broaden our geographic footprint,” while highlighting its data-centric approach to manufacturing, operations and marketing.

“When you consider the combination of data systems from Patterson-UTI, NexTier and Ulterra, we believe we will have the most comprehensive set of data for drilling and completions across the US,” he claimed.

For the full year 2023, Patterson-UTI expects Ulterra to generate $160 million to $180 million of earnings before interest, taxes, depreciation and amortisation, alongside “revenue synergies”.

Ulterra chief executive John Clunan stated he was “excited” to join Patterson-UTI’s business, which offers drilling rigs, directional drilling services, controls automation and well-placement technologies.

Darius Sepassi, senior managing director at Blackstone, added: “We believe Patterson-UTI’s strategic direction under Andy Hendricks, its breadth and its product and service offerings within drilling and completion end markets position the company to deliver value to shareholders.”

The transaction — funded from cash in hand and a revolving line of credit — is expected to close in the third quarter of 2023.

Merger completion in sight

Meanwhile, the $5.4 billion all-stock merger of Patterson-UTI and NexTier is targeting completion in the fourth quarter of 2023.

The merger combines Patterson-UTI’s land drilling business and NexTier’s well completion operations.

Analysts told Reuters that the combined entity’s 3.3 million hydraulic fracturing horsepower would make it the largest pressure pumper by capacity in North America, slightly bigger than Halliburton’s.

Analysts at Barclays said: “We like the proposed deal, not only for the combined company, but for the North American market as (it) would further tighten the pressure pumping landscape and create a larger, well-capitalised player, which should support the capital discipline efforts we’re seeing deployed across the industry.”

For Patterson-UTI, explained Barclays analyst David Podhaizer, the proposed deal would “solve its pressure pumping issues which are sub-scale”, while for NexTier, “it would support their aspiration to become a bigger, more diversified company that creates an opportunity for multiple expansion and drives shareholder returns”.

He does not think rivals would offer a competing bid for NexTier and believes more condolidation is to come in North American oilfield service sector.

“We’re hesitant to believe Helmerich & Payne or Nabors would look to do something similar. Historically, H&P has grown its asset base organically, while Nabors attempted a pressure pumping deal at the 2014 peak with its legacy C&J acquisition that ultimately was not successful.”

“However, we are believers in more consolidation across North America in order to respond to the E&Ps and believe we’ll see it within the verticals, including land drilling, pressure pumping and proppant.”