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Deal Partners: Analyzing PTEN and Seventy Seven Energy

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Patterson-UTI Energy’s business overview

Patterson-UTI Energy (PTEN) contracts land-based drilling rigs to upstream energy companies in the US and Canada. Currently, Patterson-UTI Energy owns 161 advanced rigs, known as “APEX rigs.” Patterson-UTI Energy’s pressure pumping assets include more than one million horsepower of fracturing equipment in Texas and the Appalachian region of the northeast US. Patterson-UTI Energy makes up 0.26% of the SPDR S&P MidCap 400 ETF (MDY).

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Seventy Seven Energy’s business overview

Seventy Seven Energy (SVNT) provides drilling, hydraulic fracturing, and oilfield rental services to upstream producers. Seventy Seven Energy owns a fleet of 40 high-spec drilling rigs and 51 mechanical rigs. It also owns ~500,000 horsepower of fracturing equipment located in the Anadarko Basin and Eagle Ford Shale.

Combined assets

Patterson-UTI Energy and Seventy Seven Energy will complement each other, particularly with Seventy Seven Energy rigs targeted at the US unconventional shales. Following the merger, Patterson-UTI Energy is expected to own 201 land-based drilling rigs. It will also own one of the largest pressure pumping fleets in the US with 1.5 million hydraulic fracturing horsepower.

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Revenue and net income

From 3Q15 to 3Q16, Patterson-UTI Energy’s revenues fell 51%, while its net loss improved. In comparison, Schlumberger’s (SLB) 3Q16 revenues fell 9.4% compared to 3Q15. Halliburton’s (HAL) revenues fell 31% during the same period.

On June 7, 2016, Seventy Seven Energy filed for bankruptcy. As a result, it filed for re-organization in the US bankruptcy court. It emerged from bankruptcy on August 1. During the two months ending on September 30, Seventy Seven Energy recorded revenues of $80 million and a net loss of $36.5 million.

Synergies 

Patterson-UTI Energy expects to achieve synergies in excess of $50 million. Its management also estimates that the merger will be accretive to cash flow per share.

Recent acquisitions

On May 19, FMC Technologies (FTI), a Texas-based OFS (oilfield service and equipment) company, disclosed that it will combine with Technip, a France-based OFS company. To learn more about the pending acquisition, read FMC Technologies and Technip to Form Energy Services Giant.

Check out how shares of Patterson-UTI Energy and Seventy Seven Energy reacted to the acquisition news in the next part.

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