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Could PTEN Benefit from Acquiring Seventy Seven Energy?

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The PTEN–Seventy Seven Energy deal

On December 12, 2016, Patterson-UTI Energy (PTEN), one of the prominent contract drillers in North America, disclosed that it agreed to acquire Seventy Seven Energy (SVNT). The transaction value of the deal, which is expected to close in 1Q17, was estimated to be ~$1.8 billion. PTEN comprises 2.9% of the VanEck Vectors Oil Services ETF (OIH).

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How big can PTEN get after acquiring SVNT?

Both PTEN and Seventy Seven Energy (SVNT) provide contract drilling, pressure pumping, and oilfield rental services to US-based upstream energy companies. A combination of PTEN and Seventy Seven Energy should complement each other, particularly with SVNT’s rigs targeted at unconventional shales in the US.

Following the merger, PTEN is expected to own 201 land-based drilling rigs. It should also own one of the largest pressure pumping fleets in the US with 1.5 million hydraulic fracturing horsepower.

Synergies out of the deal

PTEN expects to achieve synergies in excess of $50 million. PTEN’s management also estimates that this merger will be accretive to cash flow per share.

Recent M&A deals in the OFS industry

On December 30, 2016, Baker Hughes (BHI) completed the deal with CSL Capital Management and West Street Energy Partners (or WSEP) to form a land-based pressure pumping company. You can read more about the deal in Baker Hughes Makes Another Deal: An OFS Newco Explained.

On January 17, 2017, FMC Technologies (FTI) completed combining with Technip, a France-based OFS company. Please read more on the pending acquisition in Is FMC Technologies’ Merger with Technip Almost Complete?

We’ll discuss Wall Street analysts’ 4Q16 earnings estimates for PTEN next.

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