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Share Name | Share Symbol | Market | Type |
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NexTier Oilfield Solutions Inc | NYSE:NEX | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 10.61 | 0 | 01:00:00 |
Filed by Patterson-UTI Energy, Inc. pursuant to
Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: NexTier Oilfield Solutions Inc.
Commission File No. 1-37988
The following article was published by Hart Energy on June 16, 2023:
MERGERS
Exclusive Q&A: Patterson-UTI, NexTier CEOs Talk Merger, Shale Dominance
Patterson-UTI President and CEO Andy Hendricks and NexTier Oilfield Solutions CEO Robert Drummond discussed the companies planned $5.4 billion merger in a Hart Energy exclusive interview.
By Chris Mathews, Hart Energy Fri, 06/16/2023 - 02:50 PM
Patterson-UTI President and CEO Andy Hendricks and NexTier Oilfield Solutions CEO Robert Drummond discussed the companies planned $5.4 billion merger in a Hart Energy exclusive interview. (Source: Hart Energy)
On June 15, Patterson-UTI Energy and NexTier Oilfield Solutions agreed to a combination that will create the largest U.S. shale drilling and completions pure-play company in the energy sector.
The deal, an all-stock merger of near-equals, will result in a new Patterson-UTI with a combined value of $5.4 billion and operations in the Lower 48s most active shale basins. Patterson-UTI shareholders will own a 55% stake in the expanded company.
The combined company will have a fleet of 172 super-spec drilling rigs, 45 active frac fleets (33 NexTier, 12 Patterson-UTI) and directional drilling services.
Patterson-UTI President and CEO Andy Hendricks, who will remain CEO, and NexTier CEO Robert Drummond, who will become vice chair, joined Hart Energy for an exclusive discussion delving into how deal talks started, their rationale behind the merger and the steps ahead to integrate the company.
Hart Energy: Could you give us some background on looking for a combination or strategic alternative and some of the driving factors behind this merger?
NexTier Oilfield Solutions CEO Robert Drummond (Source: Hart Energy)
Robert Drummond: We had a unique opportunity to name the company when we merged [Keane Group] and [C&J Energy Services]. We went into a pretty detailed process, very difficult, and finally realized a great name would be NexTierbecause were going to be constantly looking to take the company to the next tier.
So our employees have been accustomed to us doing M&A. Weve been engaged with advisers for a long time. And with a very healthy balance sheet, we were always able to be a potential second party for a lot of different transactions.
Over the last couple of years, weve always looked at Patterson as being a company with a similar culture, a similar mindset about how to invest capital and how to deploy technology, and focused on execution.
[Andy Hendricks] and I talked about it loosely for over a year but never really engaged completely. We felt like, having been in M&A a lot, you can do a small deal and bolt it on, or you can do something thats transformational like this one.
Being able to choose a partner that was such a good fit with strong leadership, we felt comfortable that we would be a lot stronger together than we would be separately. So really it was a pretty easy decision for me.
Our board was quick to say the same thing, our advisors were able to put it together and show us that it was a very good deal for our shareholders. Im just really happy that we were able to bring it together.
Andy Hendricks: Like Robert said, we talked off and on for a whilenot seriously, but to discuss, Whats the potential? Could it work? Could it fit?
For us, it wasnt quite the right time. We were in the process of ramping up activity real quick. Our own team was kind of reorganizing on the pressure pumping side to improve what they were doing. We had to have the right time for us as a company, and it really had nothing to do with the market timing.
Some people are seeing this as, Oh, well the markets kind of soft so two companies are getting together. Wed be doing this right now if the market was ramping up. It was really more about where we were in our journey, where they were in their journey, and when was the right time to put the two companies together.
Patterson-UTI President and CEO Andy Hendricks (Source: Hart Energy)
HE: I was curious if you can elaborate much on just how challenging it was to come up with the 55/45 split?
AH: The 55/45 was really based on the companies market caps, and so that was kind of straightforward math there. It was really more of a discussion, okay, what is the governance look like? What is management going to look like going forward? And trying to find some balance in the system on a merger of equals. Thats where we had a lot of discussions.
Then, is this really going to be beneficial for shareholders? At the end of the day, we decided it is. I mean you look at how the combination of the two companies with the synergies and all the free cash flow were going to be one of the highest free cash flow yielding companies in all of oilfield services.
RD: A lot of our investors had been telling us that our market cap was almost a little bit too small to be able to get the size investment they wanted to put in the company. This is the biggest pure-play shale play company.
If youre going to make an investment in shale, the combined $5.5 billion enterprise value company is twice as big as anything else out there that gives investors the opportunity to take a large position in [the company]. That was also a driver for our board.
HE: In that vein, whats most important? Is it building that overall scale or is it also balancing out the drilling and completion strengths?
AH: Drilling, theres a few things. We have a strong franchise, 45-year-old franchise in drilling. NexTiers built a really good franchise in pressure pumping. Our Universal name dates back to 1980. So putting our completions and their completions together is going to be a powerful force.
Weve had to manage ours a little different because we have multiple segments. Where they were really focused on well completions. They built out wire line, they built out power systems, they built out logistics to support all this.
You take our 12 active spreads and then you layer in everything that theyve done on the well completion side, and that only enhances what our 12 active spreads do.
RD: Patterson-UTI had built a strong digital operating system, not unlike our NexHub [Digital Center]. Our NexHub has been focused on completions and all the logistics around completions. And of course Andys is focused on mostly on the drilling side.
And I think theres a lot of synergies that were yet to realize there what the potential really can be. So Id say technology has got a big play here that will materialize over time.
HE: Are you expecting more services consolidation? Do you see a wave potentially happening? If so, would PTEN look to continue to be a consolidator?
AH: Well, Im not sure if we see a wave. I mean, Robert and I have been talking off and on for over a year. So this is not like we woke up and said lets put the companies together.
Thats how a lot of these things happen. When we did the deal and acquired Seventy Seven Energy [in 2017], that was over a few years as well. So these things dont happen right away, and I dont think it necessarily triggers a wave.
If you look at some of the other companies that are out there, I think theyre going to have more challenges trying to figure out who theyre going to partner with.
Im really excited that Robert and I were able to land this the way we did and we could pick who we partner with. We didnt get forced into something. And the others, if they want to do something, it may not be their partner of choice. So I dont anticipate a wave. As to whether we do any more M&A, both of our companies have a history of M&A, so its hard to say were never going to do anymore, but well keep you posted as we continue to look at things. But right now weve just been focused on this one.
HE: How do you expect the whole integration process to go?
RD: I think that process is something that we both have good playbooks on and a very good track record of being able to deliver. Capturing some of the synergies associated with it, but also culturally bringing the two companies together so that you have the blend of the best of the talent for both. I think that when it comes to the completion side of the business, Andy described it very well. The well site integration strategy that NexTier had has been core to our performance and its very easy to scale that around additional frack fleets.
That was what we did with the Alamo acquisition we got a couple years ago. And the same thing with the C&J-Keane merger before that.
I would also point out that one of the things that brought us together, from my perspective, was that we both had been moving towards natural gas a power source. A better economics around the fuel costs, as well as a smaller environmental footprint. And that was very attractive from a person running a frac business because the Universal fleet will be about 75% natural gas fueled at the end of the year, and ours is about the same.
(Source: Patterson-UTI)
HE: You beat me to my next question: I was going to ask how important emissions reductions were in this?
RD: I appreciate that question because they are important, especially when its the right thing to do, and that the economics around it create value. With a frack fleet, you burn as much as $50 million a year in fuel.
If you go to natural gas, you can capture an arbitrage of up to $10 [million], maybe even $15 million dollars annually per fleet in savings. So weve been reinvesting that kind of value to continue to convert diesel-powered pumps to dual-fuel pumps that allow us to do that. Then emissions just come right along with it.
So its a win-win, really: Customers win, we win and environment wins.
AH: Patterson-UTI for years has had a leadership position across multiple service lines, especially in drilling where we have 100% natural gas engines. We do high line power, we have the EcoCell lithium battery hybrid solution.
Were real excited about bringing NexTier together with our completions because weve been running a lot of dual fuel and theyve been running a lot of dual fuel. Theyre looking at electric frac. Weve been looking at turbine direct drive. So weve all been working on technologies and putting all those efforts together is going to be big across all our platforms. We have a lot of expertise.
HE: Obviously equipment can move and does, but does geography factor into this merger much at all? I know theres a Latin American component as well.
AH: Latin America, for us, is drilling. We have the rigs in Colombia, we may end up with a rig in Ecuador. I wont say that were going to rush to put pumping down in Latin America right now.
When you look at the geographical overlap in the U.S. that we have, theres some real opportunities to consolidate some facilities or reorganize how we do things in different basins. Maybe we concentrate pumps in one facility, blenders in another, electronics in another, things like that to be more efficient on how we do thingsespecially in the Permian where were all going to be so large.
But were all still busy, too. Theres been a little bit of a softening in the rig market, but you look at our rig count. Were down from 132 to 125. Thats not actually a big drop for us. And pumping follows all our rigs. Even if theres a little bit of white space in the calendar on the pumping side, were all still busy.
RD: Thats a good point. All the frac fleets are fully deployed between both companies.
HE: What were some of the considerations that made this deal make sense now versus when you first started talking about it? What has changed in the market, or more broadly for the sector?
AH: Like I said, this is not market driven but more of a where we are as companies on our journeys. I think one of the things is we both started looking at new technology. Theres a big opportunity to make sure that were not overlapping each other and spending more than we need to spend, and instead we can pull those efforts together.
RD: We believe theres going to be a path to helping our customers make tier-two wells into tier-one wells over time. Technology has continued to do that over time. Some of the drilling things that Pattersons doing with U-shaped wells and being able to get right up against the boundary lines or lease line to get more of a drainage of the reservoir.
This is how big data and data analytics are going to come into play over time. The two of us together, technically, its going to be really strong. Were going to be in the core of helping the E&Ps get to where they want to go.
AH: Youve heard a number of E&Ps say we want to get more productivity out of wells when we drill thema higher percentage of recoverable. Combining our efforts and what we do on engineering, not just equipment but engineering, that we look at on the subsurface, it helps put us in a leadership position to be able to help E&Ps improve their recovery.
(Source: Patterson-UTI, NexTier)
HE: How does consolidation in the E&P space impact your outlook for the combined company?
RD: Theres a lot of different kind of players. Theres big market cap guys, theres [international oil companies] even, and theres smaller independents. Some are proving up plays to be able to sell to the bigger guys. But its all kind of consolidating toward the end user who is going to be the one that has to go get the molecules out of the ground.
As things are consolidated towards the bigger the guy who knows hes going to be the one developing the reservoir fully becomes more and more a technology play using the technology to make sure you get maximum recovery from the well and the maximum return.
This plays to the strength of companies like NexTier and Patterson for the reasons we were referring to earlier. We have all different kinds of customers in our portfolio, but the big parts of it are for customers who are going to be doing the development, ultimately.
AH: When you look at some of the announcements that weve seen this year, a lot of them are pretty small, private equity-backed E&Ps that just drill a few wells and try to prove up their acreage. Then, that acreage gets in the hands of a larger player that wants to do a full on development, and thats what we do.
Were not out there with SCR [silicon-controlled rectifier] rigs or mechanical rigs just doing some horizontals to prove up acreage. Were operating high spec, super spec rigs and high performing frac equipment for people doing development work.
It really plays into our strengths I think, because that acreage lands with those entities that really are doing the development, as Robert said. And if youre following E&P, theres always some spinoffs of property. Theres always a restart with some of these to do it again, and it just keeps happening.
HE: You all drill and complete wells almost every day and have really good insights into whats happening on the ground. What is your outlook for the longevity of the Permian, and when is this expected plateau that we could see?
RD: Ive got a strong opinion about this one. In fact, so strong that I got both of my daughters into the industry who are working in this arena as professionals.
I think its going to be for a lifetime. Tier-ones being consumed a bit more, maybe a bit faster than they thought. Its always tier-two moving to tier-one, and tier-three moving to tier-two. If you quit betting on technology and the capabilities, youd be wrong every single time up until now.
So personally, as a petroleum engineer in this thing nearly 40 years, I completely believe that we will be doing this from now on.
AH: When you look at the Permian, the Permian geologically is the gift that keeps on giving. Technology is going to continue to enhance what we do in the Permian. And when you look at the risk profiles of places to invest around the world, the Permian is still one of the best risk profiles for an E&P that looks around the world.
Theres just so many positives about the Permian, and technology will continue to influence how we get production out of there.
Yes, the IEA [International Energy Agency] is forecasting by the end of the decade that were going to reach a peak in oil, but it doesnt come off after that. If you actually look at the IEAs chart, it gets to a peak and then its flat on demand until 2050. Well thats a long time. So the world still needs oil and gas.
For the United States, the Permian is a huge geological structure that still contains a lot of oil and were still learning how to get it out. When I started the industry, a well in the Permian produced 2.5 bbl/d, and look where we are today. Technology will keep moving that needle.
Important Information for Stockholders
In connection with the proposed transaction, Patterson-UTI intends to file with the SEC a registration statement on Form S-4 that will include a joint proxy statement of Patterson-UTI and NexTier that also constitutes a prospectus of Patterson-UTI. Each of Patterson-UTI and NexTier also plan to file other relevant documents with the SEC regarding the proposed transaction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended. Any definitive joint proxy statement/prospectus (if and when available) will be mailed to shareholders of Patterson-UTI and NexTier. INVESTORS AND STOCKHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT MAY BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and shareholders will be able to obtain free copies of these documents (if and when available) and other documents containing important information about Patterson-UTI and NexTier once such documents are filed with the SEC through the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed with the SEC by Patterson-UTI will be available free of charge on Patterson-UTIs website at http://www.patenergy.com or by contacting Patterson-UTIs Investor Relations Department by phone at (281) 765-7170. Copies of the documents filed with the SEC by NexTier will be available free of charge on NexTiers website at https://nextierofs.com or by contacting NexTiers Investor Relations Department by phone at (346) 242-0519.
Participants in the Solicitation
Patterson-UTI, NexTier and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about the directors and executive officers of Patterson-UTI is set forth in its proxy statement for its 2023 annual meeting of shareholders, which was filed with the SEC on April 11, 2023, and Patterson-UTIs Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 13, 2023. Information about the directors and executive officers of NexTier is set forth in its proxy statement for its 2023 annual meeting of shareholders, which was filed with the SEC on April 28, 2023, and NexTiers Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 16, 2023. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction when such materials become available. Investors should read the joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions. You may obtain free copies of these documents from Patterson-UTI or NexTier using the sources indicated above.
No Offer or Solicitation
This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. Subject to certain exceptions to be approved by the relevant regulators or certain facts to be ascertained, the public offer will not be made directly or indirectly, in or into any jurisdiction where to do so would constitute a violation of the laws of such jurisdiction, or by use of the mails or by any means or instrumentality (including without limitation, facsimile transmission, telephone and the internet) of interstate or foreign commerce, or any facility of a national securities exchange, of any such jurisdiction.
Cautionary Statement Regarding Forward-Looking Statements
This communication contains forward-looking statements which are protected as forward-looking statements under the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect Patterson-UTIs and NexTiers current beliefs, expectations or intentions regarding future events. Words such as anticipate, believe, budgeted, continue, could, estimate, expect, intend, may, plan, predict, potential, project, pursue, should, strategy, target, or will, and similar expressions are intended to identify such forward-looking statements. The statements in this communication that are not historical statements, including statements regarding Patterson-UTs and NexTiers future expectations, beliefs, plans, objectives, financial conditions, assumptions or future events or performance that are not historical facts, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks and uncertainties, many of which are beyond Patterson-UTIs and NexTiers control, which could cause actual results to differ materially from the results expressed or implied by the statements. The statements include, without limitation, projections as to the anticipated benefits of the proposed transaction, the impact of the proposed transaction on Patterson-UTIs and NexTiers business and future financial and operating results, the amount and timing of synergies from the proposed transaction, the combined companys projected revenues, adjusted EBITDA and cash flow, accretion, business and employee opportunities, capital return policy, and the closing date for the proposed transaction, are based on managements estimates, assumptions and projections, and are subject to significant uncertainties and other factors, many of which are beyond Patterson-UTIs and NexTiers control. These factors and risks include, but are not limited to, adverse oil and natural gas industry conditions; global economic conditions, including inflationary pressures and risks of economic downturns or recessions in the United States and elsewhere; volatility in customer spending and in oil and natural gas prices that could adversely affect demand for Patterson-UTIs and NexTiers services and their associated effect on rates; excess availability of land drilling rigs, pressure pumping and directional drilling equipment, including as a result of reactivation, improvement or construction; competition and demand for Patterson-UTIs and NexTiers services; the impact of the ongoing conflict in Ukraine; strength and financial resources of competitors; utilization, margins and planned capital expenditures; liabilities from operational risks for which Patterson-UTI or NexTier do not have and receive full indemnification or insurance; operating hazards attendant to the oil and natural gas business; failure by customers to pay or satisfy their contractual obligations (particularly with respect to fixed-term contracts); the ability to realize backlog; specialization of methods, equipment and services and new technologies, including the ability to develop and obtain satisfactory returns from new technology; the ability to retain management and field personnel; loss of key customers; shortages, delays in delivery, and interruptions in supply, of equipment and materials; cybersecurity events; synergies, costs and financial and operating impacts of acquisitions; difficulty in building and deploying new equipment; governmental regulation; climate legislation, regulation and other related risks; environmental, social and governance practices, including the perception thereof; environmental risks and ability to satisfy future environmental costs; technology-related disputes; legal proceedings and actions by governmental or other regulatory agencies; the ability to effectively identify and enter new markets; public health crises, pandemics and epidemics; weather; operating costs; expansion and development trends of the oil and natural gas industry; ability to obtain insurance coverage on commercially reasonable terms; financial flexibility; interest rate volatility; adverse credit and equity market conditions; availability of capital and the ability to repay indebtedness when due; our return of capital to stockholders; stock price volatility; and compliance with covenants under Patterson-UTIs and NexTiers debt agreements; and other risk factors and additional information. In addition, material risks that could cause actual results to differ from forward-looking statements include: the inherent uncertainty associated with financial or other projections; the prompt and effective integration of Patterson-UTIs and NexTiers businesses and the ability to achieve the anticipated synergies and value-creation contemplated by the proposed transaction; the risk associated with Patterson-UTIs and NexTiers ability to obtain the approval of the proposed transaction by their shareholders required to consummate the proposed transaction and the timing of the closing of the proposed transaction, including the risk that the conditions to the transaction are not satisfied on a timely basis or at all and the failure of the transaction to close for any other reason; the risk that a consent or authorization that may be required for the proposed transaction is not obtained or is obtained subject to conditions that are not anticipated; unanticipated difficulties or expenditures relating to the transaction, the response of business partners and retention as a result of the announcement and pendency of the transaction; and the diversion of management time on transaction-related issues.
Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in Patterson-UTIs or NexTiers SEC filings, both of which are available through the Securities and Exchange Commissions (the SEC) Electronic Data Gathering and Analysis Retrieval System (EDGAR) at http://www.sec.gov, or with respect to Patterson-UTIs SEC filings, Patterson-UTIs website at http://www.patenergy.com, or with respect to NexTiers SEC filings, NexTiers website at https://nextierofs.com. Patterson-UTI and NexTier undertake no obligation to publicly update or revise any forward-looking statement.
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