Patterson-UTI sees opportunity to expand its drilling and completion services in the Middle East and other international markets with its acquisition of Ulterra Drilling Technologies.
The Houston-based Patterson-UTI agreed to pay $370 million in cash and 34.9 million shares of the company’s PTEN common stock to acquire Ulterra, a Fort Worth, Texas-based provider of specialized polycrystalline diamond compact drill bits.
Ulterra is already a market leader in North America: The drill bit company owns a leading 30% market share in U.S. land, according to an analysis by Evercore ISI.
Despite already owning a leading position in the market, there’s still room for Ulterra to grow and enhance its business in the U.S., Patterson-UTI CEO Andy Hendricks said on a June 5 conference call with analysts.
“While they are the leading provider of drill bits already, there are a few basins where they may be able to do a little bit more,” Hendricks said. “And we’ve got some good strong customer relationships in some of those places as well with our broad customer base.”
But Patterson-UTI also sees a lot of runway for Ulterra to grow its business in markets in the Middle East, Latin America and Asia. That includes growth in both international onshore and offshore markets, Hendricks said.
“I think the international opportunity is probably where you’ll see the majority of the growth come from,” Patterson-UTI COO James Holcomb said.
Patterson-UTI expects to see more rig growth and drill bit use in onshore operations in international markets. But the company still sees upside for Ulterra in international offshore, a market the company only started to touch over the past few years, Hendricks said.
About 76% of Ulterra’s 2022 revenue was generated in North American markets, while 24% came from international customers, according to an investor presentation.
Patterson-UTI’s acquisition of Ulterra—as well as its recent deal to merge with NexTier Oilfield Solutions to create a $5.4 billion services giant—help enhance its positions in the drilling and completion market, Evercore ISI analysts said in a June 5 market note.
The recent string of acquisitions will move Patterson-UTI to the second-largest North American services player based on first-quarter revenues, analysts at Piper Sandler & Co. said.
Piper Sandler had expected Patterson-UTI to be focused more on the integration of NexTier than further diversifying into manufacturing with the Ulterra acquisition.
But the firm believes Patterson-UTI “isn’t done acquiring yet and could further broaden its reach to become an even more diversified company focused on drilling and completions.”
RELATED: Patterson-UTI to Acquire Global Drill Bit Company Ulterra
Funding the deal
The $370 million cash consideration of the Ulterra deal will be primarily used to repay the drill bit company’s outstanding debt. As such, Patterson-UTI is not assuming any of Ulterra’s debt with the acquisition, CFO Andrew Smith said.
Patterson-UTI plans to fund the cash portion of the deal using a combination of cash on its balance sheet and the company’s revolving line of credit. The company’s revolver capacity is expected to provide between $200 million and $225 million in net debt for the deal.
Net debt coming over from the NexTier deal is also in the range of $200 million.
“You’re looking at probably adding, between those two deals, somewhere in the neighborhood of $400 million to $450 million of debt to the balance sheet,” Smith said.
“As we close these transactions, we’ll look at our options in terms of financing that—maybe on something more of a long-term basis rather than just using the ability to do it under the revolver,” he said.
The deal is expected to close during the third quarter, pending regulatory approvals. The Ulterra business will continue under the Ulterra brand and remain headquartered in Fort Worth after closing.
RELATED: Exclusive Q&A: Patterson-UTI, NexTier CEOs Talk Merger, Shale Dominance
Recommended Reading
Triangle Energy, JV Set to Drill in North Perth Basin
2024-04-18 - The Booth-1 prospect is planned to be the first well in the joint venture’s —Triangle Energy, Strike Energy and New Zealand Oil and Gas — upcoming drilling campaign.
TotalEnergies Cements Oman Partnership with Marsa LNG Project
2024-04-22 - Marsa LNG is expected to start production by first quarter 2028 with TotalEnergies holding 80% interest in the project and Oman National Oil Co. holding 20%.
Is Double Eagle IV the Most Coveted PE-backed Permian E&P Left?
2024-04-22 - Double Eagle IV is quietly adding leases and drilling new oil wells in core parts of the Midland Basin. After a historic run of corporate consolidation, is it the most attractive private equity-backed E&P still standing in the Permian Basin?
TotalEnergies to Acquire Remaining 50% of SapuraOMV
2024-04-22 - TotalEnergies is acquiring the remaining 50% interest of upstream gas operator SapuraOMV, bringing the French company's tab to more than $1.4 billion.
EIG’s MidOcean Closes Purchase of 20% Stake in Peru LNG
2024-04-23 - MidOcean Energy’s deal for SK Earthon’s Peru LNG follows a March deal to purchase Tokyo Gas’ LNG interests in Australia.