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October 4, 2010
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Onshore contract driller Patterson-UTI Energy Inc. (PTEN) closed its previously announced acquisition of certain assets of onshore well service rig provider Key Energy Services (KEG) for approximately $238 million in cash. As per the deal between the two Houston-based companies, Key Energy sold its pressure pumping and wireline businesses to Patterson-UTI.
Patterson-UTI funded the purchase – including pumps and related equipment to unlock oil and gas deposits from shale (dense rock formations) – with cash and a draw under its $400 million revolving credit facility. The equipment is located in the Barnett Shale (in East and North-Central Texas), Eagle Ford Shale (in South Texas) and Permian Basin (in West Texas) resource plays.
The Key Energy transaction is part of Patterson-UTI’s long-term strategic plan and will add around 214,000 horsepower to its pressure pumping gear along with a 26-unit wireline business (of which 22 are less than five years old). With the closure of the deal, Patterson-UTI will be able to accelerate the growth of one of its core businesses (pressure pumping contributes 20% of its total revenue), as well as increase its geographic foothold and overall capabilities.
Apart from significantly expanding its shale drilling ability, Patterson-UTI also stands to benefit by coming out of their historical stronghold in the Appalachian Basin into the pressure pumping markets in the Barnett, Eagle Ford and Permian Basin. Considering the company’s stellar financial health (free cash flow positive and a debt-free balance sheet), we are confident that the Key Energy deal will be accretive to Patterson-UTI’s cash flows.
Patterson-UTI is one of the largest onshore contract drillers in the U.S. with approximately 350 land-based rigs that operate primarily in the oil and natural gas producing regions of North America. Additionally, the company is engaged in the exploration and production business and provides pressure pumping services.
Patterson-UTI currently retains a Zacks #1 Rank (short-term 'Strong Buy' rating).
Read the full analyst report on "PTEN"
Read the full analyst report on "KEG"
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