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S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
Dell Technologies breaks out ahead of earnings release
Public Service Announcement: New National Emergency Incoming (Ad)
Dropbox’s stock is a falling knife worth catching
Novavax’s dispute resolution and upcoming earnings call
Better Than Oil Stocks (Ad)
Stock ideas from the 2024 Microcap Conference
Warner Bros. Discover: Debt down, profits up, yet questions remain
Better Than Oil Stocks (Ad)
Gloom settles over Germany's economy, with businesses downbeat about the coming months
Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
Dell Technologies breaks out ahead of earnings release
Public Service Announcement: New National Emergency Incoming (Ad)
Dropbox’s stock is a falling knife worth catching
Novavax’s dispute resolution and upcoming earnings call
Better Than Oil Stocks (Ad)
Stock ideas from the 2024 Microcap Conference
Warner Bros. Discover: Debt down, profits up, yet questions remain
Better Than Oil Stocks (Ad)
Gloom settles over Germany's economy, with businesses downbeat about the coming months
Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
Dell Technologies breaks out ahead of earnings release
Public Service Announcement: New National Emergency Incoming (Ad)
Dropbox’s stock is a falling knife worth catching
Novavax’s dispute resolution and upcoming earnings call
Better Than Oil Stocks (Ad)
Stock ideas from the 2024 Microcap Conference
Warner Bros. Discover: Debt down, profits up, yet questions remain
Better Than Oil Stocks (Ad)
Gloom settles over Germany's economy, with businesses downbeat about the coming months
Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024

Is NexTier-Patterson UTI Deal A Sign Of More Consolidation Ahead?

energy stocks to watch

Key Points

  • Shares of Patterson UTI Energy Inc. and NexTier Oilfield Solutions surged following a merger announcement.
  • The combined entity will be valued at approximately $5.4 billion.
  • The merger is expected to be accretive to earnings per share and free cash flow per share in 2024.
  • Merger-and-acquisition activity is rising in the oilfield services industry.
  • Oilfield services companies face a shrinking customer base, driving the need for consolidation and synergies.
  • 5 stocks we like better than Patterson-UTI Energy

Shares of Patterson UTI Energy Inc. NASDAQ: PTEN and NexTier Oilfield Solutions NYSE: NEX were both trading higher on June 15 following news that the companies agreed to combine in a merger of equals. 

According to the companies, the combined entity, with an enterprise value of approximately $5.4 billion, will be a drilling and completions services provider.

The term completion services refer to the process of preparing a well for production after drilling is completed. These services involve the installation, assembly, and optimization of equipment and systems necessary to enable the flow of hydrocarbons from the reservoir to the surface.

The combined company will have operations in the most active major U.S. basins, with the aim of generating strong free cash flow to accelerate the return of capital to shareholders. Patterson-UTI dividend data show a yield of 2.56%. NexTier has no dividend, but both companies have share buyback programs. 

Will Use The PTEN Ticker

The new entity will operate under the name Patterson-UTI Energy, Inc. and trade under the ticker symbol PTEN. The well completions business will operate under the NexTier Completions brand. The combined company's corporate headquarters will remain in Houston, Texas, where both companies are currently located.

NexTier shareholders will receive 0.7520 shares of Patterson-UTI common stock for each share of NexTier common stock owned. Upon closing of the transaction, which is expected to happen before the end of the year, Patterson-UTI shareholders will own approximately 55% of the combined company, and NexTier shareholders will own approximately 45%.

The transaction is expected to be accretive to earnings per share and free cash flow per share in 2024.

Oilfield services is a distinct industry in its own right. For example, Patterson-UTI specializes in onshore contract drilling and pressure pumping services for domestic oil-and-gas producers. NexTier specializes in well-completion and production services and is active in the fracking space. 


Rising M&A Activity

Merger-and-acquisition activity has been rising in recent years. For example, Schlumberger Ltd. NYSE: SLB, the largest oilfield services company by market capitalization and revenue, has engaged in multiple M&A transactions. Notable examples include the merger with Cameron International Corporation in 2016 for $14.80 billion. It’s also acquired several privately held companies in the past five years. 

Likewise, Halliburton Co. NYSE: HAL, Baker Hughes Co. NYSE: BHI, Weatherford International plc NYSE: WFT, and NOV Inc. NYSE: NOV have all grown through acquisition. While organic growth is certainly a revenue driver, the oilfield services business has a problem: The customer base is shrinking. 

That problem began brewing a few years ago. In a 2019 report, “Too many mouths to feed: Oilfield services sector looks to consolidate,” S&P Global noted that “consolidation of U.S. producers suggests a much-needed move toward mergers and acquisitions within the oilfield services space, which is saturated due to the low barrier of entry to the market.”

Reduced Costs And Streamlined Operations

Consolidation offers several potential benefits, such as reducing costs, streamlining operations, and gaining a larger market share. By merging or acquiring other companies in the same industry, businesses can consolidate their resources, eliminate redundancies, and target a wider customer base. 

For example, Patterson-UTI and NexTier expect their merger to create significant efficiencies for the combined company's well completions operations. The combined company expects to realize annual cost savings and operational synergies of approximately $200 million within 18 months following the close of the deal. They say those savings and synergies will be achieved through operations integration, supply chain management, and reductions in sales, general and administrative expenses. One-time costs expected to be incurred to achieve the synergies are approximately $80 million.

Strategic Advantages Of Merger

The term "business synergies" sounds like a buzzword but has an actual meaning. Synergies are the strategic advantages and benefits that result from combining or collaborating with other companies, leading to improved cost efficiency, revenue growth, market expansion, and operational optimization. That’s something oilfield services firms will undoubtedly continue seeking as their customer base consolidates. 

The exploration and production industry itself is consolidating. Interest in energy acquisitions picked up after Russia’s invasion of Ukraine in 2022. 

For example, Chevron Co. NYSE: CVX recently acquired shale producer PDC Energy Inc. in a stock-and-debt deal valued at $7.6 billion. The transaction boosts Chevron’s U.S. footprint, following poor performance for Chevron assets in the Permian Basin in West Texas and New Mexico.

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Should you invest $1,000 in Patterson-UTI Energy right now?

Before you consider Patterson-UTI Energy, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Patterson-UTI Energy wasn't on the list.

While Patterson-UTI Energy currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Patterson-UTI Energy (PTEN)
4.9778 of 5 stars
$11.57-2.3%2.77%11.46Moderate Buy$16.33
NexTier Oilfield Solutions (NEX)
0.0841 of 5 stars
$10.69+0.8%N/A4.00Reduce$11.47
Baker Hughes (BHI)
0 of 5 stars
$57.68flat1.18%288.40N/A
Chevron (CVX)
4.7596 of 5 stars
$154.66-0.5%4.22%13.61Moderate Buy$180.95
Halliburton (HAL)
4.9794 of 5 stars
$35.21-0.3%1.82%12.02Buy$48.63
NOV (NOV)
4.9833 of 5 stars
$17.23-1.0%1.16%6.86Hold$24.36
Schlumberger (SLB)
4.9913 of 5 stars
$48.82-0.9%2.05%16.72Buy$70.67
Weatherford International (WFT)
0 of 5 stars
$0.00-100.0%N/A-0.03N/A
Compare These Stocks  Add These Stocks to My Watchlist 

Kate Stalter

About Kate Stalter

  • stalterkate@gmail.com

Contributing Author

Retirement, Asset Allocation, and Tax Strategies

Experience

Kate Stalter has been a contributing writer for MarketBeat since 2021.

Additional Experience

Series 65-licensed investment advisor, financial advisor, Blue Marlin Advisors; investment columnist for Forbes, U.S. News & World Report

Areas of Expertise

Asset allocation, technical and fundamental analysis, retirement strategies, income generation, risk management, sector and industry analysis

Education

Bachelor of Arts, Saint Mary’s College, Notre Dame, Indiana; Master of Business Adminstration, Kellogg School of Management at Northwestern University

Past Experience

Founder, financial advisor for Better Money Decisions; editor, stock trading instructor for Investor’s Business Daily; columnist, podcast host, video host for MoneyShow.com; contributor for Morningstar magazine


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