Headline OFS news this morning is encouraging as a consequential M&A deal within pressure pumping is announced.
- SLB and LBRT jointly announced that SLB will contribute its pressure pumping business into LBRT for a 37% ownership interest in LBRT.
- The combined company is sizeable as 2019 pro forma revenue was $5.2B.
- The combined company will have an estimated market share of 22%.
- Pressure Pumping horsepower at the combined enterprise totals 3.75M, of which 2.5M will be actively marketed.
- The company will use the other 1.25M HP for maintenance support, which we assume means for cannibalized parts, etc.
- LBRT will also receive 60 wireline units as well as SLB’s two Permian frac sand mines (8M tons nameplate capacity).
- Also, there is a helpful slide deck summarizing the transaction on LBRT’s website.
- Our Take: No views yet on valuation. We will dig into numbers later today. Given all the bits and pieces of this deal, a per horsepower view on valuation is tough to calculate quickly. On the surface, we are pumped this deal is happening. Frankly we need another 4-5 of these mega deals in order to self-correct the current oversaturation of companies in the frac sector. For LBRT, the company has limited customer overlap on this deal, a good thing as LBRT is known for strong customer service and execution. Moreover, the transaction provides significant overhead savings which are estimated at $125M. Cross-sharing of technology is a another benefit as the combined enterprise will have ~500 patents and plenty of vertical integration (ST9, Sand, etc.). Key risk to LBRT, we submit, will be cultural and employee integration. We’ll have more thoughts later today after the call.
- LBRT will host an investor conference call at 9am CT. Dial in is (833) 255-2827.