Back in March Weatherford and Schlumberger announced a joint venture called OneStim that would combine their pressure pumping operations, multi-state completions and pump-down perforating businesses in the USA and western Canada. Weatherford would also contribute some manufacturing facilities and supply chain resources while Schlumberger would give the JV access to its surface and downhole technologies.
On Tuesday, the deal gained all regulatory approvals and is now expected to close before the year-end.
Weatherford will own 30% of OneStim while Schlumberger will own the rest. Schlumberger will also pay Weatherford a one time cash payment at closing of $535 million. That amount could change if the costs of re-activating the fleet are different from that envisioned when the deal was originally signed.
Weatherford actually shut down its US pressure pumping operations in November 2016. It is believed have about 20 frac fleets with about 800,000 to 1 million hydraulic horsepower (HHP). When the deal was announced, Capital One Securities analyst Luke Lemoine believed that, of the 20 fleets, “9 are ready to go back to work with zero capex, 1 fleet is hot-stacked, and the other 10 fleets would cost $5-$7 million to reactivate”. I believe that reactivation cost will be higher.
Schlumberger is believed to have 2 million HHP, so together the JV will be challenging market leader Halliburton which has just over 3 million HHP (about 20% of the total US capacity). BJ Services is third with around 2.2 million HHP.
When the OneStim JV was originally announced in March, analysts gave it a valuation of around $4 billion (Weatherford’s share would be $1.2 billion). That value has probably increased some since them given the quicker than anticipated increase in rig count and some analysts speculated that an IPO could occur in 2018. I also expect that Schlumberger will manage the assets better than Weatherford did which could substantially increase the value.
The $535 million proceeds will barely make a dent in Weatherford’s debt of $7.9 billion. This Reuters report from last week stated that Weatherford was looking to sell its Artificial Lift and International Pressure Pumping businesses in Q1 2018.
Weatherford’s relatively new CEO, Mark McCollum (former CFO at Halliburton) certainly has his hands full.