BJ Services, which has its head office in Tomball, TX has filed for Chapter 11 bankruptcy. There is no pre-packaged plan in place. If agreement can’t be reached with the lenders in the next few days, the company may have to liquidate. The company has laid off 800 employees since March and a further 1,250 jobs are at risk.
BJ Services currently operates 42 pressure pumping fleets (2.1 million hydraulic horsepower) and 180 cementing pumps.
History of the company
The company has one of the most well-known brand names in oilfield services. Byron Jackson, an inventory of pumps for farmers and miners in California, founded the original company in 1872. Hughes Tool acquired the company in 1974. Hughes merged with Baker International to form Baker Hughes in 1987. In 1990 Baker Hughes spun off BJ Services into a public company only to acquire it again in 2010 in a $5.5 billion transaction.
The current incarnation was created in November 2016 when Baker Hughes contributed its pressure pumping assets into a new joint venture with Allied Completion Holdings, another pressure pumping company that is backed by CSL, a private equity firm based in Houston. Baker Hughes ended up owning 47% of the joint venture and its share was valued at $566 million. That investment has been written down to zero due to losses incurred by BJ since 2016.
BJ Services filed for an Initial Public Offering in June 2017 though at the time the company was losing money, even at the EBITDA level. It never completed its offering and eventually withdrew its registration statement in March 2019.
Current debt load
BJ Services currently has $357 million of debt. This comprises $102 million of an asset-based loan, $190 million in equipment term loans and $65 million for real estate term loans. These loans are held by different lender groups.
The drastic downturn in drilling and completions caused by the collapse in oil prices in March 2020 caused the company to engage Kirkland & Ellis and PJT Partners as restructuring partners.
CSL offered to invest an additional $75 million in new-money in exchange for the vast majority of the equity in the reorganized company. However, the deal was contingent on generating $120 million from the sale or liquidation of certain non-core assets. That money would go to the equipment lenders.
The company also expected to sell the cementing business for $30 million or more, on a going-concern basis. On the pressure pumping side, CSL has bid for 3 of the 42 frac fleets on a going-concern basis. CSL has also offered to buy the research and development for the next generation of pressure pumping units.
Proposed deals fall through
The proposed deals fell through because the company, CSL and the various lenders couldn’t agree on terms of the proposed write-downs to be shared by the parties and how the businesses being sold would be funded on a going-concern basis. Given the potential conflicts that CSL has and that the equipment lenders have collateral in the pressure pumping and cementation fleets but not in the R&D, I am not surprised.
The company is trying to get all parties to agree a reorganization plan in the next 7 days. If not, the company may not have funds to operate on a going-concern basis and may be forced to liquidate its assets in an orderly wind-down.