Tag Archives: M&A

Oilfield Services merger falls apart

Photo by Joshua Doubek

Superior Energy Services has announced that the merger of its US completions business with Forbes Energy Services is off.

The deal was originally announced in December 2019. The plan was to combine the entities in an all-stock transaction and then spin it off into a publicly-traded company. At the time of the merger announcement the Newco was projected to have proforma revenues of $831 million and adjusted EBITDA of $77 million.

Refinancing as part of the merger

Superior said that the rapidly declining demand for oilfield services made it impractical to complete this transaction. In addition the transaction was also dependent on refinancing $500 million of Superior’s debt that is due in 2021. The downturn made that more difficult.

The original agreement stated that Superior would pay a $5 million break-up fee to Forbes in the event the merger didn’t happen. The agreement has been revised so that there will be no break-up paid by either side.

Delisting notice

Superior’s stock price is trading at 99 cents. On March 30, the company received a non-compliance notice from the NYSE because its market capitalization and stockholders’ equity were both below $50 million. Normally the company would have six months to regain compliance. However, due to the volatility in the financial markets caused by COVID-19, the NYSE is permitting 18 month cure period.

Ransomware attack

Adding to the problems that the company faced, on April 28, the company announced it would have to delay filing its quarterly report for Q1 (originally due by May 11). The company said this was due to disruptions caused by COVID-19 which resulted in stay home orders and office closures.

The company finally filed its 10-Q on May 21. In the filing it disclosed, that on March 31, 2020, it had been subject to a ransomware attack that temporarily disrupted access to some systems.

Superior 10-Q filing

 

Houston oilfield services company to merge

Houston-based Quintana Energy Services (ticker QES) has agreed to merge with KLX Energy Services (KLXE) in an all-stock transaction.

QES operates in four segments: Directional Drilling, Pressure Pumping, Pressure Control and Wireline. KLXE primarily operates in completion, intervention and production services.



KLXE was formed from the combination and integration of seven private oilfield service acquired between 2013 and 2014. It was spun out of its parent company, KLX Inc, into a separate public company in September 2018.

KLXE shareholders will hold approximately 59% of the combined company, QES 41%. The combined company will retain the KLX name and ticker. However, the corporate offices will remain in Houston.

Christopher Baker, the current CEO of QES, will become the CEO of the combined group. Likewise, Keefer Lehner, the CFO of QES, takes the top financial position.

On a proforma basis, the company would have combined 2019 revenues of $1 billion and $146 million of adjusted EBITDA, after an estimated $40 million in annualized cost synergies. More than half of that will come from the rationalization of KLXE’s Florida headquarters.

The enterprise value of KLX is $146 million, while that of QES is $63 million. KLXE shares are trading just above $1, while QES received a listing warning from NYSE last week because its share price had been trading below $1 for 30 days.

The transaction is expected to close in the second half of 2020.

KLX Investor Presentation

 

Small Houston-based E&P company agrees to reverse takeover

Camber Energy (market cap $9 million), has agreed to a reverse takeover of privately-held Viking Energy. Both are E&P companies with their head offices in Houston. Camber is based downtown while Viking is in west Houston.



Currently the agreement is a non-binding letter of intent. The parties aim to sign a definitive agreement by February 17, 2020. Camber will issue shares with the Viking Energy shareholders owning 85% of the combined group post-closing.

Viking owns oil and gas leases in Texas, Louisiana, Mississippi and Kansas. It owns a working interest in 58 conventional producing wells in Texas and Louisiana. The company also has an interest in 30 salt water disposal wells. In October 2019, Viking agreed to buy another 123 wells in Texas and Louisiana for $40 million in cash. That deal has not yet closed and the merger with Camber is contingent on that acquisition closing. [UPDATE 02/06/2020 The deal has now closed for $46.3 million – revised cash flows and reserve information led to the change in price].

Back in July 2019, Camber entered into a merger agreement with Lineal Star Holdings, a private company involved in pipeline construction and integrity services. Camber ended up unwinding the transaction at the end of 2019 because the post-merger combined company was unable to meet the listing standards of the NYSE American.

Camber Energy used to be called Lucas Energy and went public in 2006. It’s had a troubled past. The strangest event was in October 2011 when the then-CEO made an acquisition for $22 million without telling the Board or making it public. The issue only came to light a year later when the seller sued for payment that was due in November 2012.

Viking Energy was the subject of my most bizarre post of 2019. In September 2019, the SEC announced fraud charges against a former CEO for creating a fake CFO.

SEC filing – Camber Viking merger

 

 

Houston helicopter companies to merge in all-stock transaction

ERA Group and Bristow Helicopter have announced that they will merge in an all-stock transaction. Both companies have their head office in west Houston.



ERA is publicly-traded and has a market capitalization of $183 million. Bristow was publicly-traded until it entered Chapter 11 bankruptcy in 2019. The terms of the merger are that existing Bristow shareholders will get 77% of the combined company, while ERA shareholders will get 23%. The combined company will be renamed Bristow.

ERA CEO Chris Bradshaw will become the CEO. However, the rest of the management team will be named later. The current CFO of ERA is Jennifer Whalen, who has been in that role since June 2017. For Bristow, it is Brian Allman who was promoted to the role in March 2019. Mr Allman replaced Don Miller who was promoted to the CEO role of Bristow. No word yet on what role Mr Miller will have post-merger.

The companies expect to achieve $35 million in cost savings through the elimination of duplicate corporate expenses and the optimization of aircraft maintenance and fleet utilization.

Bristow filed for bankruptcy in May 2019 and exited in October. Existing shareholders were wiped out and the bondholders took over the company.  Debts of $1.7 billion were reduced by $900 million. The filing was somewhat controversial as some shareholders argued that Bristow should not have been put into bankruptcy as the equity still had value.

The transaction is expected to close in the second half of 2020. If shareholders of one of the companies votes down the deal, there will be a $9 million break-up payable to the other party.

SEC filing – ERA – Bristow merger

Callon completes $750 million takeover of Carrizo

Callon Petroleum has completed its takeover of fellow Houston E&P operator, Carrizo Oil and Gas. The combined companies own 200,000 net acres in the Permian and Eagle Ford basins. As a result of the deal, Carrizo’s shares have been delisted.



The deal was originally announced in July 2019. At that time Callon had a market cap of $1.46 billion and Carrizo $1 billion. At deal close, the market caps were $1 billion and $750 million respectively.

As originally announced, the deal called for Carrizo shareholders to receive 2.05 shares of Callon stock for every share held. However Paulson & Co, a shareholder with a 10% stake, complained that Callon was paying a premium for Carrizo which was ‘unwarranted’. In October and November, ISS and Glass Lewis, two proxy advisory firms, recommended that Callon shareholders vote against the deal.

As a result, later in November, the terms were revised down to 1.75 shares of Callon stock. In addition, under the original terms, Callon management (the acquirer) were eligible for severance benefits as a result of the merger. The revised agreement removed these benefits.

Callon expects to save between $110 million and $170 million from combining the companies. Corporate overhead account for $35 million and $45 million, with the rest coming from operational synergies.

Carrizo had started talking to potential merger targets in the summer and fall of 2018. They did not hold their first meeting with Callon until January 2019.

All the executive officers of Carrizo stepped down as a result of the merger. The top five executives will receive severance payments of $26 million, of which $15 million is cash, the rest vested equity.

Greg Conaway, the Chief Accounting Officer of Carrizo (and not one of the top five executives) has been appointed to the same position at Callon.

SEC filing – Callon Carrizo merger

Another big oilfield services merger announced

Apergy Corporation, based in The Woodlands, has announced that it will merge with the upstream division (aka Nalco Champion) of Ecolab. The combined company will remain in The Woodlands.

Apergy was spun off from Dover Corporation in May 2018 and is primarily involved in Artificial Lift.  Ecolab, based in Minnesota, had originally announced in February 2019 that it intended to spin off Champion through an initial public offering. Champion primarily manufactures oilfield chemicals.



The company will be the second largest production-focused oilfield services company, behind Baker Hughes. Proforma revenues are $3.5 billion, 80% of which is derived from production.

The combined company will have an enterprise value of $7.4 billion, including just over $1 billion of debt. Apergy shareholders and existing Ecolab shareholders will own 38% and 62% of the combined company, respectively. Apergy is paying $3.9 billion in newly-issued shares and $492 million in cash to Ecolab.

The combined companies are assuming $75 million of cost savings. Including these savings, the transaction represents 9.5 times 2020 estimated EBITDA.

Apergy CEO Soma Somasundaram and Apergy CFO Jay Nutt will be CEO and CFO of the combined company. Deric Bryant, the EVP of Ecolab’s Upstream business will become COO.

The transaction is expected to close in the second quarter of 2020.

The announcement comes one day after Superior Energy agreed to spin off its US completions business and merge it with Forbes Energy.

Apergy – Investor Presentation

Oilfield Services company to spin off US completions into new public co

Photo by Joshua Doubek

Superior Energy Services has announced that it will merge its US completions business with Forbes Energy Services in an all-stock transaction. The combined entity will then be spun off into a publicly-traded company. It will have its headquarters in Houston.



Superior operates in four segments: Drilling Products and Services, Onshore Completions and Workover services, Production Services and Technical Solutions. It has its head office in downtown Houston. Like many oilfield service companies, it has been suffering from a high debt load. Net debt was about $1 billion at September.

Forbes is also a US completions business with its head office in Alice, Texas. The business filed for Chapter 11 in January 2017 and the bondholders exchanged their debt for common stock.

The Newco – no name has yet been announced – will have proforma revenues of $831 million, of which $210 million will come from Forbes. It will have adjusted EBITDA of $77 million. However Newco expects to achieve $23 million in synergies, of which $15 million will come from Corporate expenses.

Superior will own 52% of Newco and will also transfer $250 million of debt to it.  The CEO of Superior, David Dunlap will become the CEO of Newco. A CFO will be named later.

The remaining businesses of Superior will have revenues of $806 million. CFO Westy Ballard will become CEO while Chief Accounting Officer James Spexarth will become CFO.

The transaction is expected to close in the first quarter of 2020.

In further good news for Superior, its shares will begin trading again on the New York Stock Exchange on December 26. Back in September, I wrote about the shares being delisted for low stock price. The company has now completed a one-for-fifteen reverse stock split.

SEC filing – Superior spin-off

Houston MLP delisted after $6.5 billion takeover

Buckeye Partners has been delisted after its takeover by IFM Global Infrastructure Fund was completed. The $6.5 billion deal was originally announced in May 2019.



The original Buckeye Pipe Line Company was founded in 1886 as part of Standard Oil and became a publicly-owned independent company in 1911 after Standard Oil was broken up. In 1964, the company was acquired by a subsidiary of the Pennsylvania Railroad. In 1986, it was reorganized into a master limited partnership (MLP) and went public the same year.

Buckeye has 6,000 miles of pipeline and 115 liquid petroleum products terminals in the US and the Caribbean. In 2018, it had revenues of $4.1 billion. The company has its head office in Greenway Plaza.

Breakup of Standard Oil

Standard Oil was established by John D Rockefeller and Henry Flagler in 1870. In 1911 the Supreme Court ordered it to be broken up into 34 smaller companies. This included;

  • Standard Oil of New Jersey – later merged with Humble Oil to become Exxon
  • Standard Oil of New York – later merged with Vacuum to become Mobil
  • Standard Oil of California – renamed as Chevron.
  • The Ohio Oil Company – renamed as Marathon.

Background to the deal

In early 2018, the Board of the partnership decided to pursue strategic alternatives given that publicly-traded MLPs were out-of-fashion with investors. The company had discussions with various interested parties through May 2019.

IMF agreed to pay $41.50 per unit, all in cash. That represented a premium of 27.5% over the closing price of the partnership units prior to the announcement.

Equity awards vest

Equity options have vested on completion of the transaction and will be settled in cash. That means that CEO Clark Smith will receive $16.9 million and CFO Keith St. Clair $5.6 million. 7 other members of the executive management team will receive between $2.2 million and $4.8 million each.

If senior executives are also terminated as a result of the merger, they will also receive severance (annual salary plus target annual cash bonus). For CEO Smith that would be $2 million, for St. Clair that would be $1.2 million. The deal closed Friday without any terminations in the senior management group.

You can see the updated list of Houston-area public companies here

SEC filing – Buckeye takeover

Oilfield service companies complete merger

Two Houston-based oilfield companies, C&J Energy Services and Keane Group, have completed their merger. When the deal was originally announced in June 2019, the merger was valued at $1.5 billion. At completion, the companies were worth about $1 billion. The shareholders of each company will own 50% of the equity in the combined company.



The combined group will now be called Nextier Oilfield Solutions and have a stock ticker ‘NEX’. The board will consist of 12 directors, six designated by each party. The chairman is Patrick Murray (ex Chairman of C&J) and the CEO is Robert Drummond (ex CEO of Keane). The C&J CFO, Jan Kees van Gaalen becomes the combined group’s CFO. Greg Powell, the Keane CFO, becomes Chief Integration Officer.

For the six months ended June 30, 2019, C&J had revenues of $1 billion and adjusted EBITDA of $102 million. Keane’s figures were $849 million and $147 million respectively.

Synergies

The companies expect to achieve $100 million in cost synergies within 12 months. $45 million will come from sales, general and administrative expenses. $45 million will come from reduced material spend with $10 million of savings from consolidating real estate.

Mr Powell will serve as the Chief Integration Office for the earlier of (i) 18 months or (ii) the date at which the company achieves $100 million in annualized savings. He is eligible for a performance bonus of $2.6 million upon the achievement of specified performance criteria tied to the realization of synergies.

Background to the deal

In July 2017, Murray, the C&J chairman first met with Scott Wille, a director of Keane and employee of Cerberus to discuss the potential benefits of consolidation in the oilfield services sector. (Cerberus is the PE firm that bought Keane in 2011 and took it public in January 2017).

In the middle of 2018, Keane had discussions with another unnamed competitor about a business combination. When that deal fell apart, discussions with C&J began in earnest in November 2018. Keane briefly resurrected discussions with the unnamed competitor in early 2019 before deciding the merger with C&J was the better deal.

The deal almost fell apart at the end of May 2019 due to C&J’s insistence that it have a 52% / 48% equity split. It was resolved by C&J giving its shareholders a special pre-merger dividend $1 followed by a 50/50 split.

 

SEC filing – completion of merger

 

E&P company delisted after takeover

Isramco, an E&P company with its head office in the Galleria, has been delisted after its takeover by Naphtha Israel Petroleum, an Israeli public company. It’s been a long time coming. Back in March 2018, it was announced that Naphtha was in preliminary stages of evaluating a transaction. The deal was announced in May 2019.



The company was formed in 1982, focusing on exploration and production in offshore Israel. In 1997 it expanded its activities to the United States, which are now mainly in the Permian Basin.

The chairman and co-Chief Executive of Isramco is Haim Tsuff. He also controls Naphtha. Prior to the takeover, Naphtha and other entities controlled by Tsuff owned 73% of Isramco. The value of the takeover was $330 million, though the amount of cash outlay to third parties is $89 million.

The reason for the takeover appears to be a dispute between the company and Isramco Negev 2 Limited Partnership, another entity controlled by Mr Tsuff. The disagreement relates to what costs Negev should be included in its calculation of royalty payments on the Israeli Tamar field to the company.

The company believes it would win in arbitration. The claim against Negev could exceed $45 million. However, a bigger risk is that Negev stops paying Isramco its monthly royalty. In 2018, its royalty revenue was $31 million, or 38% of its total revenues.

You can see the complete list of Houston-area public companies here.

SEC filing – Isramco