Patterson-UTI Energy and Seventy Seven Energy announce agreement to merge

Patterson-UTI Energy and Seventy Seven Energy jointly announced that the two companies have entered into a definitive merger agreement pursuant to which Patterson-UTI will acquire Seventy Seven Energy in an all-stock transaction. Patterson-UTI and Seventy Seven Energy are both leaders in building and operating high-spec rigs, and the transaction will further solidify Patterson-UTI as a leader in the US land drilling market with 201 high-spec rigs. Additionally, following the closing of the transaction, Patterson-UTI will have one of the largest and most modern pressure pumping fleets in the industry, with more than 1.5 million hydraulic fracturing horsepower both available and strategically-located in some of the most prolific oil and gas regions in the US. The transaction is subject to customary regulatory approvals, stockholder approval of both companies and other customary closing conditions, and is expected to close late in the first quarter of 2017.

Patterson-UTI expects to achieve synergies in excess of $50 million and believes, excluding transaction costs, this merger will be accretive to cash flow per share.

The terms of the merger agreement were unanimously approved by the boards of directors of both companies. Additionally, Patterson-UTI has entered into a voting agreement with three shareholders of Seventy Seven Energy including BlueMountain Capital Management, Axar Capital Management and Mudrick Capital Management, who collectively represent more than 50% of the outstanding shares of common stock of Seventy Seven Energy.

Under the terms of the transaction, Patterson-UTI will acquire all of the issued and outstanding shares of common stock of Seventy Seven Energy, in exchange for approximately 49.6 million shares of common stock of Patterson-UTI. The aggregate number of shares of Patterson-UTI common stock is subject to downward adjustment if certain in-the-money Seventy Seven Energy warrants are forfeited or exercised on a net-share basis. The transaction values Seventy Seven Energy at approximately $1.76 billion, assuming the issuance of 49.6 million shares of Patterson-UTI common stock at today’s closing price of $28.67, plus approximately $336 million of Seventy Seven Energy’s debt net of cash and warrant proceeds. All of Seventy Seven Energy’s debt is expected to be repaid at the closing of the transaction. Based on the number of shares of Seventy Seven Energy common stock expected to be outstanding or deemed outstanding as of the closing date, and assuming that the in-the-money Seventy Seven Energy warrants are exercised for cash, the exchange ratio would be approximately 1.7725 shares of Patterson-UTI common stock for each share of Seventy Seven Energy common stock, and shareholders of Seventy Seven Energy would own approximately 25% of the combined company.

Patterson-UTI has the financial resources to repay Seventy Seven Energy’s indebtedness through a combination of cash on hand, borrowing under its $500 million revolving credit facility, which is currently undrawn, and through the use of a senior unsecured bridge financing commitment in the amount of $150 million that Patterson-UTI has arranged in connection with this transaction. While Patterson-UTI has the financial resources to repay Seventy Seven Energy’s indebtedness, Patterson-UTI also expects to issue additional equity in connection with closing the transaction in order to maintain Patterson-UTI’s historically conservative capital structure.

Patterson-UTI is a leading provider of contract drilling and pressure pumping services in North America. With a high-quality fleet of 161 APEX rigs, Patterson-UTI Drilling Company has a broad geographic footprint and is a leader in walking rig technology for pad drilling applications. Patterson-UTI’s pressure pumping subsidiaries have more than one million fracturing horsepower in Texas and the Appalachian region of the northeast United States, where their footprint allows for a reputation of strong regional knowledge and efficient operations.

Seventy Seven Energy provides contract drilling, pressure pumping, and oilfield rentals in many of the most active oil and natural gas plays onshore in the US. Seventy Seven Energy owns a fleet of 40 high-spec drilling rigs, approximately 93% of which are pad capable, including 28 fit-for purpose PeakeRigs. The remainder of Seventy Seven Energy’s rig fleet consists of 51 SCR rigs. Additionally, Seventy Seven Energy owns approximately 500,000 horsepower of modern, efficient fracturing equipment located in the Anadarko Basin and Eagle Ford Shale. This merger will also add a new product line to Patterson-UTI through Seventy Seven Energy’s oilfield rentals business. The Seventy Seven Energy oilfield rentals business has a modern, well maintained fleet of premium rental tools, and provides specialized services for land-based oil and natural gas drilling, completion and workover activities.

Mark S. Siegel, Chairman of Patterson-UTI, commented, “We have always held Seventy Seven Energy in high regard due to their commitment to quality service in the field, their high-quality assets and facilities, and the talent they have throughout their organization. As Seventy Seven Energy emerged from its recent financial restructuring, we saw an opportunity to engage a partner that is a great strategic fit for Patterson-UTI.”

Andy Hendricks, Patterson-UTI’s Chief Executive Officer, stated, “We are very excited to be joining forces with Seventy Seven Energy. Their contributions will allow us to further capitalize on the shifting industry fundamentals in the US oil and gas market, where customers are increasingly-focused on efficiency and high-quality execution. This merger provides both strong personnel and high quality equipment that are complementary to our existing service offerings.”

“The merger combines two strategically aligned companies into one company that will be financially well-positioned and a leader in US land,” Jerry Winchester, Seventy Seven Energy’s Chief Executive Officer, said. “Given the changes our company and industry have been through the past two years, this merger is the right decision for our shareholders, employees and the oil field services industry as a whole. This transaction will establish a company with tremendous scale, a diversified customer base and premier assets located in the most active basins in the US In closing, Patterson-UTI shares our commitment to service quality and safety, and we are excited to align ourselves with them in the coming months.”