Oil servicers sweeten the pill

Nextier Oilfield Solutions

15/06/2023 17:41

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
       NEW YORK, June 15 (Reuters Breakingviews) - The approach
of peak oil demand is bad for oil producers, but it’s worse for
companies that help dig and service new wells. A $5 billion
merger between Patterson-UTI Energy  PTEN.O  and NexTier
Oilfield Solutions  NEX.N , two small oil field services firms,
offers a way out. Touted as a merger of equals, it doesn’t
change the final destination for fossil-fuel-adjacent
industries, but it eases their passage into night.
    Big oil producers are already focusing on returning cash to
investors as they face up to the inevitable. The International
Energy Agency said on Wednesday that global demand growth is set
to nearly halt by 2028, as the use of oil in transport falls
from 2026. The prospect of softening demand reduces the
incentive to dig new wells.
    That trend is one reason Patterson-UTI and NexTier have both
delivered negative total shareholder returns since
2018. Combining the two, however, should knock out $200 million
of costs within 18 months, they reckon. Taxed and put on a
multiple of 10, that should create over $1.5 billion of value
for the two, whose total market capitalization prior to the deal
was $4.4 billion. Both stocks rallied. Decline still beckons,
but such things make it a little more bearable. (By Robert
Cyran)
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 (Editing by John Foley and Streisand Neto)
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