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Schlumberger to Combine U.S. Fracking Business With Liberty

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Schlumberger Limited (SLB - Free Report) recently agreed to contribute the onshore hydraulic fracturing business in the United States and Canada, known as OneStim, to its smaller rival Liberty Oilfield Services Inc. (LBRT - Free Report) for a 37% stake in the combined entity.

Oil price crash amid the coronavirus pandemic has significantly affected upstream companies in the past few months, which in turn impacted their spending decisions. Oilfield services providers are struggling for new contracts amid conservative spending by clients, intended to save cash. The volatile environment has pushed several energy companies to look for options like restructuring, consolidations, acquisitions and others.

Per the latest deal, Schlumberger will combine pressure pumping, pump-down perforating and Permian frac sand businesses with Liberty’s operations. The deal is expected to be closed within fourth-quarter 2020, which will likely create one of the biggest pressure pumping firms in North America. The agreement states that the current management team of Liberty will keep leading the company amid these unprecedented times, while two directors designated by Schlumberger will be incorporated in Liberty’s board of directors.

The sweet spot of the agreement is that it will create a company with pro-forma market capitalization of $1.2 billion, and a robust balance sheet having ample liquidity and no debt. This will provide the combined entity with significant financial flexibility. The combined company will provide efficient and innovative frac operations for clients. Notably, 2019 pro-forma revenues of the entity were $5.2 billion, the third highest in North America.

Companies like Weatherford International and Baker Hughes Company (BKR - Free Report) have made similar moves to exit from the region over the past few years. Halliburton Company (HAL - Free Report) is currently among the few global providers of well completion that is still operating in the domestic shale plays. However, it is looking for better growth opportunities outside.

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