Nine Energy Service, Inc. (NINE - Free Report) announced that it has agreed to acquire Magnum Oil Tools International, LTD, for roughly $493 million. The transaction comprises cash consideration of approximately $334 million along with stock consideration of 5 million Nine Energy shares.
Investors should know that the cash transaction will likely be financed by Nine Energy – an oilfield services firm – through note offerings, cash balances along with borrowings under new credit facility.
The agreement for the acquisition reflects Nine Energy’s intention of gaining access to premium equipment or downhole tools of Magnum that are utilized for more efficiently drilling oil and natural gas wells as well as for well completion activities. Notably, Nine Energy believes that the acquisition will likely place it advantageously in shale resources, especially Permian basin, where there is a constraint in labor supply.
The deal is expected to be highly accretive to Nine Energy’s shareholders given that the overall business scenario is favorable for all leading oilfield services providers like Schlumberger Limited (SLB - Free Report) , Halliburton Company (HAL - Free Report) and Weatherford International plc .
In other words, the improving oil and natural gas prices are leading energy explorers to continue to produce oil and gas volumes at record levels. Per data provided by U.S. Energy Information Administration (EIA), the monthly average spot prices of West Texas Intermediate (WTI) crude for July, August and September of 2018 were recorded at $70.98 per barrel, $68.06 per barrel and $70.23 per barrel, respectively. The average commodity prices were significantly higher than $46.63, $48.04 and $49.82 for the respective months of July, August and September of 2017.
With more upstream activities, there will likely be increased demand for oilfield services players for drilling wells efficiently. Hence, with the proposed acquisition, Nine Energy is anticipated to be in a better position for gaining contracts.
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