Helmerich & Payne’s (H&P) planned $1.97-billion purchase of KCA Deutag will give the Tulsa, Oklahoma-based drilling company a solid operating footprint in the Middle East.
The two companies announced the deal, expected to close later this year subject to meeting customary closing conditions and regulatory approvals, on 25 July.
“It’s a transformational deal that accelerates the international growth we've been talking about for years,” H&P President and Chief Executive Officer John Lindsay said during a conference call discussing the acquisition.
Mark Smith, H&P senior vice president and chief financial officer, said during the conference call that the purchase is particularly attractive because of KCA Deutag’s Middle East presence. That scale, he said, is otherwise “hard to replicate” in that region.
The acquisition increases H&P’s rig count in the Middle East from a dozen rigs to 88 rigs–71 of which are in Saudi Arabia, Oman, and Kuwait–to position H&P as one of the largest rig providers in a market expected to see demand increase over the next few years.
To Lindsay, the transaction is about more than the rigs.
“Acquiring KCA Deutag gives H&P immediate scale in core Middle East markets in a way that would be challenging to replicate organically,” he said in a press release. “Furthermore, as there is very little geographic overlap, we view this transaction more than just acquiring assets, but rather acquiring operations with quality people.”
KCA Deutag’s assets are mostly conventional drilling rigs while H&P’s rigs have trended toward unconventional over the past 15 years.
“We really like the fleet they have, and more importantly, the customers like the fleet they have,” he said during the call. KCA has invested “a lot” in the rigs over the years, he said, and “we feel really good about the fleet.”
Smith said KCA couldn’t achieve the “level of performance they are achieving if the equipment weren’t well maintained.”
KCA Deutag CEO Joseph Elkhoury said in a press release, “The size, scale and financial strength of the combined organization will provide a stable foundation for long-term growth and diversification.”
Earlier this month, KCA Deutag wrapped up its own transformational acquisition, that of Saipem Onshore Drilling for $550 million. KCA Deutag announced in June 2022 it was acquiring Saipem’s onshore drilling operations to grow its footprint in the Middle East and Latin America
H&P Expansion
H&P started its Middle East expansion strategy in 2020 and initially explored the KCA Deutag opportunity in 2022. H&P later secured work in Saudi Arabia for eight rigs, which it exported from the Middle East.
In addition to Middle East business, H&P’s KCA transaction will add an asset-light offshore management contract business that primarily comprises 29 offshore platform rigs under management and KCA Deutag’s Kenera manufacturing and engineering business.
H&P expects this transaction to grow its international land operations from about 1% on a standalone basis to about 19% on a pro forma basis based on calendar year 2023 operating earnings before interest, taxes, depreciation, and amortization (EBITDA). Offshore operations are expected to grow from about 3% on a standalone basis to around 7% on a pro forma basis based on calendar year 2023 operating EBITDA.
Even though there is little geographic overlap between the two businesses, H&P does expect to realize about $25 million in synergies by 2026, mostly due to reducing overhead and procurement savings.
“We’ve had many months of due diligence,” said Smith, who announced his upcoming retirement from H&P in February. “We’ve thought about this a long time.”
H&P expects the purchase, funded by cash on hand and new borrowings, to immediately increase the company’s value, and said it expects that by 2026, the profit generated from the deal will be greater than the cost of acquiring the funds used for the purchase.
H&P will keep its headquarters in Tulsa, and John Lindsay will continue to serve as president and CEO. Upon closing the transaction, H&P expects to have three primary operating segments: North America Solutions, International Solutions, and Offshore Solutions, with the North America Solutions segment remaining unchanged.
