- Establishes H&P as a global leader in onshore drilling
- Immediately accretive to cash flow and free cash flow per
share
- Enhances scale and diversification, now with leading positions
in the U.S. and Middle East, the two most prominent oil and gas
producing regions in the world
- Increases H&P’s Middle East rig count(1) from 12 rigs to 88
rigs; positioning the Company as one of the largest rig providers
in the Middle East market
- Expects to maintain its high-quality investment grade credit
rating
- Adds complementary, asset-light global offshore management
contract business and manufacturing and engineering operations in
Europe and Middle East
- H&P to host a conference call to discuss its fiscal third
quarter results and transaction today at 7:30 a.m. CT
Helmerich & Payne, Inc. (NYSE: HP) (“H&P” or the
“Company”) and KCA Deutag International Limited (“KCA Deutag”)
today announced a definitive agreement under which H&P will
acquire KCA Deutag for $1.9725 billion in cash.
KCA Deutag is a diverse global drilling company. The company has
a significant land drilling presence in the Middle East, which
represents approximately two-thirds of the company’s calendar year
2023 Operating EBITDA, with additional operations in South America,
Europe and Africa. In addition to its land operations, KCA Deutag
has asset-light offshore management contract operations in the
North Sea, Angola, Azerbaijan and Canada, with super major
customers and long-term earnings visibility through a robust
backlog. KCA Deutag’s Kenera segment comprises manufacturing and
engineering businesses, including Bentec, with three facilities
serving the energy industry, representing a longer-term growth
opportunity.
President and CEO of H&P, John Lindsay, commented, “This is
a historic and transformative transaction for the Company, and we
are excited about what this means for H&P’s future, as it
accelerates our international expansion particularly in the Middle
East and enhances the Company’s global leadership in onshore
drilling solutions. KCA Deutag’s assets and operations will add
resilient revenues, providing greater earnings visibility and cash
flow generation. As a result, we expect to generate sizeable
incremental cash flows and are confident this transaction will
deliver near- and long-term growth and value creation for H&P
shareholders.
“H&P has a history of having a thoughtful and managed
approach to running and investing in the business and is well
versed in the challenges brought about by crude oil and natural gas
volatility. Our experience in the industry combined with a Middle
East market poised for continued growth should be indicative of the
importance and the compelling reasons for executing on this
acquisition at this time. Acquiring KCA Deutag gives H&P
immediate scale in core Middle East markets in a way that would be
challenging to replicate organically. Furthermore, as there is very
little geographic overlap, we view this transaction more than just
acquiring assets, but rather acquiring operations with quality
people.”
CEO of KCA Deutag, Joseph Elkhoury, also commented, “This
announcement represents a significant milestone in the strategic
transformation journey of KCA Deutag and delivers benefits to all
stakeholders: our employees, customers, shareholders and the
communities where we live and work. We look forward to joining
H&P, combining the strengths of our people together with our
geographical footprint, to create an organization with an
unrivalled global network, service capability and technology
offering. The size, scale and financial strength of the combined
organization will provide a stable foundation for long-term growth
and diversification to safeguard a sustainable and prosperous
future for our people. With similar customer-centric cultures,
focused on safety and delivering incident-free, quality services
and innovative technology, we will leverage H&Ps operational
processes and practices to accelerate efficiencies and optimize
operational excellence for our customers. Once completed, this
transaction is expected to deliver multiple growth opportunities
for our people and customers while facilitating value realization
for our investors.”
John Lindsay concluded, “As a combined company, we will maintain
our shared customer-centric approach and safety focus. We look
forward to welcoming KCA Deutag’s talented employees to the H&P
family and working together to provide exceptional performance and
value to customers across our global markets, now on a much larger
scale.”
Compelling Strategic and Financial
Benefits:
- Accelerates international growth
strategy, significantly increasing Middle East presence:
This acquisition provides immediate and significant exposure to
land operations in key markets in the Middle East, which generated
a large majority (~70%) of KCA Deutag’s calendar year 2023
Operating EBITDA. Through the transaction, H&P will increase
its Middle East rig count from 12(1) to 88 rigs, 71 of which are in
Saudi Arabia, Oman and Kuwait. Based on award activity to date, the
pro forma company would be one of the larger rig providers in the
Middle East.
- Enhances scale and
diversification: With KCA Deutag, H&P will have a
robust geographic and operational mix across the U.S. and
international crude oil and natural gas markets and diversified
geographical exposure in earnings and cash flow streams. The
transaction adds a complementary asset-light offshore management
contract business, primarily comprising 29 offshore platform rigs
under management, and a manufacturing and engineering business with
three facilities serving the energy industry. H&P expects this
transaction to grow its international land operations from ~1%(2)
on a standalone basis to ~19%(2) on a pro forma basis based on
calendar year 2023 Operating EBITDA. Offshore operations are
expected to grow from ~3%(2) on a standalone basis to ~7%(2) on a
pro forma basis based on calendar year 2023 Operating EBITDA.
- Strengthens cash flow and
durability: The Middle East rig market is expected to
continue to grow in the coming years. With an additional ~$5.5(3)
billion contract backlog from KCA Deutag, supported by a blue-chip
customer base, the Company will have highly resilient revenues and
cash flow and increased earnings visibility. On a combined company
basis, the last-twelve months (LTM) Operating EBITDA is ~ $1.2
billion.
- Generates attractive
returns: The transaction is expected to be immediately
accretive to cash flow and free cash flow per share, and
increasingly accretive thereafter, with double-digit free cash flow
accretion expected as soon as 2025. Transaction returns are
expected to exceed cost of capital by 2026.
- Committed to balanced and sustainable
financial practices and investor returns: H&P
expects to maintain its high-quality investment grade credit rating
with debt reduction a capital allocation priority for one to two
years post-close. The focus will be on reducing the
net-debt-to-Operating EBITDA ratio from 1.7x at close to at or
below 1.0x. The Company intends to maintain its current base
dividend and intends to pay the fourth and final installment of the
fiscal 2024 supplemental dividend as declared on June 5, 2024.
Thereafter, the Company does not anticipate providing a
supplemental dividend during the near-term deleveraging period. As
the Company reduces debt, it will continue to target select
investment opportunities with strong return profiles and will
consider additional opportunistic returns to shareholders beyond
the base dividend through the several years following close.
- Opportunity to realize
synergies: Despite little geographic overlap, H&P
expects to realize ~$25 million in run-rate synergies by 2026,
driven primarily by reduction in overhead and procurement savings.
H&P also expects to refinance KCA Deutag’s existing debt, which
will enable the Company to reinvest in the acquired business at a
lower cost of debt.
Transaction
Details:
Under the terms of the agreement, which has been unanimously
approved by the H&P Board of Directors, H&P will acquire
KCA Deutag International Limited for $1.9725 billion in cash. The
transaction is expected to close prior to calendar 2024 year end,
subject to customary closing conditions and regulatory
approvals.
The transaction will be funded with cash on hand and new
borrowings. Given the Company’s projected cash flow generation and
increased visibility with long-term contracts, H&P will be well
positioned to quickly reduce debt utilizing pre-payable term loans,
newly issued bonds with staggered maturities and strong cash flows.
H&P expects to refinance KCA Deutag’s existing debt at a lower
cost of capital.
Post-Close
Operations:
Following the completion of the transaction, H&P will remain
headquartered in Tulsa, Oklahoma, and John Lindsay will continue to
serve as President and Chief Executive Officer and as a member of
the H&P Board of Directors. There will be no changes to the
existing H&P Board of Directors.
Upon closing the transaction, H&P expects to have three
primary operating segments: North America Solutions, International
Solutions, and Offshore Solutions. H&P’s North America
Solutions segment will remain unchanged.
Conference Call and
Webcast:
A conference call will be held on Thursday, July 25, 2024 at
7:30 a.m. (CT) with John Lindsay, President and CEO, Mark Smith,
Senior Vice President and CFO, and Dave Wilson, Vice President of
Investor Relations, to discuss the transaction and the Company’s
third quarter fiscal year 2024 results. Dial-in information for the
conference call is (800) 343-4849 for domestic callers or (203)
518-9848 for international callers. The call access code is
“Helmerich1”. You may also listen to the conference call by logging
on to the Company’s website at http://www.helmerichpayne.com and
accessing the corresponding link through the investor relations
section by clicking on “Investors” and then clicking on “News and
Events - Events & Presentations” to find the event and the link
to the webcast and the accompanying presentation materials.
This conference call will replace the previously scheduled
conference call scheduled for 10 a.m. CT today.
Advisors:
Morgan Stanley & Co. LLC acted as financial advisor to
H&P, and Morgan Stanley Senior Funding, Inc. is providing
committed financing to H&P for the transaction. Kirkland &
Ellis LLP acted as legal advisor to H&P. Veriten has served as
independent strategic advisor, and Joele Frank, Wilkinson Brimmer
Katcher served as investor relations advisor to H&P. Moelis
& Co and PJT Partners acted as financial advisors to KCA
Deutag, and A&O Shearman acted as legal advisor.
About Helmerich & Payne,
Inc.
Founded in 1920, Helmerich & Payne, Inc. is committed to
delivering industry leading drilling productivity and reliability.
H&P operates with the highest level of integrity, safety and
innovation to deliver superior results for our customers and
returns for shareholders. Through its subsidiaries, the Company
designs, fabricates and operates high-performance drilling rigs in
conventional and unconventional plays around the world. H&P
also develops and implements advanced automation, directional
drilling and survey management technologies. For more information,
visit www.helmerichpayne.com.
About KCA Deutag
KCA Deutag is a leading drilling, engineering and technology
partner in current and future global energy markets, delivering
innovative solutions to ensure a secure, affordable and sustainable
energy future. With over 135 years of experience our global network
of operations spans 26 countries, where we employ approximately
11,000 people in our Land, Offshore and Kenera business units. We
currently operate or own 167 drilling rigs across the Middle East,
Europe, Africa, Caspian Sea, Latin America and Canada. For more
information, visit www.kcadeutag.com.
(1)
H&P’s Middle East rig count is pro
forma and includes 7 rigs that recently received tender awards to
work in Saudi Arabia and are in the process of being prepared for
operations and exported from the U.S.
(2)
Percentages of 2023 calendar year-end
Operating EBITDA based upon operating segment contributions only
and exclude corporate level amounts.
(3)
KCA Deutag’s backlog at May 1, 2024
included ~$3.8 billion in firm backlog and ~$1.7 billion in option
backlog.
Disclaimer:
This news release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical facts
included in this news release are forward-looking statements.
Forward-looking statements may be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,”
“intend,” “estimate,” “anticipate,” “believe,” “predict,”
“project,” “target,” “continue,” or the negative thereof or similar
terminology, and such include, but are not limited to, statements
regarding the proposed acquisition (the “Acquisition”) by Helmerich
& Payne, Inc. (“H&P” or the “Company”) of KCA Deutag
International Limited (“KCAD”), the anticipated benefits (including
synergies and cash flow and free cash flow accretion) of the
Acquisition, the anticipated impact of the Acquisition on the
Company’s business and future financial and operating results, the
anticipated impact of the Acquisition and the related transactions
on the Company’s credit ratings, the expected timing of the
Acquisition, including the expected closing date of the Acquisition
and the timing of expected synergies and returns from the
Acquisition, statements regarding our ability to continue to pay
dividends following the Acquisition, and statements regarding our
future financial position, estimated revenues and losses, business
strategy, projected costs, prospects and plans and objectives of
management. Forward-looking statements are based upon current
plans, estimates, and expectations that are subject to risks,
uncertainties, and assumptions, many of which are beyond our
control and any of which could cause actual results to differ
materially from those expressed in or implied by the
forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will
prove to be correct. The inclusion of such statements should not be
regarded as a representation that such plans, estimates, or
expectations will be achieved. Factors that could cause actual
results to differ materially from those expressed in or implied by
such forward-looking statements include, but are not limited to:
our ability and the time required to consummate the Acquisition;
our ability to achieve the strategic and other objectives relating
to the proposed Acquisition; the risk that regulatory approvals for
the Acquisition are not obtained or are obtained subject to
conditions that are not anticipated; the risk that we are unable to
integrate KCAD’s operations in a successful manner and in the
expected time period; the volatility of future oil and natural gas
prices; contracting of our rigs and actions by current or potential
customers; the effects of actions by, or disputes among or between,
members of the Organization of Petroleum Exporting Countries and
other oil producing nations with respect to production levels or
other matters related to the prices of oil and natural gas; changes
in future levels of drilling activity and capital expenditures by
our customers, whether as a result of global capital markets and
liquidity, changes in prices of oil and natural gas or otherwise,
which may cause us to idle or stack additional rigs, or increase
our capital expenditures and the construction, upgrade or
acquisition of rigs; the impact and effects of public health
crises, pandemics and epidemics, such as the COVID-19 pandemic;
changes in worldwide rig supply and demand, competition, or
technology; possible cancellation, suspension, renegotiation or
termination (with or without cause) of our contracts as a result of
general or industry-specific economic conditions, mechanical
difficulties, performance or other reasons; expansion and growth of
our business and operations; our belief that the final outcome of
our legal proceedings will not materially affect our financial
results; the impact of federal and state legislative and regulatory
actions and policies affecting our costs and increasing operating
restrictions or delay and other adverse impacts on our business;
environmental or other liabilities, risks, damages or losses,
whether related to storms or hurricanes (including wreckage or
debris removal), collisions, grounding, blowouts, fires,
explosions, other accidents, terrorism or otherwise, for which
insurance coverage and contractual indemnities may be insufficient,
unenforceable or otherwise unavailable; the impact of geopolitical
developments and tensions, war and uncertainty involving or in the
geographic region of oil-producing countries (including the ongoing
armed conflicts between Russia and Ukraine and Israel and Hamas,
and any related political or economic responses and
counter-responses or otherwise by various global actors or the
general effect on the global economy); global economic conditions,
such as a general slowdown in the global economy, supply chain
disruptions, inflationary pressures, currency fluctuations, and
instability of financial institutions, and their impact on the
Company; our financial condition and liquidity; tax matters,
including our effective tax rates, tax positions, results of
audits, changes in tax laws, treaties and regulations, tax
assessments and liabilities for taxes; the occurrence of security
incidents, including breaches of security, or other attack,
destruction, alteration, corruption, or unauthorized access to our
information technology systems or destruction, loss, alteration,
corruption or misuse or unauthorized disclosure of or access to
data; potential impacts on our business resulting from climate
change, greenhouse gas regulations, and the impact of climate
change related changes in the frequency and severity of weather
patterns; potential long-lived asset impairments; and our
sustainability strategy, including expectations, plans, or goals
related to corporate responsibility, sustainability and
environmental matters, and any related reputational risks as a
result of execution of this strategy.
Additional factors that could cause actual results to differ
materially from our expectations or results discussed in the
forward‑looking statements are disclosed in H&P’s 2023 Annual
Report on Form 10-K, including under Part I, Item 1A— “Risk
Factors” and Part II, Item 7— “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” thereof, as
updated by subsequent reports (including the Company’s Quarterly
Reports on Form 10-Q) we file with the Securities and Exchange
Commission. All forward-looking statements included in this
presentation and all subsequent written and oral forward-looking
statements, express or implied, are expressly qualified in their
entirety by these cautionary statements. All forward-looking
statements speak only as of the date they are made and are based on
information available at that time. Because of the underlying risks
and uncertainties, we caution you against placing undue reliance on
these forward-looking statements. We assume no duty to update or
revise these forward-looking statements based on changes in
internal estimates, expectations or otherwise, except as required
by law.
Market & Industry
Data:
The data included in this news release regarding the oil field
services industry, including trends in the market and the Company's
position and the position of its competitors within this industry,
are based on the Company's estimates, which have been derived from
management's knowledge and experience in the industry, and
information obtained from customers, trade and business
organizations, internal research, publicly-available information,
industry publications and surveys and other contacts in the
industry. The Company has also cited information compiled by
industry publications, governmental agencies and publicly-available
sources. Although the Company believes these third-party sources to
be reliable, it has not independently verified the data obtained
from these sources and it cannot assure you of the accuracy or
completeness of the data. Estimates of market size and relative
positions in a market are difficult to develop and inherently
uncertain and the Company cannot assure you that it is accurate.
Accordingly, you should not place undue weight on the industry and
market share data presented in this news release.
We use our Investor Relations website at
https://www.helmerichpayne.com/ as a channel of distribution for
material company information. Such information is routinely posted
and accessible at such site.
Use of Non-GAAP Financial
Measures:
This news release contains certain financial measures that are
not prepared in accordance with GAAP, including Operating EBITDA,
net-debt-to-Operating EBITDA and Free Cash Flow.
- Operating EBITDA is defined as Operating Income plus
depreciation and amortization and excluding the impacts of select
items. Select items are non-GAAP metrics and are excluded as they
are deemed to be outside the Company’s core business
operations.
- Net-debt-to-Operating EBITDA is defined as total debt less cash
and cash equivalents and short-term investments divided by
Operating EBITDA.
- Free Cash Flow is defined as net cash provided by/used in
operating activities less capital expenditures.
We believe that Operating EBITDA, net-debt-to-Operating EBITDA
and Free Cash Flow are useful measures to assess and understand the
financial performance of the Company. These financial measures are
not substitutes for financial measures prepared in accordance with
GAAP and should therefore be considered only as supplemental to
such GAAP financial measures.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240725290265/en/
HP Contacts: Dave Wilson,
Vice President of Investor Relations investor.relations@hpinc.com
(918) 588‑5190
Media Stephanie Higgins Director of Communications
Stephanie.Higgins@hpinc.com (918) 588-2670
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