Helmerich & Payne’s $2 billion KCA Deutag acquisition secures rig fleet boost and top spot in largest oil & gas regions

In pursuit of further growth and diversification, U.S.-headquartered rig technologies and drilling solutions player Helmerich & Payne (H&P) has embarked on a business combination with KCA Deutag, the UK-based drilling, engineering, and technology services company. The acquisition, worth nearly $2 billion, is anticipated to elevate the global onshore drilling position, bring a rise in rig count, and enhance the combined company’s standing in America and the Middle East, which are perceived to be the two most prominent oil and gas-producing regions in the world.

The U.S. and the UK duo’s definitive agreement will see H&P shell out $1.9725 billion in cash to bring KCA Deutag into its fold, resulting in a broadened geographic and operational mix across the American and international crude oil and natural gas markets and diversified geographical exposure. This market consolidation move will enlarge Helmerich & Payne’s Middle East rig portfolio from 12 to 88 rigs, 71 of which are in Saudi Arabia, Oman, and Kuwait, turning the combined business into one of the larger rig providers in the region.

John Lindsay, President and CEO of H&P, 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.”

KCA Deutag’s asset-light offshore management contract business, alongside Kenera’s manufacturing and engineering operations, will enhance H&P’s capability in Europe and the Middle East. As a result, the acquisition will add an offshore management contract business, primarily made of 29 offshore platform rigs under management, and a manufacturing and engineering business with three facilities serving the energy industry.

Therefore, the U.S. player anticipates a boost in its international land operations from 1% on a standalone basis to around 19% on a pro forma basis, based on the 2023 operating EBITDA. On the other hand, offshore operations are forecast to go up from about 3% on a standalone basis to approximately 7% on a pro forma basis.

Joseph Elkhoury, CEO of KCA Deutag, remarked: “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.”

The combined company is positioned to have resilient revenues and cash flow and increased earnings visibility, thanks to the addition of around $5.5 billion contract backlog from KCA Deutag, supported by a blue-chip customer base. With double-digit free cash flow accretion anticipated as soon as 2025, the transaction returns are expected to exceed the cost of capital by 2026.

While anticipating around $25 million in run-rate synergies by 2026, driven primarily by cuts in overhead and procurement savings, despite little geographic overlap, 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.

The acquisition is anticipated to close before calendar 2024 year-end, subject to customary closing conditions and regulatory approvals. KCA Deutag intends to use the $1.9725 billion cash consideration to repay debt instruments and provide value realization for its existing investors.

Upon completion, H&P will remain headquartered in Tulsa, Oklahoma, and Lindsay will continue to serve as President and CEO and as a member of the H&P board. While there will be no changes to the existing board of directors, the U.S. firm will have three primary operating segments: North America Solutions, International Solutions, and Offshore Solutions.

Lindsay highlighted: “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.”