Berkshire Hathaway Inc.'s Lubrizol Corp. agreed Monday to buy two Weatherford International plc oilfield chemicals businesses based in Texas that provide drilling fluids mostly for North America markets.
The cash transaction for Weatherford’s Engineered Chemistry and Integrated Industries units is valued at $750 million but could increase by up to $75 million based on performance. The deal is set to close before the end of the month.
About 75% of Weatherford's drilling stimulation business now is U.S.-based.
"This proposed acquisition provides us a new growth platform as we build out a multi-billion business in specialty chemicals and drilling fluids for the oilfield space," Lubrizol CEO James L. Hambrick said. "With the addition of the companies' technologies, combined with improved fluid formulation and applications knowledge, Lubrizol will be better positioned to innovate more quickly and become a solutions provider for both multinational oilfield service companies as well as more regional customers, which have a significant share of the North American market...
"For us, it is a decisive move into a large adjacent market space that, we believe, will value the combined technologies, fluid formulation capabilities and applications knowledge of our legacy and newly acquired businesses."
Hambrick, who sold Lubrizol to Berkshire for $9 billion in 2011, was tapped last year to oversee growth (see Daily GPI, Dec. 31, 2013). In April, Lubrizol expanded its Energy and Water business unit to allow it to focus on the oilfield, refinery process and industrial water treatment chemicals markets. The expansion included more laboratory facilities in Houston with additional research and development capabilities.
Weatherford's Engineered Chemistry, also headquartered in Houston, supplies additives and fluids for a range of oilfield activities, including cementing, drilling, flow assurance and hydraulic fracturing. It operates 10 sites located predominantly in North America. Integrity Industries, with 14 locations, is based in Kingsville, TX, and manufactures drilling fluid systems, including diesel, mineral oil and synthetic oil-based fluids.
Once the transaction is complete, the two Weatherford units would become Lubrizol Oilfield Solutions and would operate independently within Berkshire's portfolio. The business would join Lubrizol Additives and Lubrizol Advanced Materials. Lubrizol's main headquarters are in Wickliffe, OH; it has 7,500 employees worldwide.
Weatherford, based in Switzerland, operates in more than 100 countries and is the fourth largest global oilfield services operator behind Schlumberger Ltd., and Halliburton Co. and Baker Hughes Inc., which are merging. Weatherford has been slimming down its operations and plans to use the proceeds from the latest sale to further pay down debt.
"This transaction brings our realized cash divestiture proceeds to approximately $1.8 billion during 2014 and implies that our net debt will range between $6.6 billion to $6.8 billion at year-end 2014," said Weatherford CEO Bernard J. Duroc-Danner. "This is substantial progress.
“These divested businesses represent attractive growth platforms for Lubrizol, a technology-driven specialty chemicals company with strong leadership and innovation. The transaction provides Lubrizol the opportunity to leverage Weatherford's oilfield engineered chemistry and fluid expertise to the benefit of its clients."
Weatherford's oilfield chemicals business, mostly U.S.- and Canada-based, has been underperforming of late. While its core product lines grew by 8% sequentially, the stimulation chemicals offerings had been weighing on earnings.
During a conference call in October to discuss third quarter results, COO Dharmesh Mehta said the stimulation margins were suffering "because of steep cost increases in proppants and associated logistics costs."
Weatherford's core product lines grew by 8% sequentially in 3Q2014, with the core operating income rising to 17.9% from 16.5% in 2Q2014. However, absent U.S. stimulation in 2Q2014, core product lines grew by 9% sequentially to $2.9 billion, while the core operating income rose 200 basis points to 20.1% from 18.1%.