Superior Energy Services Inc. on Monday agreed to buy Complete Production Services Inc. in a cash-and-stock deal would create a formidable competitor in North America’s onshore oil and natural gas fields. The $2.7 billion purchase price is estimated to be a 62% premium to Complete’s closing share price on Friday.

Under the offer Superior, based in New Orleans, would pay 0.945 shares of its stock and $7 in cash for each share of Complete’s stock, or $32.90/share. The offer is a 29% premium to Houston-based Complete’s average price over the last two months. Superior also would assume about $650 million of debt. Once the transaction is completed, which could be by the end of this year, Superior shareholders would own about 52% of the company.

Complete has expertise in the completion and production phases of oil and gas wells — especially in hydraulic fracturing. Superior provides drilling and production-related services worldwide onshore and offshore through its rental tools, as well as integrated well intervention services and tools. Superior closed Friday trading on the New York Stock Exchange at $27.41/share, giving it a market capitalization of about $2.2 billion. Complete closed at $20.38/share, giving it a market value of $1.6 billion. By comparison, Schlumberger Ltd. has a market capitalization of about $84 billion.

Superior CEO David Dunlap said during a conference call Monday there were opportunities in the marketplace for a company with the size of a combined Superior and Complete.

“We’re not a big technology company, that’s not what we do,” he said. “We’re not here to develop new technologies” like Halliburton Co. and Schlumberger. “What companies like ours do is execute in the field and do it as efficiently as possible and offer our customers the best price.”

The combination, he said, “creates a top-tier diversified oilfield services company with the products, technologies and talented people that are critical to helping our customers create value, particularly in unconventional fields in North America. Together we will have enhanced positions in large sectors for key products and services that are high in usage intensity and deemed critical by our customers during their drilling, completion and production processes. Some of these products and services include hydraulic fracturing and other pressure pumping services, coiled tubing, well servicing, snubbing and wireline, in addition to fluid handling and production testing.”

At the end of June Complete had about 315,000 hp of pressure pumping capacity for hydraulic fracturing services in North America, Dunlap noted. However, a pro forma combination of the two companies at the end of June would have resulted in pressure pumping comprising “just under 25%” of North American land revenue and about 10% of total revenue. In addition, combined North American coiled tubing operations pro forma would have resulted in a product line representing about 15% of North American land revenue, he said.

“We anticipate that the proposed merger will also assist us in more rapidly executing our stated strategy of international expansion as the enhanced earnings and cash flow capacity of the combined entity can provide incremental capital and other resources to deploy in international markets. We expect significant operational and customer benefits from the combination, with minimal consolidation cost savings. As soon as possible, we intend to establish integration teams to clearly define the importance of employee retention.”

Complete CEO Joe Winkler said the transaction would give his shareholders “the opportunity to participate in the upside potential from both a larger position in the North American market area and exposure to growth in international markets. Together, we will possess the scale and offer the range of services necessary to compete successfully on the global stage.”

With falling oil prices and persistently low natural gas prices, oilfield services companies are said to be facing a potential downturn in the months ahead, according to energy analysts (see Daily GPI, Oct. 6). There generally are more long-term and take-or-pay contracts on pressure pumping in the North American drilling and services space, according to Raymond James & Associates Inc.

Tudor, Pickering Holt & Co. Inc.’s analysts said the numbers for Superior and Complete worked “even with a big premium” because it was a “complementary, not consolidating, transaction.” The transaction “definitely” provides “benefits to scale” with Superior adding pressure pumping, well servicing and fluid handling to the mix.

Superior expects the combination to be accretive to earnings and cash flow in 2012, excluding transaction and integration costs. The transaction also is expected to be “balance sheet neutral as measured by key leverage ratios,” it said.

Both Superior and Complete confirmed their prior guidance for 2011. However, Complete said 3Q2011 earnings would be below its prior guidance because of delayed deliveries of fluid ends that have caused “intermittent shutdowns” of several hydraulic fracturing fleets, defective components on recently deployed coiled tubing units, flooding in Pennsylvania and northern Mexico, and repositioning of one of its pressure pumping fleets from the Barnett Shale to West Texas.

The combined company would retain the name Superior and be led by Dunlap. The Superior board of directors would be expanded to include two independent Complete board members. The merger is subject to the approval by shareholders and customary approvals.

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