Houston-based C&J Energy Services and Keane Group Inc. on Monday agreed to combine their estimable completions and production services operations in an all-stock tie-up valued at about $1.8 billion.

The merger, expected to be completed by year’s end, would total 2.3 million hydraulic horsepower (hhp), including 50 fracture fleets, 158 wireline trucks, 81 pump down units, 28 coiled tubing units, 139 cementing units and 364 workover rigs.

The oilfield services (OFS) footprint across the Lower 48 would extend into every major producing region including the Permian and Appalachia basins, Eagle Ford Shale, Midcontinent, Rockies/Bakken formations and in California.

Keane and C&J shareholders each would own 50% of the equity of the combined company; the share exchange is expected to be tax-free.

"The merger of equals unites two great companies, resulting in a broader portfolio of well completion services across an even greater footprint in the U.S., benefiting our combined employees, shareholders, customers, suppliers and the communities in which we operate," said Keane CEO Robert Drummond, who will serve as the combined company’s CEO and president.

"With two strong teams, enhanced and diversified operations, a strong balance sheet, ample liquidity, attractive free cash flow and a legacy of successful research and development, the combined company will be well positioned to further invest in technology and innovation, as well as the career development of our employees to drive sustainable growth in our dynamic industry.”

Keane has found a partner “equally committed to our strong employee culture with a focus on safety and customers, with whom we are eager to join forces to leverage our combined resources and strengths,” Drummond added.

Under terms of the agreement, which has been unanimously approved by each board, C&J shareholders would trade each share for 1.6149 shares of Keane. C&J also would be allowed to pay a cash dividend of $1.00/share before the deal is completed.

On a pro-forma basis as of the end of March, the combined company would have about $4.2 billion in net revenue with $686 million in operating cash flow. Within a year of closing, annualized run-rate cost synergies are estimated at $100 million.

"This agreement to merge C&J and Keane underscores the highly complementary nature of our two platforms and cultures,” C&J CEO Don Gawick said. “We are excited by the many strategic and financial benefits of this combination, including the opportunities for our employees from the greater scale and enhanced capabilities of the combined company.

“For the customers and markets we serve, our people will continue to deliver the highest level of customer service with quality, safety, integrity and innovation. Given the shared safety focus and passion for excellence of our highly talented workforces, I am confident that the opportunity to leverage each other's strengths will enable a combined organization where the sum of both parts makes a much greater whole.”

C&J Chair Patrick Murray is to serve as the new company’s board chair. C&J CFO Jan Kees van Gaalen would remain CFO, while Keane CFO Gregory Powell has been named chief integration officer. The combined 12-member board would be split equally with six each from the C&J and Keane boards.

The corporate name and new ticker symbol is to be announced before the transaction is completed. Headquarters would remain in Houston.

Keane Investor Holdings LLC, which includes an affiliate of Cerberus Capital Management LP, Keane family and some management, owns about 49% of the outstanding shares and has entered into a support agreement in favor of the transaction.

For Keane, Citi is serving as financial adviser, and Schulte Roth & Zabel LLP is serving as legal adviser. Lazard is serving as financial adviser, and Simpson Thacher & Bartlett is serving as legal adviser to the Keane board’s special committee.

C&J has Morgan Stanley & Co. LLC as lead financial adviser, and J.P. Morgan Securities LLC also is serving as a financial adviser. Kirkland & Ellis is serving as legal adviser.

“We have spoken about the need for consolidation in the OFS sector and the likelihood that it would follow the roll up being experienced in exploration and production,” Evercore ISI analysts said in reaction to the merger.

“This transaction marks the start of what we believe will be further consolidation in the onshore North American oilfield services market, which will help improve industry structure and returns. We have stressed the need for greater market power to push pricing higher and how scale will be important to reduce capex and improve internal efficiencies.”

The latest combination is expected to “encourage other players to put egos aside and see the same need for consolidation to improve returns across the industry.”

According to Tudor, Pickering, Holt & Co. Inc., the combined company would become the third largest U.S. pressure pumper behind No. 1 Halliburton Co. and Schlumberger Ltd. The “consolidation is certainly nice to see, but we'll need (much) more to notably enhance pressure pumping industry structure.”