Hamilton, Bermuda (November 23, 2015)
On November 20, 2015, Archer Limited’s subsidiary, Archer Well Company Inc. has entered into a contribution agreement with Quintana Energy Services LP (“QES”) to contribute its Pressure Pumping, Directional Drilling, Pressure Control and Wireline divisions (“Well Services Entities”) on a cash free debt free basis. The Well Services Entities have been reported under Archer’s NAM segment.
The aggregate consideration to be paid by QES in exchange for the contribution of the Well Services Entities will consist of QES Common Units and will constitute 42% of the total Common Units in QES pursuant to closing of the transaction on a fully diluted basis. The transaction has been approved by the Boards of Directors for both parties.
The transaction is subject to customary closing conditions including regulatory approvals and bank consents and is expected to close by year end 2015.
Following the close of this transaction, Archer’s interest in the combined company will be reported as a minority equity interest. This investment as well as the North American Frac Valve division will be reported under a new reporting segment, which will be announced separately.
About Archer’s contributed Well Service Entities:
Pressure Pumping
Pressure pumping services include hydraulic fracturing and acidizing services. These services are primarily used in optimizing hydrocarbon flow paths during the completion phase of unconventional wellbores.
Directional Drilling
Archer’s Directional Drilling divisions own a diverse fleet of downhole motors as well as Measuring While Drilling tools to help its customers reach their intended target zone more efficiently. Complementing Archer’s directional drilling expertise, other directional drilling services include well planning, design of bottom hole assembly, hydraulics, torque and drag analysis, and directional drilling technology.
Pressure Control
Archer supplies a wide variety of equipment, services and expertise in support of completion and workover operations throughout North America. Its capabilities include coiled tubing, snubbing, plug setting and milling, fluid pumping, nitrogen transport, flowback equipment, pressure control services, tanks and a wide range of ancillary rental equipment such as cranes, compressors, valves and gas busters. The pressure control services equipment is tailored to the unconventional resources market with the ability to operate under high pressures without having to delay or cease production during completion operations. The pressure control services are provided through a fleet of coiled tubing units, snubbing units, nitrogen pumping units, fluid pumping units and various well control assets.
Wireline
Archer’s Wireline entity in the United States provides tight-shale reservoir perforating services across all of the major U.S. shale basins and also offers a range of associated services such as electro mechanical pipe-cutting, punching and plug setting as well as a select range of cased hole investigation and production logging services.
Together, the Well Services Entities have currently approximately 850 employees. A summary of the historical financials of Archer’s contributed business is shown below in USD millions
| Profit and loss | 2012 | 2013 | 2014 | YTD Sept.2015 |
| Total Revenue | 651,3 | 598,6 | 655,9 | 228,1 |
| Total Expenses | (692,4) | (725,4) | (682,4) | (314,6) |
| Operating Income / (loss) | (41,1) | (126,8) | (26,5) | (86,5) |
| Total financial items | (4,5) | (6,7) | (8,1) | (6,4) |
| Impairments | (230,1) | (389,4) | (16,5) | |
| Profit /(loss) before taxes | (275,7) | (522,9) | (51,1) | (92,9) |
| Income tax benefit (expense) | 64,0 | 37,6 | (3,6) | 5,1 |
| Net loss | (211,7) | (485,3) | (54,7) | (87,8) |
| non-GAAP measures | 2012 | 2013 | 2014 | YTD Sept.2015 |
| EBITDA | 62,6 | 13,2 | 63,3 | (30,2) |
| Balance | 2012 | 2013 | 2014 | YTD Sept.2015 |
| Total Assets | 1.081,4 | 613,0 | 545,8 | 414,6 |
| Equity | 790,0 | 304,7 | 261,8 | 342,0 |
| Debt | 178,4 | 179,4 | 175,1 | 4,4 |
About Quintana Energy Partners and Quintana Energy Services
Founded in 2005 by Quintana Capital Group LP, Quintana Energy Partners (QEP) is a Houston, Texas based private equity firm and manages approximately $1.0 billion in original capital commitments across two funds. Quintana Capital Group and its affiliates have owned and operated dozens of companies in the energy industry over the course of the past 25 years.
Quintana Energy Services LP (“QES”) is a growth-oriented company formed by QEP to provide a wide range of completion, production and drilling services to land-based E&P customers operating in unconventional resource plays and conventional basins throughout the United States.
About QES’ business divisions:
Completion and Production Services (“CPS”)
QES’ CPS segment provides frac, cementing and acidizing services as well as wireline, water heating and transfer and CO2 product sales and transportation.
Directional Drilling Services (“DDS”)
The DDS segment is one of the largest independent providers of domestic onshore directional drilling services with operations in leading shale plays across the US, providing horizontal and directional drilling services, downhole navigational and rental tools, and support services.
QES has currently approximately 400 employees. A summary of Quintana Energy Services historical financials is shown below in USD millions
| Profit and loss | 2012 | 2013 | 2014 | ||
| Total Revenue | $325.0 | $324.6 | $493.0 | ||
| Total Expenses | 272.8 | 284.9 | 417.1 | ||
| Operating Income/(loss) | 52.2 | 39.6 | 75.9 | ||
| Total financial items | 4.2 | 1.3 | 13.4 | ||
| Profit / (loss) before taxes | 48.0 | 38.3 | 62.5 | ||
| Income tax benefit (expense) | 1.7 | (0.1) | 0.2 | ||
| Net profit / (loss) | 46.3 | 38.4 | 62.3 | ||
| non-GAAP measures | 2012 | 2013 | 2014 | ||
| Adj EBITDA | $79.4 | $66.2 | $115.0 | ||
| Balance | 2012 | 2013 | 2014 | ||
| Assets | $220.4 | $261.3 | $337.4 | ||
| Equity | 138.3 | 159.0 | 185.7 | ||
| Liabilities | 82.1 | 102.3 | 151.6 | ||
Compelling Strategic and Benefits
The combination of the two businesses creates a leading North American service provider and adds significant scale across most product lines, which is important in the highly competitive North American land market. The combined company will not only have over 400,000 HHP to perform hydraulic fracturing and acidizing services, but also a large position in Directional Drilling, Wireline, Coiled Tubing and Snubbing. The two businesses overlap in several of their geographic markets and the combination will both increase its regional market positions and allow for the elimination of redundant field locations and overhead costs.
We believe the current downturn provides an opportunity to combine our operations in an efficient manner and position the combined company for an increased service offering, a broader customer base and an improved cost structure. QES margins have consistently been industry-leading, and we believe that we will be able to leverage best practices of both companies in order to improve the combined company’s performance. As both Archer and QES have invested heavily over the past years in state of the art equipment, we believe the combined company will be well-positioned to take advantage of a market recovery in the North American land market.
The combination of QES and the Well Services Entities creates a sizeable oil service company focused on the North American land market. In 2014, the pro forma combined Revenue and EBITDA would have been $1,149 million and $178 million, respectively. The combined company will have a relatively strong financial position with an adequate credit facility to fund operations in the foreseeable future, including integration costs. We expect that the combined company will be well-positioned for continued organic growth and further consolidation through mergers or acquisitions.
Management, Board of Directors and Headquarters
The combined company will be led by Rogers Herndon, CEO of QES, Chris Baker, COO of QES and Keefer Lehner, VP of Finance and Corporate Development of QES. The combined company will elect a new Board of Directors pursuant to the closing of the transaction. Archer will name 2 out of a total of 5 directors, with David King, Archer Limited CEO, assuming the position of Chairman of the new board and Christoph Bausch, Archer Limited CFO taking the second board seat assigned to Archer. Quintana Energy Partners will name the remaining directors prior to closing.
David King, CEO of Archer Limited said, “The improvements we have made in our North American Well Services Entities over the past year were a clear demonstration of the capabilities this business has. Its dedicated and hardworking employees are an asset to any company and I am proud of what we have achieved as a result of their contribution. I am also excited about the potential of the combined company to better serve customers, provide additional avenues for growth and create further opportunities for our people to advance.”
Rogers Herndon, CEO of QES added, “We believe this combination represents the type of opportunistic consolidation that must occur across the oil field services sector in order to address the challenges of the current market environment. As a combined platform, QES and Archer’s North American business will benefit from increased scale and a solid liquidity position. While we will be very focused on integrating the businesses and realizing the well-defined efficiencies, we will continue to explore strategic opportunities to further enhance the platform.
QES, which has corporate administrative offices in Houston, Texas, will designate Houston as its corporate headquarter.
Archer Limited has not entered into any agreements in connection with the transaction for the benefit of Archer’s senior employees or Board of Directors.
Advisors
Bank of America Merrill Lynch served as exclusive financial advisor and Andrews Kurth LLP served as legal advisor to Archer in this transaction. Simmons & Company International served as financial advisor and Vinson & Elkins LLP served as legal advisor to QES in this transaction.
This detailed stock exchange announcement is published in accordance with section 3.4 of the Continuing Obligations for companies listed on the Oslo Stock Exchange.
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CONTACTS
For Investors:
Joachim Houeland
Corporate Treasurer and Investor Relations
+47 51 30 80 00
Joachim.Houeland@archerwell.com
For Media:
Christoph Bausch
Chief Financial Officer
+44 208 811 4900
Christoph.bausch@archerwell.com