When Weatherford International (WFT) announced that it had named Halliburton (HAL) CFO Mark McCollum its new CEO, its shares jumped as some observers contended it increased the odds of an acquisition by the oil-services giant.
it looks like they picked the wrong oil-services giant, however, as Weatherford and Schlumberger (SLB) announced a joint venture late Friday, one that has sent Weatherford’s shares soaring and earned it an upgrade from Wells Fargo analysts Judson Bailey and Coleman Sullivan. They explain why:
We are upgrading WFT to Outperform from Market Perform as we like the hire of Mark McCollum as CEO and now the formation of the OneStim JV, which gives us greater confidence in improving operations and the de-levering of the balance sheet long-term.
We view the JV announcement between WFT and SLB late Friday as a positive outcome for WFT as it provides an immediate cash infusion of $535 MM and a 30% stake in what will likely be a stronger #2 competitor to HAL in NAM pressure pumping/completion services.
We value the OneStim JV today at approximately $4 Bn ($1.2 Bn to WFT) with the potential for value uplift to $6-7 Bn assuming SLB improves utilization for WFT’s pressure pumping assets.
SLB (OW, $89 PT) and WFT (UW, $3.75 PT) announced they will contribute some of their core completion competencies into an NAM joint venture operating as OneStim, which will include the frac assets of both (~2.5 mil. HHP total).
We are positive on this JV from WFT’s standpoint as WFT’s U.S. land pressure pumping business was closed during 4Q16; now it can once again realize value from in the form of equity holdings and partnership with a globally recognized OFS leader.
This will benefit SLB too, as OneStim will take rank as one of the largest U.S. land pressure pumpers and compete more competitively with rival HAL (OW, $57 PT), who just last week announced aggressive HHP growth plans.
We see SLB/WFT as winners, while omnipresent competition in U.S. land remain longer term concerns for us on sustainability of pricing increases.
Shares of Weatherford International have risen 10% to $$6.45, while Schlumberger has fallen 0.9%% to $76.28, and Halliburton has dropped 2.9% to $$47.96. The VanEck Vectors Oil Services ETF has declined 0.9% to $29.42.