C&J Energy Services (NYSE: CJES) announced yesterday that it plans to combine with Nabors Industries' (NBR -0.69%) completion-and-production business and create a top five fracking services company. The $2.86 billion deal will catapult the combined entity into a major player in North American oil-field services. Let's look at what the deal means to investors and the industry.
Broadening the base
This tie-up is a highly complementary deal that significantly enhances the scale of the combined entity. As the following map shows, there's a lot of overlap in U.S. shale plays and the combined entity will also have a significant presence in both California and Canada.
Source: C&J Energy Services Investor Presentation (link opens a PDF).
While broadening that reach is an important aspect of the combination, the enhanced scale in key shale basins is what matters most. Here we see the combined entity growing its scale in the Bakken, Permian Basin, Eagle Ford, Marcellus, and Mid-Continent. All of these are important shale-focused growth basins.
As this next slide shows, the combination is taking C&J's premier positions in key shale plays and broadening that reach by combining with Nabors' larger scale and diversifying it into production services.
Source: C&J Energy Services.
Nabors Industries' completion-and-production services business has the second-largest work over rig fleet in the U.S. and Canada and the largest fluids management truck fleet in the U.S. It also brings significant pressure pumping capacity, now extending C&J Energy Services' pressure pumping capabilities into the Bakken and Marcellus.
Furthermore, the deal adds the growing production services business to C&J's offering, which the company says is expected to grow into a $6 billion industry this year. This segment takes over after a well is completed and will extend the revenue opportunities for C&J Energy Services. The company will be able to earn additional revenue on fluids management and disposal of produced water, as well as working over wells in the future to improve production.
A new number to call
This deal does turns C&J from a premier completion services provider to more of a one-stop-shop oil-field services company. It gives customers another option in oil-field services, as many are seeking a consolidated offering instead of contracting with many companies for different aspects of the drilling process.
Basically, C&J Energy Services was the company that was called upon to tackle the toughest fracking jobs. Now it can better compete with more well-rounded service providers thanks to an expanded offering of services. This gives diversified exploration and production companies another option.
Investor takeaway
With one deal, C&J Energy Services has transformed from a niche premium completion service provider to an all-around oil-field service provider. It is also becoming a top five player in fracking services, which will enable it to better compete to steal market share from smaller rivals. This transformation could spur additional consolidation in the sector, as scale is what's winning in shale.
