Parker Drilling could consider non-core asset sales, M&A in tough drilling market
(MergerMarket)
Parker Drilling [NYSE:PKD], a Houston-based oil and gas drilling and rental tools company, could consider opportunistic divestitures of assets in non-core geographic areas, said CEO Gary Rich.
The company’s revenue is largely driven by a few key geographic areas, with 95% coming from Russia, the Middle East and APAC, and North America, he said. Its existing core areas are where it sees the best opportunities in a USD 55 dollar-per-barrel oil price environment, he said.
While its noncore areas in Tunisia, Colombia, Papua New Guinea, and Indonesia are less attractive, it is expensive to move rigs, so Parker would consider selling them if an offer came along, he added. It has over 70 offshore and land rigs globally.
Although the company considers acquisitions as a possible tool for strategic growth and increasing scale, the bid-ask spread is still too wide, Rich said. Parker is not pressured to make buys as it sees organic growth possibilities, particularly in its rental tools business, said Rich.
The company believes it can make the best long term returns in international markets, and it is likely to look to its existing geographies for organic growth or M&A, Rich said. Economies of scale will be increasingly important going forward, although “I’d never do a transaction just for scale,” Rich said.
Parker’s leverage is high, with USD 577m in total debt as of 30 June. That makes it more likely to opt to fund deals with cash or equity, he said. It could use some of its USD 146m in cash to do a smaller deal but would have to look at equity for a larger deal. When asked if Parker would consider a stock for stock transaction, Rich said “If it’s a good opportunity, and equity is what helps me close the transaction,” he would consider it. He said the industry is likely to see more stock transactions going forward.
At the same time, it will keep spending in line with cash flow, with caution about growth in the short term, as the current downturn has proved to be more deep and prolonged than expected, he said. Although he said he believed growth will come back to the market in Parker’s subsectors, and already is coming back into the rental tools segment, it may be slow to fully recover.
When asked whether Parker, with its stock down and its high leverage, could be vulnerable to a takeover, Rich said that while he would fulfill his duty to shareholders if an attractive proposition came along, “I think we’re capable and prepared” to succeed independently in current market conditions.
It competes with various players in each of its regions, Rich said. For example, in the Middle East it competes with Dalma Energy, a subsidiary of UAE-based Al Qahtani Investments, and in Europe it competes with UK-based KCA Deutag. KCA has been owned by Russian private equity firm Pamplona Capital Management since 2011.
Its market cap is USD 165m.
The company’s revenue is largely driven by a few key geographic areas, with 95% coming from Russia, the Middle East and APAC, and North America, he said. Its existing core areas are where it sees the best opportunities in a USD 55 dollar-per-barrel oil price environment, he said.
While its noncore areas in Tunisia, Colombia, Papua New Guinea, and Indonesia are less attractive, it is expensive to move rigs, so Parker would consider selling them if an offer came along, he added. It has over 70 offshore and land rigs globally.
Although the company considers acquisitions as a possible tool for strategic growth and increasing scale, the bid-ask spread is still too wide, Rich said. Parker is not pressured to make buys as it sees organic growth possibilities, particularly in its rental tools business, said Rich.
The company believes it can make the best long term returns in international markets, and it is likely to look to its existing geographies for organic growth or M&A, Rich said. Economies of scale will be increasingly important going forward, although “I’d never do a transaction just for scale,” Rich said.
Parker’s leverage is high, with USD 577m in total debt as of 30 June. That makes it more likely to opt to fund deals with cash or equity, he said. It could use some of its USD 146m in cash to do a smaller deal but would have to look at equity for a larger deal. When asked if Parker would consider a stock for stock transaction, Rich said “If it’s a good opportunity, and equity is what helps me close the transaction,” he would consider it. He said the industry is likely to see more stock transactions going forward.
At the same time, it will keep spending in line with cash flow, with caution about growth in the short term, as the current downturn has proved to be more deep and prolonged than expected, he said. Although he said he believed growth will come back to the market in Parker’s subsectors, and already is coming back into the rental tools segment, it may be slow to fully recover.
When asked whether Parker, with its stock down and its high leverage, could be vulnerable to a takeover, Rich said that while he would fulfill his duty to shareholders if an attractive proposition came along, “I think we’re capable and prepared” to succeed independently in current market conditions.
It competes with various players in each of its regions, Rich said. For example, in the Middle East it competes with Dalma Energy, a subsidiary of UAE-based Al Qahtani Investments, and in Europe it competes with UK-based KCA Deutag. KCA has been owned by Russian private equity firm Pamplona Capital Management since 2011.
Its market cap is USD 165m.