UPDATE 4-Nabors to buy Superior Well Services for $735.6 mln

Mon Aug 9, 2010 2:05pm EDT

* Superior Well valued at $22.12 a share, 21 pct premium

* Deal valued at $900 mln, including debt

* Deal to help Nabors' pressure pumping ops; 2011 results

* Superior Well posts surprise Q2 profit

* Superior Well stock up 21 pct, Nabors up 2 pct (Updates with deal value excluding debt; adds analyst comment)

By Krishna N. Das

BANGALORE, Aug 9 (Reuters) - Nabors Industries Ltd (NBR.N), the world's largest land-rig contractor, agreed to buy oilfield services company Superior Well Services Inc SWSI.O for about $735.6 million to boost its pressure pumping operations, a key requirement for shale drilling.

Oil services firms with the technological expertise in the drilling methods, including rock fracturing, required in shale hotspots like the Marcellus, Eagle Ford and the oil-rich Bakken in the U.S., offer larger firms the technology to tap the abundant resources in such unconventional plays.

Superior Well is the top independent player in the pressure pumping business, and gives Nabors control of over 430,000 hydraulic fracturing horsepower -- crucial for horizontal drilling in shale plays. Pressure pumping deals with pumping a fluid down a well to improve production.

Superior Well also posted strong second-quarter results as revenue from its technical pumping services more than doubled, contributing about 92 percent of total revenue.

Nabors' offer of $22.12 per Superior Well share is a premium of about 21 percent to Superior Well's closing price Friday on Nasdaq. Including Superior Well's debt of about $165 million, the deal is valued at about $900 million.

Shares of Superior Well were up 21 percent to a new 52-week high of $22.03, while Nabors' stock was up more than 2 percent at $18.41 on the New York Stock Exchange.

Ever since the BP (BP.L) (BP.N) oil spill, which has hammered the shares of offshore firms, companies which have solely onshore operations have risen, with Superior Well's stock jumping more than 36 percent in the last three months.

"Superior Well Services' broad U.S. presence complements that of both our U.S. land drilling and well-servicing operations and augments our expansion into areas such as the Marcellus shale region," Gene Isenberg, chief executive of Nabors, said in a statement.

The Marcellus shale is one of the top unconventional gas producing regions in the continental United States, attracting players as diverse as international oil and gas giants, like India's Reliance Industries (RELI.BO), to private-equity firms like KKR (KKR.N). [ID:nSGE65S0E9]

The number of horizontal rigs used to extract gas from shale in the United States rose 25 to a record high 878, according to a report on Friday by Baker Hughes. [ID:nN06257955]

Nabors had previously announced plans to use the $2 billion it wants to raise from asset sales in the next year to buy other assets or pay back debt.

"This adds one more business line to Nabors story that is already complicated with international/domestic land/offshore drilling, well servicing, E&P, manufacturing (operations). Near-term evaluation by Street will be US-centric," Tudor Pickering Holt analysts said in a note.

Nabors, whose stock has fallen about 7 percent in the past three months, had also outlined plans to sell its British Columbia shale interests, Colombia oil assets and has plans for an initial public offering of its NFR Energy joint venture. [ID:nN28214733]

SURPRISE ACQUIRER

This is the third deal in the pressure pumping space within a year -- with Patterson-UTI's (PTEN.O) offer for Key Energy Services' (KEG.N) operations last month being the most recent -- and the acquisitions may not yet be over. [ID:nSGE6650F0]

"This is a pretty full price at about $2,000 per unit of horsepower...the Patterson-Key deal was done at under $1,000 per unit of horsepower," BMO Capital Markets analyst Michael Mazar told Reuters.

"I was not surprised to see Superior Well taken over...but I was surprised at who the buyer was."

The oil field services sector, led by Halliburton Co (HAL.N) and Schlumberger Ltd (SLB.N) and Baker Hughes Inc (BHI.N), has been consolidating to better compete for projects that require multiple services, while betting on a recovery in the North American natural gas market. [ID:nBNG500189]

Besides Superior Well, other service firms like Superior Energy Services (SPN.N) and Parker Drilling Co (PKD.N), have also been touted as possible acquisition targets of the larger, cash-rich oilfield service companies. [ID:nSGE63D0AC]

Holders of about 34 percent of Superior Well's outstanding stock have agreed to tender their shares to Nabors, which expects the deal to add significantly to its 2011 results.

The acquisition is expected to close by the end of the third quarter, and has a termination fee of about $22.5 million payable to Nabors.

UBS Investment Bank and Milbank, Tweed, Hadley & McCloy LLP acted as advisors to Nabors, while Simmons & Co International and Latham & Watkins LLP advised Superior Well.

Superior Well posted a second-quarter profit of $6.1 million, or 18 cents a share, compared with a net loss of $37.9 million, or $1.66 a share, a year ago. [ID:nASA00MOU]

Revenue nearly doubled to $176 million, as technical pumping services rose 109.6 percent to $161.6 million.

Analysts, on an average, had expected the company to post a loss of 10 cents a share, on revenue of $142.7 million, according to Thomson Reuters I/B/E/S. (Reporting by Antonita Madonna Devotta and Krishna N. Das in Bangalore; Editing by Aradhana Aravindan and Savio D'Souza)

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