Patterson UTI-Energy (NASDAQ:PTEN) -3.2% and NexTier Oilfield Solutions (NYSE:NEX) -4.5% in Friday’s trading, giving back a chunk of gains that followed yesterday’s news of a merger of equals creating a business whose combined 3.3M fracking horsepower will make it the largest pressure pumper by capacity in North America, slightly larger than Halliburton (HAL).
Citi downgraded NexTier (NEX) to Neutral from Buy with a $9.75 price target, aligning with the bank’s Neutral rating on Patterson-UTI (PTEN), citing weakening industry fundamentals and likely negative revisions ahead that already are discounted in the current stock price.
Citi applauded the merger and sees longer-term value in the stocks but likely not realized until the industry slowdown ends.
The bank sees a flattish U.S. drilling environment in 2023 while supply should expand modestly as drillers reactivate capacity, which suggests stagnant spot rates at a minimum but with risk of downward pressure and negative revisions is supply growth does not abate.
J.P. Morgan analysts said the deal may be a response to the deteriorating North American fundamentals, with demand for drilling and fracking services fading against a background of lower commodity prices, notably for natural gas.
JPM said frac levered stocks have meaningfully outpaced their U.S. land drilling peers YTD, as frac fundamentals have held in better than the demand for land rigs.
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