Analysts Look at SLB-ChampionX Deal

In a statement sent to Rigzone, Enverus Intelligence Research (EIR) Senior Vice President Mark Chapman outlined that SLB’s ChampionX deal is the largest transaction EIR has seen in the oilfield services market since the 2020 downturn.

“And we believe consolidation will continue for the sector,” Chapman said in the statement.

“Balance sheets are continuing to improve and margins are healthy. In previous cycles, service companies chose to invest for growth. This cycle, we expect the sector to follow their E&P peers in focusing on costs, margin, and economies of scale,” he added.

In the statement, Chapman said SLB acquiring ChampionX “is a play to capture upstream OPEX for the future”.

“Proforma, SLB will be market leaders in artificial lift and production chemicals, both of which will be in demand well into the future and less impacted by oilfield cyclicality than services for the drilling and completion of wells,” he added.

“This also provides the opportunity to sell technologies that monitor flow streams which can be monitored by AI to automate chemical program adjustments, pump maintenance, and recommend well intervention,” he continued.

Chapman noted in the statement that there is an additional upside to expanding ChampionX products through SLB’s global footprint and G&A synergies.

In a note sent to Rigzone, analysts at Raymond James said the deal “enhances SLB’s smaller production chemicals-related business by adding in the industry leader and enabling further growth opportunities outside NAM, while also bolstering SLB’s already industry-leading artificial lift position”.

“It enhances SLB’s overall tie to the production side, in a capital-light business that fits management’s strategy and should enhance free cash flow,” they added.

“The transaction value of $7.75 billion implies a ~10x multiple on consensus EBITDA expectations, prior to the realization of an expected +$400 million in synergies over a 2-3 year period of time and represents a ~15 percent premium over … [April 1’s] closing price of CHX,” they continued.

“The transaction is expected to be FCF/share accretive to 2025, and EPS accretive starting in 2026, and SLB underscored the FCF accretion by boosting its 2024 capital return to $3 billion (from $2.5 billion) and setting a preliminary 2025 target of $4 billion,” they went on to state.

In the note’s conclusion, the analysts said, overall, this was a strategic acquisition for SLB to enhance the production portion of the business to fit the growing chemical intensity and artificial lift needs of aging assets.

“The ongoing transition in operator spend towards the opex (production) side of the equation is likely one of the drivers of the transaction,” they added.

“It wasn’t necessarily cheap on the front end at ~10x, slightly above SLB’s trading multiple, but that purchase multiple should work itself lower over the coming couple years as the $400 million in annual synergies starts to become realized,” they continued.

“The asset-light footprint fits well with SLB's current strategy and should provide strong free cash flow generation throughout oilfield cycles,” they noted.

The analysts also stated in the conclusion that, “down the road, exposure of ChampionX’s businesses to increased international customers should provide revenue synergies perhaps above and beyond the near-term cost focused synergies”.

They highlighted in the conclusion that they “think the transaction makes sense overall”.

In a release sent to Rigzone on Tuesday, SLB announced a definitive agreement to purchase ChampionX in an all-stock transaction.

Under the terms of the deal, ChampionX shareholders will receive 0.735 shares of SLB common stock in exchange for each ChampionX share, the release noted, adding that, at the closing of the transaction, ChampionX shareholders will own approximately nine percent of SLB’s outstanding shares of common stock.

The transaction is subject to ChampionX shareholders’ approval, regulatory approvals, and other customary closing conditions, SLB revealed, noting that the agreement was unanimously approved by the ChampionX board of directors. It is anticipated that the closing of the transaction will occur before the end of this year.

To contact the author, email andreas.exarheas@rigzone.com