Helmerich & Payne, Inc. (NYSE: HP) (“H&P” or the “Company”) and KCA Deutag International Limited (“KCA Deutag”) today announced a definitive agreement under which H&P will acquire KCA Deutag for $1.9725 billion in cash.

KCA Deutag is a diverse global drilling company. The company has a significant land drilling presence in the Middle East, which represents approximately two-thirds of the company’s calendar year 2023 Operating EBITDA, with additional operations in South America, Europe and Africa. In addition to its land operations, KCA Deutag has asset-light offshore management contract operations in the North Sea, Angola, Azerbaijan and Canada, with super major customers and long-term earnings visibility through a robust backlog. KCA Deutag’s Kenera segment comprises manufacturing and engineering businesses, including Bentec, with three facilities serving the energy industry, representing a longer-term growth opportunity.

President and CEO of H&P, John Lindsay, commented, “This is a historic and transformative transaction for the Company, and we are excited about what this means for H&P’s future, as it accelerates our international expansion particularly in the Middle East and enhances the Company’s global leadership in onshore drilling solutions. KCA Deutag’s assets and operations will add resilient revenues, providing greater earnings visibility and cash flow generation. As a result, we expect to generate sizeable incremental cash flows and are confident this transaction will deliver near- and long-term growth and value creation for H&P shareholders.

“H&P has a history of having a thoughtful and managed approach to running and investing in the business and is well versed in the challenges brought about by crude oil and natural gas volatility. Our experience in the industry combined with a Middle East market poised for continued growth should be indicative of the importance and the compelling reasons for executing on this acquisition at this time. Acquiring KCA Deutag gives H&P immediate scale in core Middle East markets in a way that would be challenging to replicate organically. Furthermore, as there is very little geographic overlap, we view this transaction more than just acquiring assets, but rather acquiring operations with quality people.”

CEO of KCA Deutag, Joseph Elkhoury, also commented, “This announcement represents a significant milestone in the strategic transformation journey of KCA Deutag and delivers benefits to all stakeholders: our employees, customers, shareholders and the communities where we live and work. We look forward to joining H&P, combining the strengths of our people together with our geographical footprint, to create an organization with an unrivalled global network, service capability and technology offering. The size, scale and financial strength of the combined organization will provide a stable foundation for long-term growth and diversification to safeguard a sustainable and prosperous future for our people. With similar customer-centric cultures, focused on safety and delivering incident-free, quality services and innovative technology, we will leverage H&Ps operational processes and practices to accelerate efficiencies and optimize operational excellence for our customers. Once completed, this transaction is expected to deliver multiple growth opportunities for our people and customers while facilitating value realization for our investors.”

John Lindsay concluded, “As a combined company, we will maintain our shared customer-centric approach and safety focus. We look forward to welcoming KCA Deutag’s talented employees to the H&P family and working together to provide exceptional performance and value to customers across our global markets, now on a much larger scale.”

Compelling Strategic and Financial Benefits:

• Accelerates international growth strategy, significantly increasing Middle East presence: This acquisition provides immediate and significant exposure to land operations in key markets in the Middle East, which generated a large majority (~70%) of KCA Deutag’s calendar year 2023 Operating EBITDA. Through the transaction, H&P will increase its Middle East rig count from 12(1) to 88 rigs, 71 of which are in Saudi Arabia, Oman and Kuwait. Based on award activity to date, the pro forma company would be one of the larger rig providers in the Middle East.

• Enhances scale and diversification: With KCA Deutag, H&P will have a robust geographic and operational mix across the U.S. and international crude oil and natural gas markets and diversified geographical exposure in earnings and cash flow streams. The transaction adds a complementary asset-light offshore management contract business, primarily comprising 29 offshore platform rigs under management, and a manufacturing and engineering business with three facilities serving the energy industry. H&P expects this transaction to grow its international land operations from ~1%(2) on a standalone basis to ~19%(2) on a pro forma basis based on calendar year 2023 Operating EBITDA. Offshore operations are expected to grow from ~3%(2) on a standalone basis to ~7%(2) on a pro forma basis based on calendar year 2023 Operating EBITDA.

• Strengthens cash flow and durability: The Middle East rig market is expected to continue to grow in the coming years. With an additional ~$5.5(3) billion contract backlog from KCA Deutag, supported by a blue-chip customer base, the Company will have highly resilient revenues and cash flow and increased earnings visibility. On a combined company basis, the last-twelve months (LTM) Operating EBITDA is ~ $1.2 billion.

• Generates attractive returns: The transaction is expected to be immediately accretive to cash flow and free cash flow per share, and increasingly accretive thereafter, with double-digit free cash flow accretion expected as soon as 2025. Transaction returns are expected to exceed cost of capital by 2026.

• Committed to balanced and sustainable financial practices and investor returns: H&P expects to maintain its high-quality investment grade credit rating with debt reduction a capital allocation priority for one to two years post-close. The focus will be on reducing the net-debt-to-Operating EBITDA ratio from 1.7x at close to at or below 1.0x. The Company intends to maintain its current base dividend and intends to pay the fourth and final installment of the fiscal 2024 supplemental dividend as declared on June 5, 2024. Thereafter, the Company does not anticipate providing a supplemental dividend during the near-term deleveraging period. As the Company reduces debt, it will continue to target select investment opportunities with strong return profiles and will consider additional opportunistic returns to shareholders beyond the base dividend through the several years following close.

• Opportunity to realize synergies: Despite little geographic overlap, H&P expects to realize ~$25 million in run-rate synergies by 2026, driven primarily by reduction in overhead and procurement savings. H&P also expects to refinance KCA Deutag’s existing debt, which will enable the Company to reinvest in the acquired business at a lower cost of debt.

Transaction Details:

Under the terms of the agreement, which has been unanimously approved by the H&P Board of Directors, H&P will acquire KCA Deutag International Limited for $1.9725 billion in cash. The transaction is expected to close prior to calendar 2024 year end, subject to customary closing conditions and regulatory approvals.

The transaction will be funded with cash on hand and new borrowings. Given the Company’s projected cash flow generation and increased visibility with long-term contracts, H&P will be well positioned to quickly reduce debt utilizing pre-payable term loans, newly issued bonds with staggered maturities and strong cash flows. H&P expects to refinance KCA Deutag’s existing debt at a lower cost of capital.

Post-Close Operations:

Following the completion of the transaction, H&P will remain headquartered in Tulsa, Oklahoma, and John Lindsay will continue to serve as President and Chief Executive Officer and as a member of the H&P Board of Directors. There will be no changes to the existing H&P Board of Directors.

Upon closing the transaction, H&P expects to have three primary operating segments: North America Solutions, International Solutions, and Offshore Solutions. H&P’s North America Solutions segment will remain unchanged.

Conference Call and Webcast:

A conference call will be held on Thursday, July 25, 2024 at 7:30 a.m. (CT) with John Lindsay, President and CEO, Mark Smith, Senior Vice President and CFO, and Dave Wilson, Vice President of Investor Relations, to discuss the transaction and the Company’s third quarter fiscal year 2024 results. Dial-in information for the conference call is (800) 343-4849 for domestic callers or (203) 518-9848 for international callers. The call access code is “Helmerich1”. You may also listen to the conference call by logging on to the Company’s website at http://www.helmerichpayne.com and accessing the corresponding link through the investor relations section by clicking on “Investors” and then clicking on “News and Events - Events & Presentations” to find the event and the link to the webcast and the accompanying presentation materials.

This conference call will replace the previously scheduled conference call scheduled for 10 a.m. CT today.

Advisors:

Morgan Stanley & Co. LLC acted as financial advisor to H&P, and Morgan Stanley Senior Funding, Inc. is providing committed financing to H&P for the transaction. Kirkland & Ellis LLP acted as legal advisor to H&P. Veriten has served as independent strategic advisor, and Joele Frank, Wilkinson Brimmer Katcher served as investor relations advisor to H&P. Moelis & Co and PJT Partners acted as financial advisors to KCA Deutag, and A&O Shearman acted as legal advisor.