HOUSTON (Reuters) - Shares of Weatherford International Plc (WFT.N) fell 18 percent on Tuesday after the oilfield services company abandoned a proposed joint venture with Schlumberger (SLB.N) and instead sold its hydraulic fracturing business to Schlumberger, a bigger rival.
The deal with Schlumberger, worth $430 million, gave Weatherford roughly $100 million less than originally anticipated from the two companies’ planned OneStim joint venture.
Weatherford has suffered steep losses since the 2014 oil price downturn and has said it plans to sell units to raise cash and reduce its $7.9 billion in debt.
The lower value of the deal, coupled with the loss of potential income from the joint venture in the booming pressure pumping market, drew a negative reaction from investors on the first day of trading since the sale was announced.
In mid-afternoon trade, Weatherford’s shares were down 75 cents at $3.40. Shares of Schlumberger were up about 3 percent at $69.48.
“Early feedback from the buy side (energy hedge funds, predominantly) purports that this is a negative outcome for WFT (Weatherford), in that it is receiving less cash than originally contemplated, and is releasing the additional upside in its frac business had the JV been finalized,” according to a research note from investment bank Simmons & Co.
Pressure pumping and completions businesses have been a bright spot for U.S. oilfield services companies still recovering from the crash in oil prices. Fully booked equipment and crews have, for example, sent shares of Keane Group (FRAC.N), a smaller competitor, almost 37 percent higher since early December.
Some analysts said the sales price was reasonable based on the assets Schlumberger acquired.
“We understand around half of the Weatherford equipment is older and deeply stacked and will require refurbishment to make field ready,” wrote analysts from Sanford C Bernstein in a note on Tuesday. They added that some of the lower quality equipment may not come back.
Weatherford would have taken a 30 percent stake in OneStim, which was expected to contribute to the its earnings.
“There was a scenario whereby Weatherford may have been in a position to monetize its 30 percent stake,” said Byron Pope, a managing director in Tudor Pickering Holt’s equity research division.
"There would have been precedent for Schlumberger wanting to own 100 percent of the joint venture," he added, pointing to Schlumberger's acquisition of Cameron's ownership stake in their OneSubsea joint venture in 2016. (reut.rs/2A6tCC5)
Reporting by Liz Hampton; Editing by Steve Orlofsky