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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (47412)	7/6/1999 12:34:00 PM
From: Tomas	Respond to of 95453

Equity firm drives oil service consolidation - Houston Business Journal, July 5 Ann De Rouffignac L.E. Simmons, general partner of SCF Partners, directed a pair of consolidation plays in the oil patch last week. Simmons is behind the merger of four drill pipe distribution companies to form the largest distributor in North America. Sales of the new company, to be named Sooner Inc., will exceed half a billion dollars. Simmons was also instrumental in Houston-based Tuboscope Inc.'s announced acquisition of Newpark Resources in a stock deal valued at about $650 million. Both deals were hailed by energy insiders as needed in the patch as the oil service industry adjusts to a lower rig count -- even during the up cycles. SCF Partners, a private investment firm that manages $1 billion in equity funds, will have an 80 percent stake in the closely-held drill pipe distributor and 16 percent of the stock of Tuboscope after the purchase of Louisiana-based Newpark. SCF exclusively invests in oilfield services and equipment companies. It often recognizes the growth potential of a struggling company, comes in with an infusion of capital and, more importantly, provides management expertise. Recently, SCF bought a 10 percent stake in struggling Input/Output, a seismic equipment manufacturer, and installed one of its own managing directors as interim CFO. DRILL PIPE DEMAND The four companies to be combined are the tubular divisions of Houston-based Wilson Industries, Continental Emsco, National-Oilwell Inc. and Oklahoma-based Sooner Inc., which will be the surviving entity. All operations and sales will be centered in Houston, with administrative offices in Tulsa, Okla, for now. Sources say the final decision hasn't been made about where the headquarters will be located. The timing of the consolidation wasn't surprising given the depressed state of the oil service industry. The industry is coming off a year of record low oil prices that forced exploration and production companies to slice capital expenditures, which include money for new wells creating demand for pipe. "We felt like this was the best particular time for consolidation. When activity is low you need to maintain critical mass with adequate inventories, efficient operations and consistent services," says Simmons. The individual companies involved in the business have had to cut inventory to the bone given the low rig count and diminished demand for new drill pipe. "This year has been really bad with the unprecedented low rig count levels," says Randall Edwards of Wilson Supply. Edwards notes that the rig count in the United States is averaging about 500 compared to a level just two years ago of 1100. A number of changes in the patch besides low oil prices have driven down the rig count and pipe demand. And industry observers don't expect the rig count to ever recover to that 1,100 level even when the oil price bounces back to the more customary $18 to $20 a barrel range. Some say the rig count is more likely to top out at around 700 in the up cycle, encouraging consolidation among distributors and pipe manufacturers. "The industry needed to be rationalized," says Simmons. After the consolidation, SCF Partners is planning to pump some needed capital into the combined company as the industry moves into the next cycle. He says the entire tubular industry will move toward electronic design and ordering for pipe. OIL SERVICE COMBO Simmons, who chairs the board of Tuboscope, sought the acquisition of Newpark because, together, the companies could offer customers a complete package of fluids and solid control services and grow faster. "There is a fit there," says Simmons. "Newpark has the same customer that Tuboscope serves." Tuboscope provides tubular inspections, coatings and also offers solids control, the separation of material requiring disposal from the stream of drilling fluids. Newpark provides the disposal process for those solids. "This is a bold and ambitious move by management," says James Wicklund, analyst with Dain Rauscher Wessels in Dallas. "But we have always considered Tuboscope management one of the very best we cover." After the purchase, L.E. Simmons will step down as chairman. But he will still have a say in the company's strategy and management because of SCF's 16 percent interest in the company. Simmons will become chairman of an executive committee of the new board of directors composed of directors from both companies. The combination provides substantial upside for future growth, says Simmons. Newpark had traditionally only served customers on the U.S. Gulf Coast, but with Tuboscope's international presence in 55 countries, the package of solids control services can be marketed internationally.