Rival Downhole Tools increases U.S. footprint with Hunting subsidiary acquisition

12/15/2020

HOUSTON - Hunting PLC, the international energy services group and Rival Downhole Tools LC, a leader in downhole drilling technologies, announced that Rival has acquired the operating assets of Hunting Energy Services (Drilling Tools), Inc., a wholly owned subsidiary of Hunting, in exchange for Hunting securing a minority equity interest in Rival.                                                    

The complementary technologies, manufacturing, geographical footprints and engineering capabilities of the combined organizations - with 37 years’ experience in downhole technologies - will further establish Rival’s market position as one of the top downhole tool providers to the onshore U.S. market. In addition, the deal will provide the catalyst for future international expansion in the Middle East and, in particular, Saudi Arabia.

Neil Fletcher, Chief Executive Officer of Rival, commented “This transaction marks a milestone in our mission to build a market leadership position and provide a complete offering in downhole tools, in our view increasing the value of our company by over $25 million. The addition of Hunting’s drilling tool business will enable us to not only serve the U.S. but also accelerate market reach and product development, leaving us ideally placed for a series of international launches in 2021 starting with the Middle East. We are securing significant annual cost synergies, coupling top tier engineering with manufacturing capabilities, and expanding our product offerings to be well positioned in the U.S. and to launch overseas. This is a big moment for Rival.”

Commenting on the transaction, Jim Johnson, Chief Executive of Hunting, said “The combination of Hunting’s Drilling Tools assets with Rival creates a business with a larger operating footprint, with leading technology and products. The synergies identified will enable a compelling platform to operate within the competitive U.S. onshore market, while extending the customer partnerships of the combined business. The transaction also provides ongoing exposure to the drilling tools market, while allowing Hunting to refocus our capital allocation to other business opportunities.”

HESDT manufactures, owns and leases downhole tools for oil and gas operations, with facilities in Conroe and Odessa, Texas, Casper, Wyoming, and Latrobe, Pennsylvania. Rival provides downhole drilling technologies from its Midland, Texas, and Houston locations, with third-party engineering services and a company headquarters based in Houston. In addition to the Middle East, other target markets for Rival’s international expansion - with unconventional assets perfectly suited to Rival’s technologies - include Argentina and China.

Rival’s leadership team will remain in their existing roles and HESDT’s General Manager will join the expanded business. Rival looks forward to welcoming the majority of HESDT’s employees. Rival’s Board of Managers will be expanded with Hunting appointing a Board Manager to oversee its rights and obligations as a minority equity holder. 

About the transaction

The business and operating assets have been contributed by HESDT to Rival in exchange for a 23.5% equity interest. This agreed interest is based on (i) Hunting’s current customer base and long term business relationships which extend over a decade; (ii) HESDT’s operating presence in North America, specifically within the onshore basins in Pennsylvania, Texas and Wyoming; and (iii)  technology leadership including its rental mud motor fleet which totals 362 units. In the year ended 31 December 2019, HESDT reported revenue of $22 million, an underlying operating loss of $1 million and, after impairment charges, an IFRS reported operating loss of $20 million. HESDT and Rival have given mutual representations, warranties and indemnities to each other which are customary for a transaction of this size and nature.

Rival has agreed to assume all post-closing liabilities associated with the assets that have been contributed to it, and HESDT has agreed to retain all pre-closing liabilities associated with such assets. Rival has agreed to lease from HESDT, at market rates, the facility at Casper, Wyoming for a minimum of six months (with optional annual renewals) and the facility at Latrobe, Pennsylvania for a minimum of three years (with optional annual renewals). The parties have also agreed to certain customary minority rights and obligations in connection with HESDT’s equity interest in Rival, including but not limited to tag-along rights, co-sale rights, pre-emptive rights, drag obligations, transfer restrictions, and limited approval rights. In addition, HESDT has a right to appoint a manager to serve on the board of managers of Rival, subject to HESDT maintaining more than 10% of the voting units of Rival.  As at 31 October 2020, the carrying value of the transferred gross assets, which predominantly incorporate the value of HESDT’s mud motors, were valued at $18.6 million. 

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