Oil States International, Inc. (ticker: OIS) is a diversified oilfield services company and is a leading integrated provider of remote site accommodations with prominent market positions in the Canadian oil sands and the Australian mining regions. OIS is also a leading manufacturer of products for deepwater production facilities and subsea pipelines as well as a provider of completion services and land drilling services to the oil and gas industry.
Recent Divestiture
On September 6, 2013, OIS announced that it sold Sooner, Inc. (Sooner) and its subsidiaries to Marubeni-Itochu Tubulars America, Inc. (Marubeni-Itochu) for $600 million in aggregate cash consideration. Sooner comprised the entirety of the OIS’ tubular services segment and provides oil country tubular goods (OCTG) distribution and related services. OIS expects to use the net proceeds to repay outstanding debt and for general corporate purposes, including share repurchases. The company’s total long term debt as of June 30, 2013, is $1.16 billion, with a debt-to-book equity ratio of 31%. Click here for the full release.
OIS listed several rising issues in the OCTG industry in its 10Q for the quarter ended June 30, 2013. Such issues include:
- Lower industry pricing due to strong import levels and product mix
- Gross margin as a percentage of revenues decreased from 6 .3% Q2’12 to 5.1% Q2’13
- Potential imposition of trade sanctions on OCTG imports
In connection with the sale, the Oil States’ board of directors has increased the authorized share repurchase program from $200 million to $500 million. The company has approximately $472.9 million remaining on the program after the increase. At June 30, 2013, OIS had approximately 55.2 million shares of common stock outstanding. . The share repurchase program expires on September 1, 2014.
The sale follows Oil States’ announcement on July 30, 2013, to spin-off its accommodations business into a standalone, publicly traded company. The strategy, designed to enhance shareholder value, was unanimously approved by the OIS board of directors. The new business will focus on continued growth through contracted room expansions in its existing Canadian oil sands, Australian mining and U.S. shale play markets as well as developing its presence worldwide. The accommodations sector accounted for 52% of the company’s $863 EBITDA for the year ended June 30, 2013, according to an August 27, 2013 presentation. Tubular services accounted for just 7%.
Oil States Commentary
Cindy B. Taylor, President and Chief Executive Officer of Oil States, said, “We are pleased to complete this transaction, which allows us to invest further in our accommodations, well site services and offshore products segments while at the same time accelerating the return of capital to shareholders. This transaction represents another step forward in executing our strategy to drive enhanced shareholder value.
“Sooner is one of the leading OCTG distributors in the United States, and it has earned a stellar reputation over its 75 years of operation. Given Marubeni-Itochu’s global presence, industry expertise and long-term relationship with Oil States as both a supplier and partner, we are confident this is an excellent strategic fit for the Sooner franchise.”
OAG360 Analysis
Based on TTM EBITDA as of June 30, 3013, OIS received nearly 10 times value in the $600MM transaction. Using EnerCom’s 85-company OilService database, total operating profits for OIS for the TTM was 14%. Company-wide EBITDA margin for the same TTM period is 20%. In the latest OIS 10Q filing, OCTG profit margin was 5 .1%.
As of August 30, 2013, OIS’ EV/TTM EBITDA was trading at 6.8x, compared to a 12.0x average for the companies in the Equipment Group database. Its book value per share is $45.27, compared to a $23.99 average of the 32 other mid-cap companies.
In the same database, OIS was trading at 7.6x forward P/CFPS, or roughly 58% less than the average P/CFPS ratio. Among the 32 mid-caps, OIS trades 24% less than the average 10.0x P/CFPS ratio.
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