Weatherford International (WFT) - Get Report shares rose 8% in early trading following news on Friday that it and Schlumberger formed a joint venture to service the fracking industry in the U.S. and Canada and analysts at Wells Fargo upgraded the stock to "outperform" from "market perform."
Schlumberger will own 70% of the venture, named OneStim, and Weatherford will own 30%. Weatherford will also receive a one-time $535 million cash payment from Schlumberger, which will manage the business.
"This transaction will allow Weatherford to deleverage its balance sheet while retaining a significant exposure to the unconventional market," Weatherford CEO Mark McCollum said in a statement.
Late last year Weatherford raised $500 million debt and an equity offering that was expected to bring in $456 million, that the firm hoped would calm investors' concerns that it would breach its debt covenants in the fourth quarter.
Nomura analyst Matthew Johnson wrote to clients on Monday that the move is, "One more step forward for Weatherford. A big step. It's hard for us to think of a better outcome for the pressure pumping piece of WFT's divestiture strategy than the Joint Venture transaction announced with SLB on Friday evening. The $535mn upfront cash payment takes an additional half-turn off WFT's net debt/EBITDA multiple using our base assumptions for 2018."
Johnson added that, "There is obvious potential for additional proceeds at some point in the future given SLB's successful track record of buying out JV partners after proving up concept and technology. We think WFT's 30% stake in "OneStim" could be worth $1.1 billion.