e425
Filed by Grey Wolf, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Basic Energy Services, Inc.
Commission File No. 1-32693
Subject Company: Horsepower Holdings, Inc.
Final Transcript
Conference Call Transcript
GW Grey Wolf, Inc. and Basic Energy Services, Inc. Agree to Combine in Merger of Equals Transaction
Event Date/Time: Apr. 21. 2008 / 11:00AM ET
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Final Transcript
CORPORATE PARTICIPANTS
Alan Krenek
Basic Energy Services, Inc. CFO, SVP-Finance
Tom Richards
Grey Wolf, Inc. Chairman, President, CEO
Ken Huseman
Basic Energy Services, Inc. President, CEO
David Crowley
Grey Wolf, Inc. EVP, COO
David Wehlmann
Grey Wolf, Inc. EVP, CFO
CONFERENCE CALL PARTICIPANTS
Marshall Adkins
Raymond James Analyst
Kevin Pollard
JPMorgan Analyst
James West
Lehman Brothers Analyst
Mike Drickamer
Morgan, Keegan Analyst
Adam Leitch
RBC Capital Markets Analyst
Gary Stromberg
Lehman Brothers Analyst
Pierre Conner
Capital One Analyst
Evan Templeton
Jefferies & Company Analyst
Robert Christensen
Buckingham Research Analyst
Jeremy Mindich
Scopia Capital Analyst
Steve Schweitzer
Shenkman Capital Analyst
PRESENTATION
Ladies and gentlemen, thank you for standing by and welcome to the Grey Wolf, Inc. and Basic
Energy Services, Inc. Merger of Equals transaction conference call. During the presentation, all
participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer
session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Monday, April 21,
2008.
It is now my pleasure to turn the conference over to Mr. Alan Krenek, Chief Financial Officer,
Basic Energy Services, Inc.
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Final Transcript
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Thank you. Good morning, ladies and gentlemen. Welcome to this joint conference call to
discuss this mornings announcement of a Merger of Equals between Grey Wolf and Basic Energy
Services.
With me this morning are Tom Richards, currently the Chairman, President, and Chief Executive
Officer of Grey Wolf, who will serve as Chairman of the new Company; Ken Huseman, currently the
President and Chief Executive Officer of Basic Energy Services, who will serve as the new Companys
Chief Executive Officer; David Crowley, currently the Executive Vice President and Chief Operating
Officer of Grey Wolf, who will serve as the new Companys President and Chief Operating Officer.
Also joining us on the call is David Wehlmann, Grey Wolfs CFO.
Before we begin, I would like to point out that statements on this call that are not historical
fact, including those relating to the proposed transaction and its effect, are forward-looking
statements. These forward-looking statements are based on managements current plans, expectations,
estimates, assumptions, and beliefs concerning future events, and therefore involve a number of
risks and uncertainties that could cause actual results to differ materially from those expected.
These risks and uncertainties are described in Grey Wolfs and Basic Energy Services 10-Ks and
other documents filed with the Securities and Exchange Commission.
There are also risks associated with the proposed transaction, including, but not limited to,
possible inability to close the transaction, possible delays in obtaining regulatory approvals, and
unanticipated costs. With that, let me turn the call over to Tom Richards.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Thank you, Alan, and good morning to everyone. Were here to answer any questions that you
might have, but first, we want to provide some background on the transaction itself.
First of all, the respective management teams of both companies are extremely excited about our
announcement this morning and hope that you agree with us in our views. And we will share our
excitement going forward as we go through this process.
We think that combining our two companies will deliver unique values to our shareholders and create
an organization that will have unparalleled opportunities for all stakeholders. In a minute, Ken
will highlight some of the many advantages that we see in putting these companies together, and
Alan will then comment briefly on financing and some of the accounting aspects before we take a few
questions.
We view this strategic combination as being a merger of equals between two companies that both
bring significant capabilities and value to the table. The strong profit and cash flow generation
and excellent growth opportunities on a combined basis will afford shareholders both EPS and cash
flow accretion.
While most Merger of Equals transactions are structured as 100% stock deals, we have decided to
provide approximately $600 million of cash to shareholders due to the strengths that this
combination creates. In the case of Grey Wolf shareholders, they will receive 0.25 shares and $1.82
in cash for each share currently held, while Basic Energy Services shareholders will receive 0.9195
shares and $6.70 in cash for each share that they hold. We expect the share portion to be tax-free
to both companies shareholders.
Headquarters will remain in Houston at Grey Wolfs current office, and the Company will be
organized in four business segments. We will have a nine-person Board, with five directors coming
from Grey Wolf and four directors coming from Basic Energy Services.
As I said at the beginning, we are very excited about this transaction and the prospects for the
combined Company. We will benefit from the enhanced scale and diversity of our services, and a much
larger pool of extremely well-qualified and experienced people.
With that, I will turned over to Ken.
Ken Huseman Basic Energy Services, Inc. President, CEO
Thanks, Tom. As Tom noted in his comments, this is a great opportunity for our shareholders
and our other stakeholders as well. We have very strong organizations. We share common cultural
values. We both have excellent operating reputations, high-quality equipment, and were both known
for the quality of our people.
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Final Transcript
We believe this is a well-timed transaction that is an ideal fit for both companies. Our
shareholders will benefit from greater diversity with expanded growth opportunities, a broader
geographic reach, balanced commodity exposure, and an expansion of service offerings.
Specifically, basic shareholders will gain from increased exposure to the gas-focused land drilling
section, a business segment that I think will continue to grow for a considerable period of time.
On the other hand, the Grey Wolf shareholders will gain from increased diversification with Basics
broad range of services and oil-oriented activity. Our customers will benefit from the combination
of our highly skilled workforces and a more geographically diverse business. In addition, our
ability to dedicate more resources to continued enhancements to our equipment and technology will
enable us to deliver operational efficiency and reduce costs for our customers.
For these reasons, as well as the strong personal commitment Tom and I have to the success of this
venture, I am confident in the future of the new Company. With that, I will turn the call over to
Alan Krenek, the Executive VP and Chief Financial Officer of new Grey Wolf.
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Thanks, Ken. On a pro forma, full-year 2007 basis, the combined Company has approximately $1.8
billion of revenues, with approximately $632 million of EBITDA and $178 million of free cash flow.
With the $600 million of new debt, the net debt at closing is expected to be approximately $960
million.
We believe the combined Company will generate sufficient free cash flow that will give the combined
Company the financial flexibility to invest for future growth and at the same time focus on
reducing debt.
We expect shares after the transaction will total approximately 85 million shares, including the
dilutive effect from options on a Treasury method basis. Based on these fully diluted shares, the
combined Company will have an estimated combined enterprise value of approximately $2.9 billion,
valued at last Fridays closing price.
Operator, we will now take questions.
QUESTION AND ANSWER
(OPERATOR INSTRUCTIONS) Marshall Adkins, Raymond James.
Marshall Adkins Raymond James Analyst
Good morning, guys. Obviously, a couple of simple ones to begin with. Can you kind of outline
what kind of cost savings you could be looking at with the combination?
Ken Huseman Basic Energy Services, Inc. President, CEO
This is Ken Huseman, Marshall. It is pretty preliminary at this point. We think there is a
modest amount of cost savings to be had. We have very little overlap in our business segments, and
most of the costs would be related to the public company type costs that we will save over time. It
will take a period of time to realize those costs as we integrate the two corporate structures, but
what, Alan on an annual basis, it is somewhere on the order of $10 million?
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Final Transcript
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Yes.
Ken Huseman Basic Energy Services, Inc. President, CEO
That is not the driver for this combination.
Marshall Adkins Raymond James Analyst
Okay, then how about synergies? Can you kind of outline them? Obviously, in general terms, you
mention it in the release, but can you give a little more specific in terms of synergies that you
think may be developed here?
Ken Huseman Basic Energy Services, Inc. President, CEO
Well, I think a lot of it will stem from international opportunities. We are a much larger -
this new Company will be much larger platform than either company was by itself. And we will be
able to address opportunities anywhere in the world.
In addition, there are some opportunities to pull through services; again, that goes to the
international opportunities. But some cross-marketing, things like that. So we think kind of the
combination will provide a lot of hybrid opportunities where we can play off of each others
strengths.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Marshall, it does give us an expanded geographical footprint in the United States.
Marshall Adkins Raymond James Analyst
Right. All right. Well, last one and Ill turn it over to someone else. In terms of future
growth and where you are going to focus your capital spending, you mentioned part of it is you are
going to be paying down debt, but you also anticipate seeing growth. Where are you going to spend?
Is it that international markets in land drilling? Is it more workover rigs in the US? Can you just
give me some sense directionally where you see the growth going forward?
Ken Huseman Basic Energy Services, Inc. President, CEO
I think we will pursue it is hard to say right now. Were pretty early in the stages of
comparing the opportunity set that each company currently has. But I think youll see us continue
to pursue the strategies that both companies have.
Grey Wolf grew quite steadily on contracts to build new rigs. Weve pursued small acquisitions;
there are a number of those in all business segments. Plus the international opportunities. So I
think it is a little early to say exactly where our growth will come from, but I think if you look
at both companies track records, you could expect more of the same.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Marshall, I would agree with that. As you know, the business has reached an inflection point.
Our focus we are in a very fortunate position that we will be able to focus on both the
repayment of debt and looking at both internal growth as well as acquisitions going forward. So
international, domestic, I think it will be we will have a very exciting opportunity to pursue
every avenue.
Marshall Adkins Raymond James Analyst
Terrific. I will turn it over to someone else and come back later. Thanks.
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Final Transcript
Kevin Pollard, JPMorgan.
Kevin Pollard JPMorgan Analyst
Good morning. I had a question a little bit about the transaction structure. Specifically, can
you walk us through a little bit how the decision was made on the cash payout portion of it?
Because it looks like youre sharing it on kind of a pro rata or new co-ownership basis, even
though Grey Wolf had considerably more cash on its balance sheet and I guess is bringing more to
the combined entity. Can you talk a little bit about some of the rationale behind that?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Kevin, the $600 million is the number that we agreed to upfront between the two parties, and
it just seemed like a logical split to take it based on the ownership position. So that is
basically how it was decided.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Right. It is structured as a merger of equals with no change of control.
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
That is correct.
Kevin Pollard JPMorgan Analyst
Okay. And in terms of the convertibles that Grey Wolf has outstanding, will those remain
outstanding with this transaction or will those get converted and probably change in control?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
We cant speak for the holders of those converts, but they would have an opportunity to do it,
either before or after the transaction.
Kevin Pollard JPMorgan Analyst
Okay, but you dont have to youre not required to call those in?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
No.
Kevin Pollard JPMorgan Analyst
Okay, so they will most likely just stay outstanding then.
Ken Huseman Basic Energy Services, Inc. President, CEO
Based on what they want to do.
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Final Transcript
Kevin Pollard JPMorgan Analyst
Okay. Just for modeling purposes, can you give us any kind of - most of it we can figure out
fairly easily, but in terms of any incremental D&A step-up, do you have any thoughts on that?
Ken Huseman Basic Energy Services, Inc. President, CEO
I think it is way too soon to go into that. Were currently looking at - since Grey Wolf will
be the accounting acquirer, the assets of Basic will be written up based on evaluation, and were
just way too early in that.
But in our model, we have assumed some pretty conservative numbers, and the accretion that results
from the transaction are still pretty good based on those conservative numbers.
Kevin Pollard JPMorgan Analyst
Okay. Thanks, guys. I appreciate it.
James West, Lehman Brothers.
James West Lehman Brothers Analyst
Good morning, guys, and congratulations. Is there a breakup fee involved with the transaction
if it doesnt go through?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
That is correct.
James West Lehman Brothers Analyst
Could you give us the size of the breakup fee?
Ken Huseman Basic Energy Services, Inc. President, CEO
$30 million. reciprocal to both parties.
James West Lehman Brothers Analyst
Okay. And is there some type of a go shop period for Basic where you could entertain
additional offers?
Ken Huseman Basic Energy Services, Inc. President, CEO
No.
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Final Transcript
James West Lehman Brothers Analyst
Okay. Then I guess one last question, probably maybe towards Ken for this one. But Basic has
been spending the last several years rolling up the well service industry and has bought land rigs
here and there, but it hasnt been a significant piece of your business. Now with the combined
company, it seems like theres been a change in strategy here where you have a much bigger focus on
land drilling.
I guess, Ken, my question is was this more of an opportunistic transaction kind of in your mind,
and should we expect you to go back to rolling up the well service business or has this been a
major change in strategy?
Ken Huseman Basic Energy Services, Inc. President, CEO
I think you know, I have expressed our interest in the past in participating in the land
drilling segment in a much bigger way, and this was a great opportunity. Grey Wolf has an
international class organization and fleet, and it was an opportunity to take a quantum leap in
that respect.
The other part of it is just a diversification of our own I think both companies revenue
stream. Basic is involved primarily in helping maintain over 900,000 existing wells in the US; a
big chunk of our business is generated in that fashion. But with depletion and the need for just
ongoing drilling, the outlook for drilling activity is very strong. So we think this matches up the
strong attributes of both companies in a very diversified company, as I said earlier, that can
participate in continuing to consolidate the industry in the US and participate in or pursue
opportunities anywhere in the world.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
James, this is Tom Richards. You didnt phrase that question to me, but from Grey Wolfs
perspective, a little over a year ago, management developed a strategic plan to enhance shareholder
value going forward that was approved by the Board of Directors. And we had identified the well
servicing business and the fluids hauling business as the number one priority from the standpoint
of diversification. And Basic was identified as being somebody of the highest interest to consider
a merger with.
So our interest in doing something in the well servicing business from a diversification standpoint
goes way back over a year ago.
James West Lehman Brothers Analyst
Okay, that makes sense. Thanks, guys.
Mike Drickamer, Morgan, Keegan.
Mike Drickamer Morgan, Keegan Analyst
Ken, you mentioned in your commentary that you believe both companies share common cultural
values. Yet one of the concerns historically when service company and drillers combine has been
integration issues surrounding company cultures. Do you expect any issues here? What have you
foreseen here and what have you done to start addressing some of those issues maybe?
Ken Huseman Basic Energy Services, Inc. President, CEO
Well, it is I think this is no longer a novel idea. Theres several other people who have
done this. I think from our standpoint, its important to respect the separate needs of each
business segment. Basic operates in four segments, and have for a number of years. And we have been
successful in integrating those various segments by operating them each as they need to be operated
so that they can compete against their portion of the market.
So I dont think we expect to have a lot of those integration issues. You know, were not piling
everybody in the same physical facility and trying to save money in that fashion. We have to
compete in a segment-by-segment type of organization, which basically was done in the past. So we
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Final Transcript
respect the individual needs and operating requirements of each business segment. So we just dont
expect that there will be those sorts of integration problems.
At the corporate level, those integration issues arent dont present themselves. Really, the
integration problems you have in putting these things together is when you try to combine them in
the field below the level where it makes sense to do that. So we are excited about that we have
a track record of integrating acquisitions in a way that the combined entity is more successful
than they were separately. And we think that will be the case in this situation.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
I might add that I agree with Ken completely. The management teams that developed this
strategic plan are all very enthusiastic about this combination, all committed to making it work.
The business that Ken and his people run is not dissimilar to ours in their philosophy towards
people and premium equipment and the very best in services for our customers.
So I think that there is a lot of similarities there. He and I can work together very well. And I
am very I am looking forward with great anticipation. I think it is going to go very smoothly.
Mike Drickamer Morgan, Keegan Analyst
Okay. And then Ken and Alan, will you guys be moving to Houston or are you going to manage
remotely?
Ken Huseman Basic Energy Services, Inc. President, CEO
No, we will be moving to Houston. Personal situations require that it will take a little time
on my part. But the corporate headquarters is in Houston.
Mike Drickamer Morgan, Keegan Analyst
Okay, thanks a lot, guys.
(inaudible), Credit Suisse.
Good morning. I with Credit Suisse on the buy side. And first of all, I just want to
congratulate both companies. Very excited for future. Both really great companies. Question for
you. On the basic bonds, would this constitute a change in control, do you know under the
covenant?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
No.
Okay, so it is a merger of equals, and you get out from under that. Okay, thanks very much,
guys. I appreciate it.
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Final Transcript
[Adam Leight], RBC Capital Markets.
Adam Leight RBC Capital Markets Analyst
Good morning, everybody. I just wanted to follow up a little bit on that. As I understand it,
there is the basic notes gain a lien on assets. Could, A, you describe what assets and what the
level of the collateral will be, first lien, second lien? And under what circumstances that lien
could be lifted.
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
As I said, the liens come into play under the provisions under the basic notes. Taking 85% of
the assets of the Company as collateral will be collateralized as part of the credit facility.
And so the basic senior notes will share that collateral with the other notes.
David Wehlmann Grey Wolf, Inc. EVP, CFO
Adam, this is David. The liens are theres a basket for permitted liens, and once that
drops below the certain dollar amount that is laid out in the Basic indenture, then that lien could
go away or would go away at that point.
Adam Leight RBC Capital Markets Analyst
Any estimate with this free cash flow level as to when that might occur? Ask you to do the
math for me.
David Wehlmann Grey Wolf, Inc. EVP, CFO
No, you can do the math. But it is several years down the road.
Adam Leitch RBC Capital Markets Analyst
Great. Thank you very much and congratulations.
Gary Stromberg, Lehman Brothers.
Gary Stromberg Lehman Brothers Analyst
It sounds like most of my questions were answered. How much financing will be required here
and what type of financing do you envision doing in terms of maturity and size?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Yes, we have received committed financing from UBS and Goldman Sachs in the form of a $925
million senior secured credit facility, which includes a $325 million revolver. And the $600
million will be a term note.
Gary Stromberg Lehman Brothers Analyst
It seems as though is that more than what is needed here? It feels like that is a bit, more
according to my math, the $600 million term loan piece.
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Final Transcript
Ken Huseman Basic Energy Services, Inc. President, CEO
Well, like I said, the expected cash balance at closing is expected to be about $186 million,
I believe. So there are some requirements for some new rigs coming online from Grey Wolf in
October. Basic will have some acquisitions coming up that we have letter of intents on. So it is
all managed toward keeping a minimum cash balance of about $100 million on hand.
David Wehlmann Grey Wolf, Inc. EVP, CFO
Excuse me, Gary. This is David Wehlmann. What we wanted to do is we wanted to return some
money to the shareholders through this $600 million dollar payment. But we also wanted to have the
dry powder, if you will, to continue the strategies of both companies. And that is why that is a
$600 million loan plus the $325 million undrawn line of credit, which is expected at closing.
Gary Stromberg Lehman Brothers Analyst
Okay. And that $600 million loan is in the $960 million net debt expectation number?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Thats correct.
Gary Stromberg Lehman Brothers Analyst
Thats all part of that? Okay, thats all I had.
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
The $150 million outstanding under the basic credit revolver gets paid down through this
transaction. So that is where $150 million of those proceeds go to.
Gary Stromberg Lehman Brothers Analyst
Okay, that makes sense. Thank you.
(OPERATOR INSTRUCTIONS) Pierre Conner, Capital One.
Pierre Conner Capital One Analyst
Good morning, gentlemen. Ken, maybe first question for you, in terms of additional expansion
opportunities. It is a variation, I think, on a question you were asked. But I was wondering if now
that you have accomplished additional growth on the drilling rig side and Grey Wolf has their
servicing side that they wanted, are there some other service lines that potentially attract the
combination of you all, or is your next the next step, should we expect further of what you have
been doing?
Ken Huseman Basic Energy Services, Inc. President, CEO
Yes, I think we have the suite of services, the range of services that makes sense for the
combined Company. There are a lot of opportunities to continue to grow organically within the
footprint that we both have. There are opportunities internationally that we expect to pursue. And
I think in all of our lines of business, we will continue to see opportunities for acquisitions.
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Final Transcript
So I think we will be more of the same that youve seen from each company in the past, without
varying too far afield from where we are now. There are some spots on the map that we occupy in the
lower 48 that certainly open up with this combined breadth of services and the people we have
available.
Pierre Conner Capital One Analyst
Okay. One of the international opportunities that comes to mind would be just south of the
border. And they are large, integrated this topic of integrated projects. So my question was
focused on do you have what you need if you want to move equipment there? Do you feel like you can
compete on some of these projects in Mexico?
Ken Huseman Basic Energy Services, Inc. President, CEO
Yes, I will let Tom address that, because Grey Wolf is much further down the road in pursuing
international projects and actually have a couple of rigs working in Mexico. I think he is better
to answer that.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Pierre, as youre probably aware, we have two rigs down in Mexico right now, two
3000-horsepower rigs, each working on a three-year term contract. We are optimistic about the
ability to place further assets in Mexico to participate in that work, and we are pursuing several
projects at this time.
Pierre Conner Capital One Analyst
Okay. So good set of assets to get you there.
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Well, let me also say that one of the benefits of this combination, most of your international
jobs, to the extent that you can bundle services together, the well servicing rigs, pressure
pumping and maybe some of the rental businesses, along with the drilling rigs, the more attractive
it is to the national oil companies. So we see that that is another really, really strong benefit
of this combination.
Ken Huseman Basic Energy Services, Inc. President, CEO
We felt like from Basics standpoint that we really needed a strong drilling contingent to
pursue international opportunities, because you tend to lead with the drilling rig and follow with
some of the other services. So, again, it goes to the strategy of putting the two companies
together.
Pierre Conner Capital One Analyst
I understand. Maybe this is one is for Alan. I know you said it is early to begin us modeling
purposes, any kind of depreciation or amortization calculation. But you did mention that you have
all done some work on the accretion, and Ill ask. So would you care to characterize the magnitude
of that accretion on a percentage basis or some range for us from you alls modeling purposes
perspective?
Ken Huseman Basic Energy Services, Inc. President, CEO
Pierre, not at this time, but good try.
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Final Transcript
Pierre Conner Capital One Analyst
I thought I would try. All right, gentlemen. The rest of it has been answered. Congratulations
and thanks for the comments.
Evan Templeton, Jefferies.
Evan Templeton Jefferies & Company Analyst
Most of my questions have been answered already, but can you just give a little more color on
timing and whether or not there any more conditions? In other words, when the shareholders vote is
going to be held.
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
Yes, it is conditional upon approval by both sets of shareholders. We will be having special
meetings upcoming third quarter. This thing is anticipated to close in the third quarter, so they
will be right before some time, I would think, July/August timeframe.
Evan Templeton Jefferies & Company Analyst
Okay.
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
That assumes no excessive reviews by the SEC, etc.
Evan Templeton Jefferies & Company Analyst
Great. Thank you.
(inaudible)
Good morning, gentlemen. I apologize if the question was asked, but I got on the call late.
Have you talked at all about costs save or synergies between these two companies coming together,
and quantify it and maybe give some sense of where those savings are coming from?
Ken Huseman Basic Energy Services, Inc. President, CEO
We will go through that again. The companies have very little overlap. We have a few rigs
running in the Permian next to the Grey Wolf operation. So that is not the driver for this
combination. We will have some public company type expenses that will come out of the combined
entity over time, although there are some costs associated with achieving the integration that will
mute the effect of those savings for about a year.
Ultimately, I think we are saying that there is probably about $10 million a year in combined cost
savings, almost all of which come out of the public company type savings.
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Final Transcript
Okay.
Ken Huseman Basic Energy Services, Inc. President, CEO
But that is not a driver for this at all.
I think I kind of caught most of the call, so I just wanted to make sure I didnt miss it at
the very beginning. I apologize. Thank you.
(OPERATOR INSTRUCTIONS) Robert Christensen, Buckingham Research.
Robert Christensen Buckingham Research Analyst
It seems like both companies are relatively small international at present. It seems Basic is
nowhere and Grey Wolf, youve got two rigs out of 123. Make the case for getting bigger
international faster for me, please.
Ken Huseman Basic Energy Services, Inc. President, CEO
That is not the number one driver of this transaction. Were trying to put these two companies
together to have a diversified business, a bigger basis to package services together here in the
United States with bigger geographical footprint. And the growth internationally would be just
something that we expect to achieve over a period of time.
Robert Christensen Buckingham Research Analyst
Okay, I get it. Thank you.
Jeremy Mindich, Scopia Capital.
Jeremy Mindich Scopia Capital Analyst
If you dont mind, from the perspective of a basic shareholder, we have always enjoyed the
fact that well servicing seemed to have less of an overcapacity issue than the traditional land
drillers. And it seems like the land drilling market has been sort of split recently between people
with newer equipment that can deal with more complicated wells and the older equipment that is
still remaining stacked.
For those of us who dont know much about Grey Wolf, could you give an argument for why Grey Wolf
is in good position to deal with the overcapacity issues that are facing land drilling right now?
Ken Huseman Basic Energy Services, Inc. President, CEO
I will start the answer and ask Tom to finish it, but I think Grey Wolf has spent quite a bit
of money investing in new rigs over the last several years, plus converting and updating older
mechanical rigs to state-of-the-art rigs. So, we are comfortable of their position in the
marketplace. And I will let Tom speak more directly to that question.
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Final Transcript
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Ken is absolutely correct. We have spent hundreds of millions of dollars over the last few
years to upgrade our fleet to increase the hydraulic capacity and solids control equipment, convert
mechanical rigs to SCR. And weve also built a number of brand-new rigs from scratch. To give you
some kind of idea of the technical capabilities, were building two PaDSRigs right now, both under
term contracts, that will go into the Rockies.
Additionally, our fleet of rigs is not only premium, but they are of a larger average horsepower.
40 plus percent of the wells that we are drilling are drilling directionally today. So we have a
very, very competitive fleet of rigs that will serve the combined shareholders of both companies
very well.
Jeremy Mindich Scopia Capital Analyst
Thanks a lot.
Steve Schweitzer, Shenkman Capital.
Steve Schweitzer Shenkman Capital Analyst
I know that Tom had mentioned the opportunities that Basic had and that he had identified
or Grey Wolf had identified those businesses as attractive for Grey Wolf. Im just wondering can
you give us a little more on how the genesis of the transaction how that occurred? Did either
party consider other business combinations, etc.?
Ken Huseman Basic Energy Services, Inc. President, CEO
I think that is being shown in our filings, and I think we have been looking at each other for
quite some time. This did not happen overnight. But we will let our filings speak to that issue.
Steve Schweitzer Shenkman Capital Analyst
Okay. Then just a last question. On the UBS term loan that you mentioned, that is a term loan
B? And would you happen to have a pricing on it, or were you ?
Alan Krenek Basic Energy Services, Inc. CFO, SVP-Finance
It is a term loan B and were not going to speak about the pricing at this point in time.
Steve Schweitzer Shenkman Capital Analyst
Okay, thank you.
There appear to be no further questions at this time.
Ken Huseman Basic Energy Services, Inc. President, CEO
Okay. Thank you all for your interest in the new Grey Wolf. We appreciate all the questions
and we look forward to talking to you in the future.
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Final Transcript
Tom Richards Grey Wolf, Inc. Chairman, President, CEO
Thank you very much.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your
participation and ask that you please disconnect your lines.
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Forward Looking Statements and Additional Information
The Company may make statements herein that are forward-looking statements as defined by the
Securities and Exchange Commission (the SEC). All statements, other than statements of
historical fact, included herein that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future are forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that may cause actual
results to differ materially, including required approvals by stockholders and regulatory agencies,
the possibility that the anticipated benefits from the proposed mergers cannot be fully realized,
the possibility that costs or difficulties related to integration of the two companies will be
greater than expected, the impact of competition and other risk factors included in the reports
filed with the SEC by Grey Wolf and Basic Energy Services. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their dates. Except as
required by law, the Company does not intend to update or revise its forward-looking statements,
whether as a result of new information, future events or otherwise.
Additional Information and Where to Find It
In connection with the proposed mergers, a registration statement of Horsepower Holdings, Inc.
(Holdings), which will include proxy statements of Basic Energy Services and Grey Wolf and other
materials, will be filed with the Securities and Exchange Commission. INVESTORS AND SECURITY
HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS
AND THESE OTHER MATERIALS REGARDING THE PROPOSED TRANSACTION WHEN THEY BECOME AVAILABLE, BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT BASIC ENERGY SERVICES, GREY WOLF, HOLDINGS AND THE
PROPOSED TRANSACTION. Investors and security holders may obtain a free copy of the registration
statement and the proxy statement/prospectus when they are available and other documents containing
information about Basic Energy Services and Grey Wolf, without charge, at the SECs web site at
www.sec.gov, Basic Energy Services web site at www.basicenergyservices.com, and Grey Wolfs web
site at www.gwdrilling.com. Copies of the registration statement and the proxy statement/prospectus
and the SEC filings that will be incorporated by reference therein may also be obtained for free by
directing a request to either Investor Relations, Basic Energy Services, Inc., (432) 620-5510 or to
Investor Relations, Grey Wolf, Inc., (713) 435-6100.
Participants in the Solicitation
Basic Energy Services and Grey Wolf and their respective directors, officers and certain other
members of management may be deemed to be participants in the solicitation of proxies from their
respective stockholders in respect of the mergers. Information about these persons can be found in
Grey Wolfs proxy statement relating to its 2008 annual meetings of stockholders as filed with the
SEC on April 8, 2008. Information concerning beneficial ownership of Basic Energy Services stock
by its directors and certain of its executive officers is included in its proxy statement dated
April 5, 2007 and subsequent statements of changes in beneficial ownership on file with the SEC.
Additional information about the interests of such persons in the solicitation of proxies in
respect of the merger will be included in the registration statement and the joint proxy
statement/prospectus to be filed with the SEC in connection with the proposed transaction.
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