(Reuters) – Schlumberger <SLB.N> is selling its North America fracking business to Liberty Oilfield Services Inc <LBRT.N>, the two companies said on Tuesday, as U.S. oil producers cut spending on well completions to cope with a plunge in energy demand.
The oilfield service giant, whose onshore hydraulic fracturing unit in the United States and Canada includes pressure pumping, pumpdown perforating and Permian frac sand businesses, will hold a 37% stake in the new combined company.
Hydraulic fracturing, or fracking, involves injecting sand, water and chemicals underground to crack open rock formations holding natural gas and oil, a technique that led to a boom in U.S. production and a slump in energy prices in 2014.
Schlumberger formed the fracking unit less than three years ago by acquiring the U.S. and Canadian fracking operations of rival Weatherford International for $430 million and combining them with its own business.
However, the business failed to live up to its potential and Schlumberger Chief Executive Olivier Le Peuch said earlier this year he intended to reduce the operation as the coronavirus-induced collapse in oil prices led to a sharp drop in North American oilfield activity.
Both Schlumberger and Liberty racked up losses in the second quarter.
Schlumberger’s North American revenue fell to $1.18 billion in the second quarter, less than half of what it was a year earlier, with only slightly better conditions expected in the current quarter. Liberty’s revenue slumped about 84%.
Le Peuch said in July conditions were set “for a modest frac completion activity increase in North America,” but added it was from a “very low base.”
The combined company will have a market capitalization of $1.2 billion, and 2019 revenue would have been $5.2 billion.
The deal is expected to close in the fourth quarter and Liberty will continue to be led by its current management team.
(Reporting by Arathy S Nair in Bengaluru; Editing by Arun Koyyur)