Ex-Schlumberger Chief to Acquire Biggest Shale Pipe Servicer

(Bloomberg) -- Sentinel Energy Services Inc., the blank-check company led by ex-Schlumberger Ltd. Chairman Andrew Gould and one of his top executives, plans to acquire Strike LLC and take the dominant U.S. pipeline services company public.

The takeover is valued at $854 million and expected to close in the first quarter of 2019, Houston-based Sentinel said in a statement on Friday. Gould said in an interview that Strike’s specialty -- testing, repairing and upgrading pipelines -- has more long-term growth potential than any other facet of the oil industry. Sentinel shares jumped the most in seven months.

Record American production of crude and natural gas has sparked an unprecedented pipeline building streak, presenting unique opportunities for companies like Strike that not only construct but help maintain and expand those networks over time, Gould said in an interview. Most pipeline owners no longer employ crews capable of performing the specialized monitoring and repair services offered by Strike, he said.

“If I take all my experience in the oilfield, I don’t think I see any other service segment which has been so outsourced as this one,” said Gould, who spent almost four decades at Schlumberger before going on to lead BG Group, which is now part of Royal Dutch Shell Plc. The growth potential “is in my opinion far more sticky than any other segment in the oilfield-services business,” he said

Once the transaction closes, the new company will be called Strike Inc. and trade on the New York Stock Exchange under the “STRK” ticker, according to the statement. Steve Pate, who founded Strike 15 years ago, will remain as CEO, while Gould and former Schlumberger Treasurer Krishna Shivram will sit on the board.

Exxon, BP

About 60 percent of Strike’s revenue comes from servicing pipelines over the course of their life, Shivram said during the same interview. The remainder stems from building conduits. Major clients include Exxon Mobil Corp.’s XTO Energy unit, Occidental Petroleum Corp., Chevron Corp. and BP Plc.

Strike’s main focus will remain pipeline maintenance, Pate said in a Bloomberg TV interview on Friday. Expanding the company’s geographical footprint is a key focus that could be accomplished through regional acquisitions post-merger, he said. To date, 80 percent of Strike’s growth has been organic, Pate noted.

The deal comes less than a year after Sentinel raised $345 million in an initial public offering. The company, which up until now had no assets, was set up as a so-called special-purpose acquisition company, or SPAC. On Friday, Sentinel rose 3.7 percent to $10.68 at 12:16 p.m. in New York after earlier reaching $10.85 for the biggest intraday advance since March 14.

Winnowing down

The SPAC model has gained popularity as an oilfield investment vehicle thanks to the success of Mark Papa, the former EOG Resources Inc. chief. Papa’s Centennial Resource Development Inc. has more than doubled in value since he launched it in early 2016 during the worst crude-crash in a generation.

Gould is returning to public life after helping orchestrate BG’s $54 billion sale to Shell in 2016. Since Sentinel’s launch, he and his team looked at 70 to 80 takeover candidates before narrowing the field to 10 “possible” targets and then three “actionable” options. Strike, based in the Houston suburb called The Woodlands, won out, he said.

--With assistance from Rachel Adams-Heard and Alix Steel.

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Joe Carroll, Will Wade

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