SHARES in Glasgow-based engineering giant Weir Group soared 2.8% after it unveiled details of a $385 million (£237m) deal to extend its presence in the booming US shale oil and gas sector with the purchase of Oklahoma-based Mathena.
Weir, which operates in more than 70 countries and specialises in providing pumps for the energy and mining sectors, will pay $240m up front and a maximum of another $145m over the next two years, if Mathena meets profit targets.
Weir chief executive, Keith Cochrane, said: “Mathena is a well-regarded business in the US upstream oil and gas markets, with a strong management team and market share in the pressure control drilling markets.
“This deal is a close strategic fit with our existing pressure control business and gives us a larger suite of products which we can sell to the expanded customer base.
“The business has strong growth potential and increases our exposure to shale oil and gas, markets with attractive long-term structural growth prospects.”
Weir said it will fund the deal using existing bank facilities.
There has been a massive expansion of the shale sector in the United States to the extent that the International Energy Agency last month predicted that the United States would become the world’s largest oil producer by 2020, outstripping Saudi Arabia and Russia.
A technique called fracking, in which a mixture of water, sand and some chemicals is pumped into a well under high pressure, is used to force the hydrocarbons from the rock.
Mathena manufactures a range of pressure control products for the industry which is seeing safety and environmental rules tightened.
Concerns that a glut of shale gas will lead to fewer new sites and less demand for new equipment has weighed heavily on Weir’s shares.
However, this deal is notable for the rise it will have on Weir’s presence in the ongoing aftermarket.
Around 80% of Mathena’s revenues are generated from equipment rental and 20% from related parts and service.
The Mathena management team will remain with Weir and, subject to US regulatory approvals, completion of the deal is expected on December 31.
Weir’s shares closed up 51p at 1863p.