When crude prices plummeted three years ago, oil companies sliced jobs, cut rig counts and buttoned down the hatches to survive, but they also embraced technology and cost-saving innovations.
Oil prices have begun to rise again, but we don’t expect companies to back off their commitments to technological improvements in the oilfield. Companies have experienced the upside: productivity gains, reduced labor costs and competitive advantages.
Break-even prices for U.S. shale plays have dropped from about $80 a barrel to as little as $35 a barrel in recent years with much of that savings attributable to technological advances in the industry.
From automated tools and robots in the oilfield to surveys by drone, technology is changing the way oil & gas companies do business. Oilfield service companies that are able to provide automation in the oil field should have a bright future ahead of them. We see these companies as likely targets for future merger and acquisition activity.
Bloomberg recently highlighted several technology advances, including computer-controlled wells, that have allowed producers to remotely expand or cut production, a practice that used to be done manually by adjusting a well’s diameter. Remote-controlled wellheads enable companies such as Fort Worth’s Range Resources to send their production to different markets in response to price moves.
These emerging technologies should keep U.S. oilfields such as the Permian Basin, which has been producing oil since shortly after World War I, productive for many years to come.
Several oilfield technology companies have been part of recent M&A deal announcements. Among them:
- Choice Completions Systems, an emerging technology company established in 2016 that specializes in the supply of downhole products for unconventional multi-stage completions. Choice, of Houston, was acquired by Houston-based Rubicon Oilfield International. Rubicon said the acquisition strengthens its portfolio of products across the completions solutions business segment with differentiated and value-driven frac plug and toe sleeve technology. It plans to ramp up growth of Choice.
- Seventy Seven Energy, an Oklahoma City company that provides a wide range of wellsite services and equipment to U.S. exploration and production customers operating in unconventional resource plays. Seventy Seven and its affiliates, Performance Technologies, Nomac Drilling and Great Plains Oilfield Rental, were acquired by Patterson-UTI Energy. Houston-based Patterson-UTI says the deal will solidify its position as a leading high-spec drilling company.
We see oilfield productivity continuing to rise in the future, especially in the vast Permian Basin, the nation’s largest oil-producing basin, due to a variety of technology improvements, which will continue to drive the industry. The opportunity for multiple stacked plays in the Permian is possible due to technologies such as horizontal drilling and hydraulic fracturing technologies.
The future of M&A oilfield activity
We expect a modest upturn in oilfield services M&A this year over 2016, and that likely will be driven by technology in the field.
Last year, 53 M&A deals occurred in the oilfield services sector, up from 25 deals in 2015. Little happened in the sector until the fourth quarter, when deal flow began to improve.
This year, mergers and acquisitions in the overall U.S. oil and gas industry hit a record value for the first quarter, reinvigorated by steadier oil and gas prices, a new pro-energy administration, and technological advances, according to a report in the Oil & Gas Journal.
Bigger players who have sorted out their finances and are well-capitalized will be looking for strategic acquisitions that will improve their efficiencies and lower costs in the oil patch. We expect recent oil price gains to further buoy interest in these innovative companies.
Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including energy infrastructure.