Trump’s support of energy sector should boost oilfield M&A

President Trump’s commitment to domestic energy production, combined with a promise to reduce financial regulations, should expand the opportunities for North American merger and acquisition deals in the oilfield services and manufacturing subsector.

Trump energized the industry during his first days in office by signing several executive orders that could significantly boost the revival of the North American energy sector, including his call for expedited environmental reviews and the advancement of the Keystone XL and Dakota Access pipelines.

If Keystone moves forward, its long-awaited approval signals a new wave of cross-border pipelines, leading to improved Canadian oil prices driven by increased takeaway capacity. Increased volumes and better pricing should result in improved operating performance and utilization of many Canadian service providers. Combined with better efficiencies and technologies in extraction, we believe that investment and M&A in the sector will solidly rebound. We are already seeing solid indicators of growth ahead, with companies in the space that survived the downturn seeing a significant spike in new business.

Optimistic forecast for U.S. oil & gas M&A

In the U.S., M&A in the oil patch is showing signs of steady acceleration moving through 2017. Service and manufacturing companies are among those gearing up for a sustained energy sector recovery, as they feel more confident with the political winds under Trump than they did under Obama.

Our former client, Keane (FRAC), just went public in January, and we think this is just the beginning of new service companies going to the public markets.

There were some interesting deals last year as well. Baker Hughes sold a majority (53.3%) of its hydraulic fracturing and cementing business to private equity partners to create a standalone, new BJ Services. Baker Hughes is combining with a unit of General Electric in a $32 billion merger, where GE would own 62.5% of the combined company.

Several other bright spots have emerged in the industry. Halliburton announced its plans to hire about 200 workers in the Permian Basin, and Schlumberger, the world’s largest oilfield service provider, halted job cuts in October 2016, and said its 2017 outlook is optimistic, with growth driven largely by North American shale producers. New drilling rigs have been added for several weeks in a row, resulting in greater service activity, higher sand volumes, and increased backlog for pipe, valve and fittings companies.

Mid-market oilfield service companies have also been able to command higher prices for their work recently, which should translate into stronger balance sheets and ultimately could fuel demand for M&A activity. Most oil & gas transactions in 2016 were focused on asset sales in the upstream and midstream sector.

Expected rollbacks of financial regulations and improved trade terms with other countries under President Trump should make banks and other capital sources less nervous about lending in the energy space, and more willing to take on risk. This should lead to a strong year for deal-making in the energy sector.

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.