HOUSTON – Oil field service companies will have to be far more frugal as crude prices fall, but the lower prices could still spur more corporate mergers in the oil patch, says an executive whose company recently snagged a small oil equipment firm for $430 million.
“The focus on cash flow is becoming more important, so long-term strategies are still in play and people are looking to shed assets,” said Paul Mahoney, president of Dover Artificial Lift in the Woodlands, in an interview with Fuelfix on Friday. “Distressed assets could become more valuable, but it would have to be a tighter fit” for a company to buy another.
In early October, Illinois-based industrial equipment manufacturer Dover Corp. agreed to pay $430 million for Accelerated Companies, an oil field service company based in the Woodlands that specializes in generating upward pressure on aging oil reservoirs.
That’s a task that requires electric submersible pumps, hydraulic jet pump systems and other artificial lift tools, a $13 billion market that has grown because wells in U.S. shale plays need pressure services sooner in their lifespan than conventional, vertical wells.
Mahoney said Dover pursued the deal because it would add hydraulic jet pumps to its product line, enabling it to enter a $250 million market geared toward challenging environments with crooked, deep reservoirs or deviated wellbores, located in regions where electrical generation used for other kinds of pumps is hard to come by. Demand for every kind of artificial lift pump has grown in recent years during the U.S. shale energy surge, he said. Dover Artificial Lift is part of the energy arm of Dover Corp.
That transaction is one example of a big, diversified company scooping up a smaller oil-field specialist – the kind of service-company purchases that have become common over the last decade, as Schlumberger and others have absorbed many singular product makers in niche markets. It also comes a few weeks before Halliburton announced a $35 billion deal to buy Baker Hughes.
Dover’s deal had been announced just a few days after U.S. benchmark crude had fallen below $90 a barrel for the first time in years. The price of West Texas Intermediate crude has since tumbled to $65 a barrel, and analysts say that could bring down the value of small companies, making them a buyout target.
“The industrial names,” such as GE, “might be more likely to be the acquirers,” said Rob Desai, an analyst with Edward Jones. “Their diversified nature means they haven’t been hit as much by oil prices.”
GE and other industrial manufacturers have signaled they’re trying to increase their exposure to the U.S. oil patch, and that expansion will likely continue to occur even as oil prices wane, Desai said. German conglomerate Siemens AG in September put up $7.6 billion to buy Houston-based gas turbine maker Dresser-Rand.
“The general thought is the growth will come back eventually,” Desia said. “We’ll see more of it, and it’ll probably be the small to mid-tier companies we see get acquired because of the uncertainty around oil prices.”
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