Oilfield Service Companies Expect to See More Industry Mergers

Oilfield service and equipment providers anticipate more mergers and acquisitions as valuations fall.

“I do absolutely expect to see more M&A activity going forward,” said Jorgen Rasmussen, chief executive officer for Archer Ltd., which negotiated its acquisition price for the Great White Energy Services group of companies down 15 percent to $630 million. “We’ve already taken advantage of lower valuations by lowering the price for Great White.”

The energy industry is being helped by stronger international spending budgets by producers and explorers and gross domestic product growth in emerging markets, according to a Macquarie Equities Research note yesterday.

Oil and natural-gas companies are expected to spend $122 billion in the U.S. this year on exploration and production, 22 percent more than last year, James Crandell and Omar Nokta, analysts at Dahlman Rose & Co., wrote in a June 7 note to investors. The average number of active U.S. oil and gas rigs rose to 1,826 in the second quarter, up 21 percent from 1,506 a year ago, according to Baker Hughes Inc. (BHI)

National Oilwell Varco, the largest U.S. maker of oilfield equipment, expects to spend “well over” $1 billion on acquisitions this year, Chief Financial Officer Clay Williams said today in an interview in Oslo.

“The silver lining to the market downturn and volatility is that perhaps it’ll make some companies that we’re interested in more reasonably valued, and some interesting targets may emerge,” Williams said. “We’re working hard to make those transactions happen.”

Manufacturers Sought

The company, which is based in Houston, is looking mostly at international acquisitions and wants to add more manufacturers who make the gear used to produce oil and natural gas.

“I think National Oilwell Varco is very well represented in drilling, and although we have lots of products going into production, we’re less well represented there,” Williams said.

Cameron International Corp. (CAM), the second-largest U.S. oilfield equipment maker, today agreed to buy the drilling-rig manufacturing segment of LeTourneau Technologies for $375 million in cash from Joy Global Inc. (JOYG)

The price was “very fair” for Cameron, Brian Uhlmer, an analyst at Global Hunter Securities in Houston, said today in a telephone interview.

“Cameron took advantage of global uncertainty, as well as a lack of buyers,” Uhlmer said. Joy ended up getting less than anticipated for the drilling rig business “because the market really fell apart over the last several months,” he said.

The Philadelphia Oil Service Sector Index has fallen 15 percent since July 22.

Middle East

Archer is looking to expand in the Middle East, South East Asia and Australia, Rasmussen said in an Oslo interview.

“Some areas of the world, acquisitions are very easy, like North America,” he said. “Some areas of the world it takes a lot more time because there are not many local players and the market is maybe dominated more by global players.”

Offshore driller mergers and acquisitions are expected to grow “significantly” over the next two years, Nigel Browne and Ryan McCormick, analysts at Macquarie Equities Research, wrote yesterday in a note to investors.

Rowan Companies Inc., which announced in May its $1.1 billion deal to sell LeTourneau to Joy, is viewed as a takeover target by several analyst firms including Macquarie.

Rowan’s Plan

The drilling-rig contractor, which is now solely focused on offshore work, does not see itself merging or being acquired, Matt Ralls, CEO for Houston-based Rowan said today in an Oslo interview.

“We believe we have critical mass,” Ralls said. “We don’t need to be part of a larger organization.”

Seadrill Ltd. sees further consolidation among rig owners, chief financial officer Esa Ikaeheimonen said today in an interview in Oslo. He adds that actually getting more attractive deals done still won’t be easy.

“Valuation and stock market are one thing, but reality in terms of where the deals are done is another thing,” he said today in an Oslo interview. “It does at least keep people busy in exploring opportunities and avenues to strike good deals.”

To contact the reporters on this story: David Wethe in Houston at dwethe@bloomberg.net. Marianne Stigset at mstigset@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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