The oilfield services (OFS) industry represents one of the most vibrant M&A markets within the energy sector. All indications point to continued activity, but the real question is: How long will the party last? The answer lies in the fundamentals of the industries served by OFS companies.
As background, OFS businesses, broadly defined, provide support for the extraction, production, transportation and processing of oil and gas. In North America, it is a $110 billion industry. It has many attributes for an active M&A environment: It is highly fragmented with more than 11,000 businesses; it lacks concentration among competitors; many companies are publicly traded; and both strategic and financial buyers are flush with either cash or appreciating stock shares to be used as consideration in changes of control.
The industry is growing rapidly due to new extraction technologies associated with horizontal drilling and fracturing techniques. These methods are facilitating the exploration and production of hydrocarbons in tight horizontal rock formations known as shale plays. In fact, so much oil and gas is being discovered and produced that the Energy Information Agency believes the United States could meet 100 percent of its liquid fuel needs from North American sources by 2024.
This is great news for the OFS industry and it has created the perfect storm for M&A activity.