By Georgina McCartney
HOUSTON – A wave of mega-mergers among oil producers is forcing America’s service companies that drill wells and hydraulic fracturing to cut prices, merge or risk bankruptcy as they compete for a dwindling number of customers.
US oil producers, also known as operators, have announced more than $275 billion in deals over the past year and a half, including multi-billion dollar combinations such as ExxonMobil (NYSE:) and Natural resources pioneer (NYSE:).
As major producers integrate and become more efficient while increasing oil production, there is less work for the oilfield services companies that depend on them, according to service company executives and energy analysts.
For example, Diamondback (NASDAQ:) Energy expects $550 million in annual cost synergies after acquiring Endeavor Energy. Of that, $325 million in savings is tied to operations, $150 million to land and $75 million to financial and operating costs.
“When customers come together, you might have a guy who managed seven rigs, and a guy who managed five rigs, that adds up to twelve. But when they come back, they’ll have 10,” said Chris Wright, CEO of Liberty Energy. , which has 6% of the US services market, according to consultancy Rystad Energy.
The number of oil rigs in the U.S. fell to 586 last week, down from 83 at this time last year, the lowest since December 2021, according to services firm Baker Hughes.
The fragmented US oilfield services sector is led by Halliburton (NYSE:) with 14% of the market share, according to Rystad.
Some smaller companies with older technology have been forced to lower prices to stay competitive as their customer base shrinks and customers opt for more efficient drilling, executives and analysts said.
“Everyone is struggling and fighting for less waste,” says Jasen Gast, CEO of construction and completion company Oilfield Service Professionals.
“The operators know they can get better rates. They can just go into the market and say, ‘Who wants my business?'” he added.
BANKRUPTCY AND MERGERS
Nitro Fluids, a Texas-based oilfield services company that filed for bankruptcy in May, largely blamed consolidation by operators, according to court records.
After Permian Resources acquired one of Fluids’ top customers, Earthstone Energy (NYSE:), in November, Fluids’ average monthly revenue fell from $1.2 million in 2023 to less than $100,000 in March, the company said.
It now faces $38.23 million in secured debt obligations and $14.4 million in unsecured debt, while holding $234,000 in cash as of May.
Liquids declined to comment. Permian did not respond to a request for comment.
Other companies are consolidating to expand their services. The U.S. oilfield sector has seen $12 billion in mergers and acquisitions this year, up from $5.3 billion in all of 2023, according to energy technology company Enverus.
SLB said in April it would buy ChampionX, allowing SLB to expand further into artificial lift technology that pumps more oil from wells.
“As the industry consolidates across the board, you’ll see these larger (manufacturers) partnering with larger service companies, so the service companies with scale will have the advantage over time,” said Thomas Jacob, vice president president of Rystad.
LONGER TERM OFFERS
Major service companies are pushing for longer-term contracts and partnerships with operators for stability after years of painful boom-and-bust drilling cycles, executives said.
Longer-term partnerships are also attractive to operators as they pursue more efficient drilling methods typically offered by technologically advanced, large service companies.
Midland, Texas-based ProPetro signed a three-year contract with Exxon Mobil in April to supply electric hydraulic fracturing fleets in the Permian Basin.
“The consolidation and new emerging technologies available today, including electric hydraulic fracturing equipment, have led operators to offer longer-term contracts,” said David Schorlemer, CFO of ProPetro.
‘CENTS ON THE DOLLAR’
As oilfield companies go bankrupt, auctions boom, giving surviving companies the opportunity to buy cheap equipment.
“We picked up some assets for pennies on the dollar (at auction) because the company just went bankrupt,” said Thomas Dunavant, CFO at Oilfield Service Professionals.
Oklahoma-based Superior Energy Auctioneers has held a total of three liquidation sales for oilfield companies this year, compared with three for all of 2023, according to the company’s website.
The relentless competition for customers, especially among small service companies, shows no signs of abating, Jacob said.
“The prospects are a bloodbath,” he said.
