We are pleased to present to you our mid-year 2015 Oilfield Services Outlook: Drivers, Activity & Thoughts.

2015 has been a retrenchment year, with the number of land-based drilling rigs dropping by approximately 50% since November 2014 and companies in the oil services sector reacting to the new oil price deck reality. We expect Oilfield Service M&A transactions to increase going forward, as oil prices have stabilized and differences in seller/buyer valuation expectations have narrowed. Headwaters’ attached report provides a wealth of Oilfield Service metrics (as of July 15, 2015), our overview on the sector, and highlights:

  • U.S. Shale Causing a Paradigm Shift in Global Oil Market: although producers have dropped the shale cost curve by an estimated $20 per barrel, there remain differences in shale play economics

  • Necessity is the Driver of Innovation: service companies as development partners and refracking

  • Focus Turns to Maximizing Productivity of Current Wells: serious attention to artificial lift and R&D

  • A Backlog of U.S. Crude Supply Awaiting High Prices – “Fracklog”: some operators are delaying completions until prices rebound

  • Spotlight on Transportation & Logistics: thinking outside the box, tanker storage, outsourcing of logistics, strong general freight market acts as pressure release, consolidators see crisis as opportunity, and PE making early bets on recovery

  • Shifting Sands: industry overcapacity with high concentration of control backed by private equity, market oversupply with slowdown in completions, and trend toward purchases of proppant at the basin

  • M&A Activity Starting to Increase: with firming oil prices around a new equilibrium price of $50-60 per barrel, deal activity is increasing as companies look to optimize their portfolios, sell non-core assets, and refocus their effors

  • New Legislation & Regulatory News: new legislation to lift export ban on U.S. crude and EPA report concludes that hydraulic fracturing contamination of drinking water supply is not widespread

  • Final Thoughts: U.S. shale has embraced innovation and is here to stay. With decline and stabilization of oil prices, expect an uptick in M&A activity