Deloitte: Large service companies seek niche players

Large service companies seeking new technologies and markets are expected to drive active merger and acquisition activity among service contractors and equipment suppliers this year, although activity has slowed since the first quarter, Deloitte LLP said its midyear Oil & Gas Mergers and Acquisitions report.

Service companies seek to fulfill the needs of exploration and production companies as operators move into deeper water and learn to become more efficient producers in shale plays. In natural gas plays particularly, profitability increasingly is being controlled through cost efficiencies.

“Private equity firms and large oil field service companies will be picking up niche players,” within the service industry, Jason Spann, partner with Deloitte Tax LLP, told reporters during an Aug. 18 briefing in Houston.

Jed Shreve, principal with Deloitte Financial Advisory Services LLP, noted large service companies are looking to gain early access to technology, markets, and customers.

“We are seeing a high volume of small acquisitions where target management is on the forefront of a new innovation or where market share can be acquired before a competitor makes a move,” Shreve said.

Some of larger service companies made a number of major transactions during 2010. M&A activity remained strong during this year’s first half, although there were no service megamergers.

During 2011’s first 6 months, Deloitte reported M&A transactions worth $18.7 billion among service and equipment providers. That compared with $16.4 billion for the same period last year.

Deloitte sees bright long-term prospects for overall oil and gas M&A. It reported M&A transactions across the industry worth $89.7 billion for first-half 2011, down 14.8% from the same period last year. First-half 2011 saw 200 deals compared with 213 deals during 2010’s first 6 months.

This year overall oil and gas M&A activity started strongly but fell off during May and June, which analysts attributed largely to a slowing economy and retreating oil and gas prices. Of the first-half 2011 M&A activity, about 75% involved E&P assets. Unconventional plays received the most attention.

Contact Paula Dittrick at paulad@ogjonline.com.

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