FROM 2008 to 2014, and particularly between 2011 and 2014,
private equity funds invested heavily in the oilfield services sector.
However, since oil prices collapsed in late 2014, few private equities
have monetized investments. Now, many of these companies
remain in private equity (PE) portfolios and are aging past the
normal investment holding period.
PwC’s proprietary research identified over 210 oilfield service
companies with a collective valuation of up to $10 billion that
may be looking for new owners over the next 12-24 months. Private
equity owners face a market where bids don’t match the returns
on investment they seek, largely because of the spread between
oil prices when companies were purchased ($90/bbl) and where
they are today (below $50/bbl).
As owners seek to monetize their investments while preserving
acceptable returns, they have four options, in declining levels of
attractiveness to the seller: successful trade sales, IPOs, recapital-
izations, and selling at a loss. Although strategic investors are
looking for deal opportunities, there are few targets in PE portfolios
with the synergies to justify the transaction value. Similarly, many
financial buyers are not finding deals with valuations that can
produce a good return. If current market conditions persist, we
expect M&A activity with respect to PE investing in oilfield services
to remain slow overall in the near term. However, certain sub-sec-
tors of the OFS space may present short-term value creating
opportunities (e.g. fracturing equipment).
PRIVATE CAPITAL INVESTED HEAVILY IN OILFIELD
After the financial crisis and Great Recession of 2008 pushed crude
oil prices down by two-thirds, the US oil industry went through
a growth cycle propelled by horizontal drilling and hydraulic
fracturing that added millions of barrels of daily production from
unconventional formations. Oil prices went from the $50 per barrel
range in 2009 to over $100 for about 30 months prior to collapsing
in 2014 (see Figure 1). Oil prices have stabilized around $50 per
barrel this year and there are not strong supply or demand indicators that can point to further price increases.
According to PwC’s research and analysis, private equity firms
made over 550 acquisitions across the oilfield services sector since
2008. These include over 290 platform acquisitions and nearly 260
PRIVATE EQUITY LOOKING FOR DEALS
RAUL CORAL, KYLE WEST, ROB MCCENEY, MILE MILISAVLJEVIC, PWC, HOUSTON