"Unconventional" has become the buzzword for oil-field companies. The global oil-field services market, valued at a little more than $140 billion, has hardly marked a change since 2008, except for a dip in 2009. However, with natural gas demand expected to grow three times faster than its liquid counterparts, increased exploration and production activities are expected, triggering the global market for oil-field services to hit $200 billion by 2015.
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The demand for unconventional energy sources is expected to rise 52% by 2030. This is where I see opportunity in the oil-field services sector. The demand for natural gas has resulted in increased demand for novel and complex rigs, while regulations requiring full elimination of wells, platforms, and pipelines no longer providing operational support should supply opportunities for various oil-field services companies.
Increasing demand for natural gas is coming from China. With a decline in the nuclear capacity in Germany and Japan, demand has seen a further surge in other countries. The Fukushima incident has created a fear, especially in countries like India, where safety concerns are given high priority. Given the high costs and high-stakes tragedies associated with nuclear power, industry experts are preferring natural gas as the best alternative to nuclear.
The area is also experiencing technological innovation. Horizontal oil and gas drilling is one of the novel technologies introduced in the oil and gas sector. Increased usage can be predicted with a rise in demand for unconventional energy resources, as well as for oil.
Completion and production
The completion and production services market, with respect to unconventional energy resources, is also expected to provide strong prospects for oil-field services companies. The sector, which contributes around 70% to the total oil-field services industry, requires huge infrastructure. This is where biggies such as Schlumberger (NYSE: SLB ) and CGG Veritas (NYSE: CGV ) come into play. Most of the demand is expected from international markets. For instance, countries such as Poland, which lack infrastructure, present huge opportunities for oil-field services providers.
Growth is also anticipated in environmental services. North America requires 14 million barrels of water per day to improve well productivity in unconventional gas stimulation. Increased demand for unconventional gas will create increased opportunities for companies operating in the sector, such as Halliburton (NYSE: HAL ) , Newpark Resources (NYSE: NR ) , Weatherford (NYSE: WFT ) , and Baker Hughes (NYSE: BHI ) .
Emerging markets such as South and Central America, certain European regions, and Asia-Pacific are attracting the oil-field services industry. Huge production is expected from Brazil, West Africa, the Arctic, Scotland, and the U.K. overall. With discovery of huge reserves, especially in the offshore areas of these regions, oil-field services companies have significant international prospects.
North America, the Middle East, and Africa, accounting for more than half of the global oil-field services market, have huge reserves in onshore and offshore areas. This creates room for further discovery of new resources.
M&A is the catchword
The oil-field services sector is witnessing an increased number of mergers and acquisitions. Improvement in the M&A markets is mostly driven by strategic buyers executing transactions to boost their bottom lines. The industry is also drawing attention from private equity groups having access to better credit markets for financing investments.
Given the rising demand for unconventional energy resources, I expect strategic and financial M&A activities in the future. Strategic buyers would like to attain economies of scale and technological capabilities. Financial investors would like to capitalize by investing in companies, given that the credit market improves further.
The Foolish bottom line
The ongoing shift in drilling techniques and rising commodity prices should attract investors toward the oil-field services sector. Rising commodity prices will increase oil and gas spending, resulting in an increase in operating and capital expenditures. This should, in turn, enhance the top and bottom lines for companies operating in this space. The oil-field services sector is definitely worth keeping an eye on.
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