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Shale drilling has been all the rage in the U.S. and is slowly expanding its reach around the world. One thing that makes the process so productive is the use of specialty chemicals to stimulate wells and create "artificial lift," which assists in bringing the gas and liquids to the surface. This oilfield chemicals sub-industry is expected to be one of the faster-growing segments of the oil and gas services sector because of the proliferation of these unconventional drilling sites around the globe. Based on research conducted by Lucintel, the O&G drilling industry should grow at a 5% compound annual growth rate out into 2017. 

Realizing the potential of this market in the near to long term, Ecolab (NYSE: ECL  ) has decided to spend $2.5 billion on the acquisition of privately held specialty chemical company Champion Technologies.

Driven by a spurt of drilling activity, by 2015, the oilfield chemicals industry is expected to pump its revenues up to $13.6 billion. By that time, specialty chemicals will contribute around $6.7 billion, up from just $2.5 billion in 2005, according to The Freedonia Group. Creating this steep growth trajectory is the multi-stage process that is "fracking," as each stage requires a variety of chemicals. Some operations can reach up upwards of 12 to 20 different stages.

And Ecolab is doing what it takes to compete in this market. Using a blend of 75% cash and 25% stock (amounting to 8 million shares), Ecolab is expanding its oilfield chemicals business significantly. In 2010, 40% of the U.S. market was controlled by Halliburton (NYSE: HAL  ) , Baker Hughes (NYSE: BHI  ) and Schlumberger (NYSE: SLB  ) . Combining this recently announced acquisition with its 2011 $5.4 billion purchase of Nalco Holding will make the expanded entity the largest producer of North American oilfield chemicals, with a 40% share of the market all to itself.

Ecolab Chairman and CEO Douglas Baker Jr. says the transaction "represents a rare opportunity to build on our position in a fast-growing market by improving our geographic coverage and technology offerings." The deal is expected to be accretive to earnings in 2013, after closing later this year. Based on Ecolab's success at bringing Nalco's operations under its roof, these expectations are about as close to a guarantee as you can get. Already in the first half of 2012, Nalco's operations contributed 44% of Ecolab's $5.8 billion in revenues. In 2011, Champion Technologies had sales of $1.2 billion, which is just shy of 18% of Ecolab's 2011 top line. Based on recent history, it would be reasonable to assume that Ecolab will see a minimum of $1.2 billion added to its sales in 2013.

Barriers to entry in the specialty chemicals business are quite high because of the unique formulas and science involved, which is why M&A activity is one of the most efficient ways to grow in this area. Ecolab has proved once already that it's fully capable of making this strategy work. With Champion Technologies' portfolio and reputation, successfully completing this transaction should be as easy as finding oil in the Bakken. 

Money flowing into the oilfield chemicals business is largely dependent on the capital expenditures of upstream exploration and production companies. One such company worth checking out is SandRidge Energy. The company is halfway through its ambitious three-year plan to profitability, and the future looks bright. Take a look at this brand-new premium report detailing SandRidge's game plan and what to expect from the company going forward. To get started, click here!

Taylor Muckerman has no positions in the stocks mentioned above. The Motley Fool owns shares of Ecolab and Halliburton. Motley Fool newsletter services recommend Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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