A New Direction in Energy M&A

When it comes to onshore drilling for oil and especially natural gas, directional is the new vertical.

Now that the industry is targeting shale plays like the natural gas-bearing Marcellus and the oil-bearing Bakken, players such as Devon Energy (NYSE: DVN  ) , Chespeake Energy (NYSE: CHK  ) , and XTO Energy (NYSE: XTO  ) all have to send their drillbits sideways to hit more "pay."

This is a major boon for drillers like Precision Drilling Trust (NYSE: PDS  ) , whose rigs are able to perform this more demanding directional activity. Another beneficiary of the trend is W-H Energy Services (NYSE: WHQ  ) , whose PathFinder subsidiary provides both the personnel and the equipment to hit those hard-to-reach reservoirs.

No wonder, then, that W-H is the latest acquisition target in an increasingly busy M&A season. Smith International (NYSE: SII  ) is buying the company for about $3.2 billion in cash and shares. Smith is one of the global heavyweights in drilling services, and as directional drilling becomes more common worldwide, W-H will prove to be a valuable asset.

This is now the third drilling services company to be snapped up in recent months. While I wouldn't bet on too much additional consolidation, the drillers are very well-positioned given today's oil and natural gas prices -- not to mention the upward-sloping futures curve and the recent start of hurricane season. The purest play on horizontal drilling that I know of is Helmerich & Payne (NYSE: HP  ) , which is a fine place to begin your investigation of the space.

Related Foolishness:

Precision Drilling is a Global Gains selection. Chesapeake is an Inside Value pick. Drill into any of our newsletter services free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 657338, ~/Articles/ArticleHandler.aspx, 12/20/2014 8:03:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement