HOUSTON – A wave of mega-mergers among U.S. oil producers is forcing service companies that drill and hydraulically fracture wells to cut their prices, merge, or face bankruptcy as they vie for a shrinking customer base.
Over the past year and a half, U.S. oil producers have announced more than $275 billion in deals, including significant mergers such as Exxon Mobil’s acquisition of Pioneer Natural Resources. As these major producers integrate and boost efficiency, the demand for services from oilfield companies has declined, according to industry executives and analysts.
For instance, Diamondback Energy expects $550 million in annual cost savings following its acquisition of Endeavor Energy, with significant reductions in operational, land, and corporate costs. This trend of consolidation means fewer rigs in operation overall, impacting service providers.
“When customers combine, you might have a guy who was running seven rigs, and a guy who was running five rigs, that adds together to 12. But when they come back, they run 10,” said Chris Wright, CEO of Liberty Energy, which holds a 6% share of the U.S. services market.
Last week, the U.S. rig count fell to 586, its lowest since December 2021, according to Baker Hughes.
The fragmented U.S. oilfield service sector is led by Halliburton with 14% of market share. Smaller firms with older technology are struggling to stay competitive, leading them to lower prices as their customer base shrinks and clients opt for more efficient drilling.
“Everyone is scrambling and fighting for less scraps,” said Jasen Gast, CEO of Oilfield Service Professionals. “The operators know that they can get better rates. They can just go out into the market and say, ‘well, who wants my business?'”
Bankruptcies and Mergers
Texas-based Nitro Fluids, which filed for bankruptcy in May, blamed consolidation among operators for its financial troubles. After Permian Resources acquired one of Nitro’s top customers, Earthstone Energy, Nitro’s monthly revenue plummeted from $1.2 million to less than $100,000. Nitro now faces significant debt obligations while holding minimal cash reserves.
Other companies are consolidating to expand their service offerings. The U.S. oilfield sector has seen $12 billion in mergers and acquisitions this year, up from $5.3 billion in all of 2023, according to energy tech firm Enverus. SLB’s acquisition of ChampionX in April allows SLB to further expand into artificial lift technology.
“As the industry consolidates across the board, you will see these bigger producers working with bigger service companies,” said Rystad vice president Thomas Jacob. “The service companies that have scale will have the advantage over time.”
Longer-Term Deals
Large service firms are advocating for longer-term contracts with operators to ensure stability after years of volatile drilling cycles. These longer-term partnerships are appealing to operators seeking efficient drilling methods offered by technologically advanced, large service companies.
Midland, Texas-based ProPetro secured a three-year contract with Exxon Mobil to provide electric hydraulic fracturing fleets in the Permian Basin. “The consolidation and new emerging technologies available today, including electric hydraulic fracturing equipment, have led operators to begin offering longer-term contracts,” said David Schorlemer, ProPetro’s CFO.
Buying Equipment for Pennies on the Dollar
As oilfield companies go bankrupt, auctions are providing opportunities for surviving companies to purchase inexpensive equipment. “We picked up some assets for pennies on the dollar at an auction because the company just went under,” said Thomas Dunavant, CFO at Oilfield Service Professionals.
Superior Energy Auctioneers has held three total liquidation sales for oilfield companies this year, compared to three for all of 2023.
“The brutal battle for customers, especially among small service companies, shows no sign of abating,” Jacob said. “The outlook is a bloodbath.”
