DEALTALK-Oil services firms target small companies for growth

* Targets: Superior Energy, Superior Well, Parker Drilling

* Premiums likely in the range of 30 pct

* Superior Energy, Superior Well eyed for pressure pumps

* Parker Drilling eyed for its international assets

* Schlumberger, Halliburton to continue buying

By Krishna N. Das

BANGALORE, April 21 (BestGrowthStock) – Cash-rich large oilfield
service companies have been snapping up smaller rivals as they
move to broaden their product lines, and may now be setting
their sights on niche players to help them move deeper into new
markets around the globe.

With companies pushing the boundaries of technology and the
cost of discovering oil and gas having risen three-fold over
the past decade, the need for bundled services have risen.

“National oil companies do outsource to big one-stop shops
and so companies like Schlumberger and Halliburton would look
to provide that,” a portfolio manger, who oversees investments
in a number of oil services firms told Reuters.

The shopping started last year when Baker Hughes (BHI.N: )
bid $4.8 billion for BJ Services. This year, sector leader
Schlumberger Ltd (SLB.N: ) coughed up $11.3 billion for Smith
International and $1 billion for France’s Geoservices. Earlier
this month, Halliburton (HAL.N: ) bid $240 million for Boots &
Coots.

“Somebody who has got four pieces would want to add two
more to complete the picture,” said the New York-based fund
manager, who did not wish to be named.

Big players also seek niche technologies like those offered
by Superior Well Services (SWSI.O: ) — the top independent
player in the pressure pumping business — and rival Superior
Energy Services (SPN.N: ).

“Superior Energy and Superior Well Services have some
similar product lines (to Boots & Coots), including well
intervention and frac/stimulation,” Oppenheimer & Co analyst
Scott Burk had said after the Halliburton deal.

As companies expand into newer territories, the extensive
overseas operations of Parker Drilling Co (PKD.N: ) and Superior
Energy — about a third of revenue each — make them all the
more attractive.

“We think companies with international assets or footprints
are likely targets, similar to Boots & Coots (which has) 80
percent international (exposure),” Stephens Inc analyst Michael
Marino said.

The portfolio manager added that while companies like
Cameron International Corp (CAM.N: ), FMC Technologies Inc
(FTI.N: ) and Oceaneering International Inc (OII.N: ) had a viable
go-alone strategy, there were others who were more challenged
in terms of lack of technology and would drive the
consolidation.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
^^ For a related graphic on share movements of the
companies post major deals, click on
http://link.reuters.com/bat48j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
^^

VALUE FOR MONEY

Investors will likely get sizeable premiums for their
holdings since oil service deals generally garner premiums in
the range of 30 percent.

“I focus more on valuation, but 25 percent to 30 percent
seems in the ballpark of what is customary to get approval from
shareholders,” Stephens’ Marino said.

Of the two deals this year, Halliburton paid a premium of
28 percent and Schlumberger paid a 37.5 percent premium, while
Baker Hughes paid 16 percent last August.

And their warchests are not exhausted yet.

Halliburton has about $1.38 billion in cash and equivalent,
Baker Hughes has about $1.60 billion while Schlumberger has
about $243 million. Weatherford International Ltd (WFT.N: ) has
about $252.52 million.

“For a deal, we see what type of earnings power those
assets have and also see what others paid for similar
transactions,” said the portfolio manger.

The consolidation in the sector would not only remove
excess capacity plaguing the market, but also help their
profits by improving pricing power, which plunged last year
when idle equipment was put to work at huge discounts.

Oilfield service sector profits suffered as oil and gas
producers cut spending amid weak energy prices, and although
those companies are opening their pockets again, earnings this
week from Halliburton [ID:nN19173881] and Weatherford Ltd
[ID:nN19116648] showed margins remain anemic versus levels seen
two or three years ago.

Oppenheimer’s Burk said that as long as the quality remains
high and prices do not rise so much as to offset the
efficiencies of using bundled services, the one-stop shop is
here to stay.

Stock Market Research

(Reporting by Krishna N. Das in Bangalore; Editing by Savio
D’Souza and Jarshad Kakkrakandy)

DEALTALK-Oil services firms target small companies for growth