Understanding the value of an oilfield services (OFS) company is by its very nature a complex matter. As participants in the greater energy industry, situated between the exploration and production (E&P) companies and midstream companies, the OFS sub-sector is quite broad. It includes, businesses that have the commonality of their connection to oil and gas prices, but also the significant differences between service providers and equipment manufacturers. It also includes businesses that focus on technology advantages and those that focus on relationships, those that specialize in narrow service/product niches and those that provide a broad range of services/products. Not to mention the differences in the economics that drive OFS companies with a focus on existing production, as opposed to those that focus on exploration. Also, the differences between those that focus on services that are particular to conventional oil versus unconventional oil, oil versus gas, shale versus tight sands.
Having a firm grasp on the many similarities and distinctions is crucial in performing valuations of these businesses. That understanding plays into the choice of which valuation approaches and methods are to be applied, and which of those approaches and methods are more reliable, or less reliable, depending on the subject company’s positioning and where the industry is in it’s potentially wide ranging cycles.
As part of any OFS company appraisal, one must consider expectations for both shorter-term and longer-term operating results. Industry cyclicality creates challenges in evaluating expectations that can lead to material over-valuations, or under-valuations, unless one has the depth of experience and industry understanding to navigate the many considerations that impact OFS companies.
In our latest whitepaper, Understanding Oilfield Services Companies & How to Value Them, we provide invaluable guidance in regard to these aspects of the OFS industry. Click below to download whitepaper.