800
850
900
950
1,000
1,050
1,100
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(Wel
l co
un
t in
th
ou
san
ds)
($ in
mill
ion
s)
Artificial Lift - Market Size & Share vs. Total Well Count
Weatherford Schlumberger GE Oil & GasBaker Hughes Others 2014P TotalTotal Active Well Count
Once again, the artificial lift market is on pace to achieve double digit growth (est. 15%) in2014. In the October edition, we spotlight this sector, detailing the historical methods forartificial lift, new innovation and technology, the industry outlook, and its implications foroilfield service providers.
It’s no secret that there has been exceptional growth in domestic drilling, with tens ofthousands of new wells being drilled each year. With an increasing shift to horizontaldrilling, the maturing of these unconventional wells presents a major challenge andopportunity: how to optimize well production. With horizontal wells exhibiting steepdecline rates (see Bakken Hz. Well Decline Curve), the focus previously optimizing wellcompletion is increasingly being allocated towards optimizing production. This shift bodeswell for manufacturers and service providers of artificial lift systems.
Quick Market Overview. Artificial lift is installed in wells when there is a need tosupplement the natural reservoir drive to increase flow from the wellbore. Over 90% ofglobal producing wells currently use some form of artificial lift. Further details:
• 94% of oil wells will need artificial lift or pumps at some point in theirlifecycle, and 90% of existing oil and gas wells requiring water removal utilizesome form of artificial lift system
• 70% of the world’s oil and gas production is derived from mature fields,including a large percentage in the secondary or tertiary production phase
• The market has grown at an average annual growth rate of 19% since 2009(below)
October Edition: A Spotlight on the Artificial Lift Market
Prepared by:
Duane [email protected]
John [email protected]
Brandon [email protected]
Source: Spears & Associates
Bakken Hz. Well Decline Curve (3,694 Samples)
Bb
l. O
il /
Da
y
Years from First Production
Source: HPDI, Bernstein Research
1
Artificial Lift Types. Well bore characteristics including LPR (liquid production rate),water cut, gas-liquid ratio, viscosity, well depth, completion type, casing and tubingsizes and wellbore deviation all factor into determining the most suited lift system.That said, there are six major types of lifts that encompass the majority of lift systems(96%), with many customizations for specific wellbore conditions. A brief overview:
• Rod Lift - also known as the sucker-rod lift or the “pump jack”; this is the mosttenured lift and probably the most iconic visual in the oil and gas industry.These lifts provide an efficient and cost effective way to increase the rate ofextracting hydrocarbons, and the simple design and easy maintenance of therod-lift components make it easy to source service companies to work on thesystems. With more than 50% of the global rod lift market based in the US,the lift is still the method of choice for vertical wells.
• ESPs (Electric Submersible Pumps) – a dynamic lift that utilizes centrifugal force to lift hydrocarbons to the surface. ESPs are typically brought in to enhance oil production as soon as it begins to decline, and while there is still a moderate to high volume of fluid that can be lifted from the well. ESPs have an electric cable running downhole to power the lift motor, giving the ability to transmit signals, retrieve data and proactively monitor problems. ESPs’ limitations are primarily witnessed in unconventional wells with a high mixture of gas.
• Gas Lift – one of the most effective lifts for mature horizontal wells. It involves injecting high-pressure gas from the surface into the producing fluid column, reducing the density of fluids and the bottom hole pressure, and allowing the reservoir pressure to drive the hydrocarbons up to the surface.
• Hydraulic Pumping Systems – a lift designed for deep wells with solids, sand, heavy oil, water, gas, corrosive fluids, etc. In both forms of HPS (reciprocating piston and jet hydraulic), a motor is placed downhole to help force pressure upward. According to Spears & Associates, HPS’s are beginning to gain popularity in horizontal wells.
• Plunger Lift – a lift that uses the well’s own energy to open and close the well shutoff valve at the optimum times to bring up the plunger and the contaminants and maximize production. The lift’s versatility gives it applications in both gassy and oily basins, making it easier to find mechanics to service it. This lift is increasing in popularity due to its efficiency and favorable environmental impacts.
An ESP Lift Diagram
Rod Lift or “Pump Jack”
54%46% 46%
25%31% 33%
7% 7% 5%4% 5% 6%
3% 5% 4%2% 2% 2%5% 4% 4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013
Global Market Share by Lift Type
ESP Rod Lift PCP Gas Lift Plunger Hydraulic Other
Source: Spears & Associates
Source: Weatherford
2Sources: Hart Energy Research, Weatherford, Spears & Associates
Market Outlook and Implications. The artificial lift market is expected to increase inyears ahead, with unconventional wells driving the demand for new technology. Whileover 90% of the world’s wells use some form of artificial lift, it is the new horizontaland offshore well activity that is driving innovation (see Horizontal as Percentage ofTotal Rigs).
• An aforementioned demand driver is the high depletion rates in horizontalwells. The average flow from a shale gas well drops 50% to 75% in the firstyear, and up to 78% for oil wells. Consequently, operators are moving toartificial lift systems much sooner to maintain flow rates and progressing todifferent lift systems as the well conditions and flow rates change with the lifeof the well.
• An industry trend is the increasing amount of resources being allocated totechnological development and innovation in lift systems. One example is GEOil & Gas’ recent announcement of its next generation ESP Vector Plusvariable speed drive (VSD), which allows the operator to gradually increaseESP motor speed and remotely adjust ESP speed from the surface withimproved intelligent control capabilities. Additionally, there is an increasingfocus on customizing lift systems to suit well conditions.
• Automation in the oilfield remains a hot topic, and one of the biggestopportunities for implementation and upside is in production operations.Reducing unplanned downtime and maximizing efficiencies withoutcompromising health, safety or environmental impacts are big goals foroperators. A little can go along way; according to a McKinsey & Companyresearch report on automation and production, a 10% increase in productionefficiency could yield over $260mm to the bottom-line on a particularbrownfield asset.
Consolidation. Over the years, key market players have been focusing on expansion oftheir product offering and venturing into submarkets, resulting in consolidation of theartificial lift market. From 2009 to 2013, the number of market participants reduced byapproximately 50%, highlighting the market consolidation trend.
• Founders Director of Oil & Gas Services, Joe Brady recently stated, “withexpected double digit growth in the segment and increased demand forproduction-based services, the space has become very attractive. We expectto see new entrants coming in to the market, primarily driven by PEG-backedservice providers that will offer niche technical expertise and cost savingmaintenance.”
Summary Remarks. Production optimization has always been a priority of theoperator, but as basins continue to mature, increasing attention and resources will beallocated to optimizing production from their existing wells. Further, the continuedexpansion into unconventional plays will call for new and improved technologies inartificial lift systems. As we push to extract resources from deeper, tighter, and moredifficult formations, demand will rise for artificial lift systems engineered for specificwell conditions. We expect emerging opportunities for companies that can pioneernew technology and provide customized solutions via higher expertise and ongoinginnovation. In addition, we expect automation to play a growing role in the productionspace and the overall oilfield. In the coming months, we will explore the digitizationand automation of the oilfield and its potential implications.
WE EXPECT TO SEE NEW
ENTRANTS COMING IN TO
THE MARKET, PRIMARILY
DRIVEN BY PEG-BACKED
SERVICE PROVIDERS THAT
WILL OFFER NICHE
TECHNICAL EXPERTISE AND
COST SAVING MAINTENANCE
“
”- JOE BRADY, DIRECTOR OF
FOUNDERS OIL & GAS SERVICES
PRACTICE
A diagram of oilfield automation
30%
40%
50%
60%
70%
80%
Jan
-09
Jul-
09Ja
n-1
0Ju
l-10
Jan
-11
Jul-
11Ja
n-1
2Ju
l-12
Jan
-13
Jul-
13Ja
n-1
4Ju
l-14
Horizontal Rigs as Percentage of Total Rigs
Source: Baker Hughes
3Source: Baker Hughes, McKinsey & Company, Spears & Associates & HIS Inc.
Select M&A Transactions
Announced Date Target/Issuer Buyers/InvestorsTotal Transaction Value
($USDmm)
10/20/2014Geospace Technologies Corporation (NasdaqGS:GEOS)
Lemelson Capital Management, LLC -
10/15/2014 Sun Tubular Services LLC IronGate Energy Services, LLC -
10/09/2014 TGC Industries Inc. (NasdaqGS:TGE)Dawson Geophysical Company (NasdaqGS:DWSN)
-
10/08/2014Essential Energy Services Ltd, Rod Rig Assets
Rapid Rod Service Ltd.5.45
10/07/2014 Schlehuber Oil Tools, LLC Team Oil Tools, Inc. -
10/04/2014 LineQuest, LLC Milford Companies -
10/02/2014 Accelerated Companies LLC Dover Artificial Lift430.0
10/02/2014 Elite Treating Solutions, Ltd. WadeCo Specialties Inc. -
10/01/2014 Houston Offshore Engineering LLC WS Atkins plc (LSE:ATK)73.0
09/30/2014 Maxx Oilfield Services, LLC Pro Oilfield Services, LLC -
09/21/2014 Dresser-Rand Group Inc. (NYSE:DRC) Siemens Energy, Inc.7,621.46
09/17/2014 Pioneer Fishing & Rental Services, LLC Basic Energy Services, Inc. (NYSE:BAS)16.0
09/15/2014CWC Energy Services Corp., Snubbing Assets and Business
-5.88
09/15/2014Technip SA, North American Diving Assets
Ranger Offshore, Inc. -
09/12/2014Oil and Gas Pipeline Inspection Services Business and Related Assets
Pure Technologies Ltd. (TSX:PUR)7.22
09/12/2014 Hyduke Machining Solutions Inc - -
09/12/2014JL Bryan Equipment Inc. and Tank Partners LLC
Empeiria Capital Partners, LLC -
Source: CapitalIQ
4
Commodity Prices
Source: CapitalIQ
Price Change from
Current Prior Month Prior Year Prior Month Prior Year
Crude Oil ($ per bbl) 82.49 90.91 96.86 (9.3%) (14.8)%
Price Change from
Current Prior Month Prior Year Prior Month Prior Year
Natural Gas ($ per MMBtu) 3.88 3.91 3.82 (0.7%) 1.7%
5
80.00
85.00
90.00
95.00
100.00
105.00
110.00
Crude Oil - WTI
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Natural Gas - Henry Hub
Rig Counts
Rig Count Change from
Current Prior Month Prior Year Prior Month Prior Year
U.S. Onshore 1,861 1,869 1,681 (0.4%) 10.7%
Rig Count Change from
Current Prior Month Prior Year Prior Month Prior Year
U.S. Offshore 57 62 58 (8.1%) (1.7%)
Source: Baker Hughes
6
0
500
1,000
1,500
2,000
2,500
Onshore Rig Count
0
20
40
60
80
100
120
140
160
180
200
Offshore Rig Count
Rig Counts (continued)
Source: Baker Hughes
7
0
500
1,000
1,500
2,000
2,500
U.S. Rig Count by Basin Permian
Eagle Ford
Williston
Marcellus
Mississippian
Granite Wash
Haynesville
DJ Niobrara
Utica
Cana Woodford
Barnett
Fayetteville
Arkoma Woodford
Ardmore Woodford
Others
507
5
6
9
21
38
47
63
43
62
73
81
193
209
561
Others
Ardmore Woodford
Arkoma Woodford
Fayetteville
Barnett
Cana Woodford
Utica
DJ-Niobrara
Haynesville
Granite Wash
Mississippian
Marcellus
Williston
Eagle Ford
Permian
U.S. Rig Count by Basin
74
(5)
1
0
(13)
2
9
13
0
10
(2)
(4)
8
(19)
93
Others
Ardmore Woodford
Arkoma Woodford
Fayetteville
Barnett
Cana Woodford
Utica
DJ-Niobrara
Haynesville
Granite Wash
Mississippian
Marcellus
Williston
Eagle Ford
Permian
U.S. Rig Count by Basin YTD Change
Rig Counts (continued)
Source: Baker Hughes
Rig Count Change from
Current Prior Month Prior Year Prior Month Prior Year
Oil 1,590 1,601 1,361 (0.7%) 16.8%
Natural Gas 328 329 372 (0.3%) (11.8%)
Rig Count Change from
Current Prior Month Prior Year Prior Month Prior Year
Oil 44 44 38 0.0% 15.8%
Natural Gas 11 14 18 (21.4%) (38.9%)
Total Gulf of Mexico 55 58 56 (5.2%) (1.8%)
8
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
U.S. Oil vs. Natural Gas Rig Count
Oil Rig Count Gas Rig Count
0
20
40
60
80
100
120
140
Gulf of Mexico Oil vs. Natural Gas Rig Count
Gas Rig Count Oil Rig Count
Domestic Production
Source: Baker Hughes
Million Barrels per Day Change from
Sep Prior Month Prior Year Prior Month Prior Year
Crude Oil 8.65 8.63 7.74 0.2% 11.8%
Billion Cubic Feet per Day Change from
Sep Prior Month Prior Year Prior Month Prior Year
Dry Natural Gas 70.17 70.32 66.34 (0.2%) 5.8%
9
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00(M
m b
bl/
day
)Crude Oil Production
62.00
63.00
64.00
65.00
66.00
67.00
68.00
69.00
70.00
71.00
Dry Natural Gas Production
Securities-related services, including M&A advisory for transactions involving stock or debt are offered through M&A Securities Group, Inc.,
Member FINRA & SiPC. Founders Investment Banking & M&A Securities Group are not affiliated entities. Principals of Founders are
registered investment banking agents with M&A Securities Group & shall perform such services on behalf of M&A Securities Group.
FOUNDERS INVESTMENT BANKING IS A MERGER AND ACQUISITION FIRM
WITH AN OIL AND GAS SERVICES PRACTICE THAT BRINGS A WALL
STREET-LEVEL OF SOPHISTICATION TO THE WELL SITE. ITS TEAM'S
PROVEN EXPERTISE AND PROCESS-BASED SOLUTIONS HELP COMPANIES
AND BUSINESS OWNERS ACCESS CAPITAL AND PREPARE FOR AND
EXECUTE LIQUIDITY EVENTS TO ACHIEVE SPECIFIC FINANCIAL GOALS.
O&G SERVICES LEAD ADVISORS:
DUANE DONNER
MANAGING DIRECTOR
205‐423-2548
JOE BRADY
DIRECTOR
205‐503-4023
JOHN ORTSTADT
BUSINESS DEVELOPMENT
205-503-4030
BRANDON PILOT
ANALYST
BEN NEW
ANALYST
FOUNDERS INVESTMENT BANKING, LLC
2204 LAKESHORE DRIVE
BIRMINGHAM, AL 35223
WWW.FOUNDERSIB.COM – 866.594.4358
2014 Founders Blast & Cast Fall Forum
duck hunt at the lodge in Cameron
Meadows.
SAMPLE O&G TRANSACTIONS: