While the U.S. economy has seen a slow and steady recovery, the O&G industry has witnessed exponential growth over the same time period. This factor, combined with the continued demand for fossil fuels and advances in O&G technology, has resulted in rising profits and expansion opportunities for middle-market O&G companies. These converging trends have made middle-market O&G businesses a smart bet for savvy investors.
The economy is continuing to grow. When the economy tanked back in 2009, O&G companies felt the pain, as profits and the ability to grow slowed to a snail’s pace. Today, the U.S. economy is slowly recovering as key economic indicators show. The May 2014 Bureau of Labor and Statistics jobs report indicates sustained job growth, the budget deficit is hovering at a 7-year low, and home prices have risen every month since the spring of 2012.1,2,3
At the same time, profits of successfully managed, middle-market O&G companies are quickly accelerating due to the shale oil boom and the expansion of energy operations across the country. The sustained economic recovery, along with widespread growth in the energy sector, has been good for middle-market O&G companies. Business owners in the niche continue to see profits grow, which can provide great opportunities for private equity investors.
Demand for fossil fuels will endure. While the demand for renewable energy sources keeps growing, fossil fuels continue to provide a significant percentage of U.S. energy needs. A recent Energy Information Administration (EIA) forecast predicts that more than half of our energy needs will be fulfilled by oil and natural gas products through 2040 and beyond.4
There is little fear that demand will evaporate any time soon. In fact, the EIA is forecasting that we will produce more oil than we import in 2014.4 This demand will continue to drive the market for middle-market companies that offer products and services to enhance O&G operations for years to come.
New technology boosts efficiencies. According to the American Petroleum Institute, the U.S. leads the world in technological innovations within the O&G industry. These innovations have not only improved O&G efficiencies but have resulted in expanded production of domestic crude oil (29 percent since 2008) and natural gas (more than 33 percent since 2005) from shale deposits.5
Case in point, Allegiance Capital connected client Fiberod with a buyer in the UK for its innovative, fiberglass sucker rod. This new technology increases efficiencies in the pumping process, and the London-based Smiths Group, along with it’s Illinois subsidiary John Crane, were eager to make a deal.
View this short video to learn more about the Fiberod deal.
To speak with an Allegiance Capital investment banker about private equity investment opportunities in the energy sector, give us a call today. You can reach us by dialing (214) 247-6846.
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Resources:
1. “Employment Situation Summary,” [press release], June 6, 2014. United States Department of Labor, Bureau of Labor Statistics website. Available at http://www.bls.gov/news.release/empsit.nr0.htm. Accessed June 29, 2014.
2. Kruger D. “America’s Fiscal Health Affrimed as Treasuries Demand Rises,” April 7, 2014. Bloomberg.com website. Available at http://www.bloomberg.com/news/2014-04-06/america-s-fiscal-health-affirmed-as-treasuries-demand-rebounds.html. Accessed April 17, 2014
3. Swanson B. “CoreLogic: Home prices increase into second year,” April 1, 2014. Housing Wire website. Available at http://www.housingwire.com/articles/29513-corelogic-home-prices-increase-into-second-year. Accessed April 17, 2014.
4. “Annual Energy Outlook 2013.” Energy Information Administration.
5. “Annual Energy Outlook 2012.” Energy Information Administration.