Energy Market Mergers: What Consolidation Means in 2024

Energy Market Mergers: What Consolidation Means in 2024

Posted: September 19, 2023

The energy market has never been stagnant. The production and distribution of power sources have always adapted to new technologies, geopolitical shifts, and environmental factors. However, today the sector is facing unmatched uncertainty with regard to the strategic direction of future operations.

In response to this fundamental industry shift, strategic partnerships in the energy sector have been pivotal in determining the best course of action moving forward. For instance, Chesapeake Energy just divested the last of its Eagle Ford Shale holdings to SilverBow Resources to the tune of $700 billion. This deal aligns with Chesapeake’s shift toward its gas manufacturing process in Pennsylvania and Louisiana.

This collaborative approach to strategic restructuring indicates that mergers and acquisitions (M&A) are at the center of the industry’s response to market volatility. Companies are simultaneously diversifying and expanding their portfolios, resulting in a large-scale shuffling of assets. And, in many cases, using consolidation as the best solution fosters resilience against unstable market conditions for big oil and energy manufacturers.

Of course, this monumental strategic shift will have an impact on the entire energy market over the next year. So, let’s uncover the potential impacts that these changing conditions will have in 2024.

Unconventional Energy Reshaped: Unpacking the State of Fracking and Completions Sectors

The shift towards greener energy sources is driving growth in natural gas and electric power. The industry as a whole is shouldering the responsibility of finding manufacturing solutions for a clean energy future. Ambitious net-zero targets are also making this difficult transition ever more urgent.

The initial price of unconventional energy market production creates a high barrier to entry for smaller producers; interest rates and inflationary economic and geopolitical volatility in the market only compound the extreme investment costs. The sector is also labor-intensive in terms of service staff—and turnover is an ongoing problem. Not to mention the expense of investing in new manufacturing equipment as well.

The result of all these factors is unstable pricing and profitability metrics—issues that make unconventional manufacturing solutions costs insurmountable for all but the largest producers. Yet, despite these issues, the potential for energy independence and the reduced long-term costs of power are enough to justify tackling these challenges.

To this end, there are only two major solutions companies can strategize around. First and foremost is innovation in the manufacturing technology sector that can reduce non-productive time (NPT) and therefore cut costs. In fact, these innovations have already resulted in significant efficiency gains by increasing the speed of horizontal well drilling and reducing the amount of manned labor to complete the project.

The other solution: M&A. While a smaller producer may not be able to cover the initial costs, a consolidated effort can leverage enough resources to fund the shift to new solutions, as evidenced by Liberty Energy’s purchase of Siren Energy.

Photographer: Red ivory

Synergistic Advantages of Mergers and Acquisitions in the Energy Industry

Acquisitions are already helping energy market companies gain a foothold in new areas. The advantages of M&A for fracking and completions companies aren’t simply limited to overcoming the initial barrier to entry. In fact, there are some specific factors that provide consolidated companies with extensive competitive advantages in the sector.

First and foremost, M&A helps companies operate in economies of scale. This is essential in the unconventional energy market, as profitability is often only possible for large-scale operations. Plus, mergers can streamline disparate operations to improve overall efficiency, cut unnecessary costs, improve resource allocation, and eliminate duplicated efforts.

Another key benefit is the ability to diversify operations. Take, for instance, Profrac’s strategic mergers. Profrac managed to begin operations in both the Rocky Mountains and the Northeast through its acquisition of REV Energy and Producers Services Holdings in early 2023.

In 2022 ProFrac also upgraded its manufacturing facility equipment with electric frac technology through the acquisition of US Well Services. These mergers exemplify how consolidation can help companies create a portfolio that’s more diverse—and thus more resilient to market volatility.

Finally, one of the major benefits of M&A is the increased access to capital. These funds can be used to invest in innovative technologies like flow control valves, electrical submersible pumping systems, and new drilling options. This allows companies to improve operations exponentially while simultaneously pursuing long-term scalability goals.

Horizon Gazing: Illuminating Future Trajectories of Merged Energy Market Companies

Predicting the future of the volatile energy market is an imprecise science. However, the existing landscape highlights some specific potential challenges and opportunities that merged companies are likely to encounter in the coming years.

Future Opportunities

Forward-looking companies are already reevaluating their strategy for the future. For example, PTEN has merged with NexTier and acquired Ulterra Drilling Technologies to set itself up as a leading drilling and completions service provider. As NexTier itself acquired Alamo, the renowned provider of low-cost and low-carbon pressure pumping technologies in 2021, this allows PTEN to leverage these innovations in the future. This move is the perfect example of how strategic positioning can help companies take advantage of energy market shakeups to set themselves up for future growth.

Investors have higher confidence in companies after an M&A deal. This indicates that companies can improve their access to capital and expand their brand through mergers.

The energy transition itself—if leveraged correctly—presents a prime opportunity as well. After all, the transition to green technology won’t happen overnight. So, it’s critical to carry on current production methods in the present. However, companies should start diversifying portfolios to prepare for the incoming long-term shift to low-carbon assets. The gradual nature of the shift gives companies plenty of lead time to assess their next moves.

Future Challenges

Now, a market transition of this scale won’t be without significant hurdles to overcome. From an internal perspective, factors like an incompatibility between the IT infrastructure, technologies, culture, or compliance measures of two merging companies can prove difficult.

Merged companies may also face increased environmental regulatory scrutiny—a spotlight that can add to the cost and complexity of a merger. In the same vein, a company in a dominant market position following a merger may engender antitrust concerns from shareholders and analysts, such as in the case of Energy Transfer LP's $7.2 billion acquisition of Enable Midstream Partners.

Energy Market Mergers
EPhotographer: tonkid

Oilfield Services: Finding Energy Market Technology Partners

Mergers and acquisitions are an increasingly important component of the impending energy market shift. Consolidation will allow both small and large energy providers to streamline operations and secure assets against market volatility.

The future of energy production isn’t without its complications. Mergers and acquisitions serve as a crucial lifeline for the energy and oil marketing sectors, offering a safe option against the formidable challenges they face. The unpredictable nature of business environments underscores the importance of partnering with industry leaders such as Gilmore, who excel in addressing technological requirements. With a proven track record, Gilmore not only bolsters productivity but also delivers durable components capable of withstanding the rigors of the job, ultimately ensuring the highest level of operational efficiency and uptime performance in the market. Embracing such strategic alliances is imperative for the sustained success and resilience of businesses in this dynamic industry.

At Gilmore, we’re continuously innovating cutting-edge flow control solutions. We’re pushing flow control technology to handle higher pressures and temperatures, so as to improve operational efficiency and reduce costs in the energy sector. Schedule a call with us to learn more today.

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