Saturday, March 15, 2008

Quippo, Oil & Gas Service Sector and A New PE Hotbed

Quippo Oil & Gas, a subsidiary of Quippo Infrastructure Equipment promoted by SREI Infrastructure Finance, is planning to put Rs.2400 Cr. over next two years in buying onshore rigs, off-shore supply vessels and pipe-laying barges.
Quippo Oil & Gas currently owns two onshore drilling rigs and one offshore pipeline-laying barge (bought for $120 Mn.) The plans are to deploy these to India & Malaysia. This Business Standard article reemphasises a global trend in O&G service sector.

There is a shortage of rigs across the world and its impact is being felt in India as well. The Oil & Gas service sector market is booming globally with M&A/PE activity.

Globally PE firms are active in the O&G service market due to crash and easing valuations, specially in the mid-market. Tight credit markets have put brake on largecap deals but middle market is growing 50%.

Richard Spears, VP of energy analysis and advisory firm Spears & Associates Inc. says "Right now, we have projects for 15 deals under way, when last year, at any one time, we had six or seven." Investors and companies hire Spears to analyze businesses during the due diligence process of a transaction. Spears said his private equity clients were sizing up businesses in well completion services, land and offshore drilling and production, and other parts of the oilfield services sector.

Some of the recent deals in the sector include First Reserve Corp buyout CHC Helicopter Corp for $1.5 Bn., US buyout firm Castle Harlan's Anchor Drilling Fluids US for $250 Mn.

Analyst Bill Herbert of research firm Simmons & Co said expects PE firms to snap up more small-cap oilfield service companies with either international franchises or technology that can be exported to international markets.

It will not be surprising to see some of the Infrastructure Funds moving in, on the sector.

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