When I’m speaking with potential sellers of rigs and oilfield equipment, a routine question they ask me is: Who is buying in this market? It’s a fair question. Conventional wisdom suggests few buyers are willing to initiate new drilling programs let alone lease or buy additional equipment in the current oil price environment. We’ve also read well publicized analyses on how the oil & gas industry has cut back almost $1 trillion in CAPEX since the downturn began. The fact of the matter is few buyers can sanction capital outlays when the return-on-investment is not justified.
But are the right buyers being considered? There are sellers who see a major opportunity in this downturn as they realize rigs and oilfield equipment serve a global market and not all markets are contracting. In fact, some are growing. What these market opportunity grabbers know is regional buyers in Latin America, Southeast Asia and West Africa are actively looking for North American sellers with excess and high-quality inventory. These buyers, known as 'indigenous' companies, may have State backing, operate in a market where costs are lower and/or gas prices are higher.
Given these markets are not as saturated with rigs and equipment, international buyers are often willing to pay premiums to obtain high-quality assets from North America. Taking into account the costs of shipping and insuring rigs or equipment for journeys across the world, purchasing North American assets is still cost-effective and economical for these buyers.China’s Back-yard
It would be logical to assume these regional markets are the back-yard of Chinese suppliers. In fact, many sellers state they cannot compete when Chinese manufacturers are able to provide new rigs at cheaper prices than North American hybrid rigs, i.e. old structure with new equipment. Rightly so, as buyers typically favor new assets at lower prices.
An emerging trend, however, is for buyers to explicitly state on the tender - 'No Chinese bids considered'. Buyers are beginning to experience the longer-term ramifications of Chinese-made equipment, i.e. ultra-low prices today but costing them 2 to 3 times more over the life of the project due to maintenance and downtime. The same can be seen in this story about Chinese-made electrical equipment in Nigeria being prone to short-circuits and major fires. Let alone quality, political unrest with China has led some Asian countries such as Vietnam and Indonesia to shun Chinese suppliers altogether. Oil & gas buyers in these countries are no less impacted by these issues and have begun to re-evaluate their Chinese supply-chains.Opportunities for North American Rig and Oilfield Suppliers
My experience has shown small international buyers will consider US rigs and oilfield equipment which may be within 20%-25% of the Chinese bids. Partly because, under pressure from their shareholders, international buyers have been instructed to consider long-term costs over short-term savings. In addition, where North American sellers can offer deal sweeteners, such as one year warranties, willingness to share closing costs, e.g. shipping, etc. - they have a better chance of closing a deal.About EnergyFundz™
EnergyFundz mission is to find unique and lucrative deals in a challenging oil & gas market. We have an active buyer network interested in connecting with sellers of new or used rigs and oilfield equipment. EnergyFundz buyers have been vetted and have strong reputations in their regional markets. In addition, EnergyFundz is committed to secure transactions via clear titles and funds transfer practices based on US law.About Raya Guruswamy
Raya Guruswamy is EnergyFundz™ Founder and CEO. He has over 10 years of experience in the oil & gas industry in major construction projects and upstream exploration. Prior to EnergyFundz™, Raya worked in BP’s Rig Startup and Acquisition team and held roles in rig vetting, audit management, planning and commercial analysis. He holds a BS in Energy-Finance, MS in Systems Engineering and MBA.