For the past decade, we’ve been conditioned to believe that bigger is better in oilfield services (OFS). The large oilfield service and equipment supply companies have the best technology, the best talent, and they offer integrated services to the largest E&P companies. Many smaller oilfield service and equipment firms have endeavored to break into the arena dominated by household names such as Schlumberger and National Oilwell Varco.
In this downturn, the conventional wisdom “bigger is better” is not absolutely true. Size improves survival odds, but it does not mitigate the pain – the big guys have a lot to lose during this downturn. Their revenue is evaporating with E&P capex cuts. Many of their assets will soon be written off. And talent they’ve invested heavily in is being hemorrhaged to save costs.
At the opposite end of the size spectrum, and in a most unlikely place, we find the most desirable strategic position – starting from zero. The most desirable strategic position right now is the combination of having low operating leverage and the cash to pursue growth via acquisition. To use a stock market analogy, when stocks crash, the best positioned traders are under-invested and have most of their assets in cash. Rubicon Oilfield International is the under-invested, cash-rich investor in oilfield services at the moment.
If you haven’t heard of Rubicon, you aren’t alone. At this point, Rubicon is just five experienced OFS founders, backed by a large private equity company, with a vision to build the next best-in-class oilfield equipment manufacturing and supply company. The company sits in a classic position of strength for the downturn: significant capital to spend without the burden of under-utilized infrastructure and assets. Rubicon may be the most exciting oilfield service company you’ve never heard of. We recently spoke with one of the founders, Jayme Sperring, to get the rundown. Here’s Rubicon in a nutshell:
Rubicon is backed by a $12bn Warburg Pincus fund and represents the private equity firm’s first foray into oilfield services with a line of equity investment in an OFS management team. Warburg has provided Rubicon management an expandable $300mm line of equity to fund strategic acquisitions and organic growth in the global oilfield products and equipment market. Several well known industry veterans sit on Rubicon’s board of directors, including Steve Newman, the former CEO of Transocean.
Six-month old Rubicon will focus on building a portfolio of downhole products and technologies, either sold or rented, targeting all phases in the life of a wellbore (drilling, completions, production, abandonment). Unlike many other small companies, Rubicon is adamant about building a global footprint as quickly as possible to help mitigate the risk that comes with heavy exposure to the short-cycle North American market.
The Rubicon management team (which hails from firms like NOV, Schlumberger and Scientific Drilling Int’l) is seeing a much different tone in 2016 deal flow than they did in 2015. With the downturn over a year old and oil priced in the $20s, many quality OFS firms are now entering the undesirable state of requiring outside capital, new strategic partners or an exit plan in order to survive the prolonged drop in activity. For OFS M&A, the wide bid/ask spread that kept deal flow in check during 2015 is starting to close.
We’ll be paying close attention as Rubicon moves toward closing its first of potentially multiple deals. Given the extraordinary M&A opportunities emerging and Rubicon’s position of strength, we wouldn’t be surprised to see Rubicon build a lasting franchise capable of going public when the industry finally exits the downturn.
Special thanks to Oilpro member Sean McCoy for the heads up on Rubicon’s arrival, and also to Jayme Sperring for the straight-talk on Rubicon’s vision.
About three months ago, we introduced readers to one of the most exciting startup stories in oilfield services – Rubicon Oilfield International, a private equity backed management team seeking to make global acquisitions in the oil service segment.
This morning, Rubicon announced its first acquisition, a key event for the company that we were awaiting when we last wrote on Rubicon.
The target? Tercel Oilfield Products, a 6-year old diversified oilfield products company that offers a full product portfolio of drilling enhancement tools, directional products, and a proprietary suite of tubular deployment technology, all focused on delivering well construction solutions to horizontal and extended reach challenges around the globe. Tercel’s solutions focus on reducing torque and drag in the construction of horizontal and extended reach wells.
Rubicon closed the deal last Thursday (May 5) and announced the acquisition this morning (May 10). Deal terms were not disclosed, but Tercel was a private company principally owned by Lime Rock Partners. Tercel has over 400 employees.
The drilling and completions supply company prides itself on R&D and holds a wide variety of patents on flagship products like SwivelMASTER®, EzeeGLIDER®, RotoTEC®, BridgeBUSTER®, GunDRILL Reamer, and the MicroCORE™ Bit.
Headquartered in Dubai, Tercel has established offices in most major O&G markets around the world. Tercel’s global well construction solutions platform lays the foundation for Rubicon’s vision to have a global footprint right out of the gate. A key difference for Rubicon vs. many other start-ups is that management has prioritized immediate global scale. Many other oilfield supplier start-ups have focused first on North America, with global expansion as a medium-stage goal.
Rubicon will invest in the accelerated growth of all Tercel product lines, enabling Tercel’s 400+ employees around the globe to deliver greater value to customers.
“The amalgamation of Tercel’s highly-talented employees and industry recognized technologies with Rubicon’s financial strength, will deliver compelling value to our customers around the world,” said Mike Reeves, President and CEO of Rubicon.
This inaugural acquisition goes a long way towards advancing the organizational goals we described in our first report on the company. Today, Rubicon moves a step closer to its vision of building a world class oilfield products organization.
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