Jordan, Knauff & Company's Industry In-Sight Flow Control Quarterly Update indicates the U.S. shale boom, which has initiated discussions of domestic energy self-sufficiency, is attracting the attention of many investors in flow control equipment.
Domestic production of shale gas has grown dramatically over the past few years from approximately 2.5 billion cubic feet per day in 2007 to more than 25 billion cubic feet per day in 2012, according to Jordan Knauff. The U.S. Energy Information Administration (EIA) expects shale gas to lead the growth in total U.S. gas production through 2040 to reach one-half of all output. Jordan Knauff says tight oil production has also shown impressive growth from about 0.3 million barrels per day in 2007 to about 1.8 million barrels per day in 2012. The EIA projects the continued strong growth in domestic crude oil production over the next decade will be largely the result of rising production from tight formations.
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One key acquisition highlighted in Jordan Knauff's Quarterly Update is General Electric Company's recent deal to buy oilfield pump manufacturer Lufkin Industries Inc. for approximately $3.3 billion. By purchasing Lufkin, GE aims to further expand its oil and gas business, which has been built up through a number of other acquisitions in recent years. The transaction price is approximately 13.5 times Lufkin’s estimated 2013 earnings before interest, taxes, depreciation and amortization (“EBITDA”). According to data compiled by Bloomberg and reported in Jordan Knauff's Quarterly Update, the median multiple paid in 30 comparable deals over the past decade was 11.5 times trailing 12-month EBITDA. The higher multiple appears to reflect the feeling that the surge in shale development will continue as the acquisition sharply increases GE’s presence in the market, according to Jordan Knauff. Lufkin will more than double GE’s share of the artificial lift segment and give it about 15 percent market share in that segment. GE expects the oil pump market to grow at about 12 percent per year for at least the next decade.
Jordan Knauff's Quarterly Update "Wall Street Watch" also noted the following key flow control insights:
- The JKC Valve Stock Index was up 30.2 percent over the last 12 months, above the broader S&P 500 Index, which was up 17.6 percent.
- The JKC Pump Stock Index rose 29.0 percent over the last twelve months, while the S&P 500 Index was up 17.6 percent over the same time period.
- The JKC Filter Stock Index was up 29.7 percent over the last twelve months, while the S&P 500 Index was up 17.6 percent.
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