Business Valuation Blog | Understanding Buying / Selling a Company

Issues Involved in Valuing an Oilfield Services Company

Posted by Business Valuation Specialists LLC on Nov 23, 2016 12:30:00 PM


When you work in an oilfield services company, there are a lot of challenges just on the job site. Long hours, roughnecks that may or may not work out on the job, worker's comp claims, sudden market shift that turn last week's profits into this week's deficit - we've all been there and seen that. Some of those challenges have a stronger bearing on your company's valuation than others. Here's a look at what issues may come to the front during business appraisals of an oilfield services business.

Issues involved in valuing an oilfield services company

There are a few different areas where the oilfield business is affected by different issues than other businesses may be concerned with. Most oilfield sites, whether dry and dusty or damp and boggy can be very hard on machinery. Combine that with the not so gentle treatment it receives at the hand of your average roughneck, and your equipment will quite possibly not last as long as your accountant thinks it should. Even equipment of good quality that is serviced regularly may still not last as long as you'd expect it to. This can cause some serious issues with the asset column of your balance sheet.

The second has to do with the market. There's a well fire in Saudi Arabia and prices shoot sky high, rendering that old plant profitable again. A new geological discovery announces the biggest find since Bakken Shale and the prices plummet with the expected new supply of oil. As the industry goes into a boom or a bust, the business' profitability may profit or suffer based on the changes and how they affect that business.

Because the average gas and oil company may go back and forth from making a profit to sitting in the red as the market shifts, it can be very hard to get a solid answer as to the value of your business. 

The final factor we'll consider in this piece is the effect the M&A market can have on your selling price. If the market is booming and everyone wants to invest in oil, you may find that your business will sell for several times what you think it may be worth. If, on the other hand, the market is in a bust cycle, there may be a large number of oilfield businesses that are available for sale as desperate investors try to sell before the bust hits the bottom. This can artificially depress the price you may be able to get for your business.

When you've spent years putting blood, sweat and tears into your business, you want to make sure you're getting what it's worth. The issues faced when your business is an oilfield services company can be many and complex, but getting a quality valuation for your company doesn't need to be.

Topics: valuing an oilfield services company