As Upstream M&A Settles, Oilfield Services Gear Up for More Deals

As early as April, the wave of E&P consolidation in the Lower 48, led by the Permian Basin, had clearly set off aftershocks in the oilfield services (OFS) sector.

Within the first nine months of 2024, OFS dealmaking hit $19.7 billion—the highest since 2018, according to Deloitte’s 2025 Oil and Gas Industry Outlook.

The OFS sector has seen dramatic periods of instability in the past 10 years—suffering through the pandemic and the reverberations of an OPEC-shale price war along with the rest of the industry.

But while profitability returned to many E&Ps set on capital discipline—upstream net income rose 7% from 2014 to 2023 despite an 18% drop in oil prices—OFS companies fared far worse. Between 2015 and 2021, the OFS sector was saddled with $155 billion in losses.

And while E&Ps reaped the benefits of increased efficiencies and productivity gains from OFS companies, that sector lagged behind the rest of the oil and gas industry.

Shale players reduced the business and margins of the sector, Deloitte said in its report. “Simply put, the sector became a victim of its own technological success for its customers.”

But Deloitte sees signs that the OFS sector is “emerging from the shadows.”

Over the past three years, the sector’s net income has cumulatively exceeded $50 billion, Deloitte said. OFS capex is at the highest level—and net debt is at one of its lowest points—since 2016. 

“In fact, oilfield services companies seem to be repeating what their upstream shale customers did years ago—growing profitably without a commensurate increase in capex,” Deloitte said.

Upstream deals since 2023 have flourished, with nearly $136 billion spent on major M&A consolidation, largely in the Permian Basin, Deloitte said. With a rash of deals done, acquirers have started the process of integrating their new assets.

Next year’s M&A, for upstream and oilfield service companies, will unfold in a markedly different manner, likely with less emphasis on the Permian and more on service and supply company combinations.

Extra-Permian M&A

Permian M&A is by no means done. In November, Coterra Energy added acreage in the Delaware Basin with $3.95 billion worth of deals from private E&Ps Franklin Mountain Energy and Avant Natural Resources. Other E&Ps, such as Surge Energy, have $1.3 billion in liquidity ready to deploy for the right acquisition target.

The Permian’s main challenge is everyone wants in and the pickings are getting slimmer. That has led to higher acreage prices and limited high-quality acquisition targets in the basin, Deloitte said.

Ultimately, that may lead to increased drilling and buying activities in other basins, primarily the Eagle Ford Shale and Bakken Shale. On Dec. 3, Crescent Energy followed that playbook with an agreement to buy Eagle Ford E&P Ridgemar Energy for $905 million.

In the first three quarters of 2024, the two plays saw about $7.7 billion in announced deals.

Deloitte’s take: The Eagle Ford and Bakken offer additional acquisition targets and refracturing opportunities without the natural gas infrastructure constraints the Permian is facing.

“Consolidating acquired assets and leveraging investments in new technologies, while benefiting from strengthening natural gas prices due to new pipelines, will likely support the profitable growth strategy of shale majors in 2025,” Deloitte said.

But the bigger prize could be how shale majors rethink their Tier 2 and Tier 3 acreage across shale basins. Recompletions, EOR and innovative completion techniques have the potential to enhance their capital returns and well productivity.

In the Bakken, Tier 1 acreage development is growing by 5% to 10% annually, while Tier 2 acreage is growing by 20% annually.

The Eagle Ford and Bakken can also take some of the concentration risk off of the Permian. In 2024, the Permian contributed 46% of U.S. crude oil production, 20% of gross natural gas production and 51% of rig count activity.

The basin’s outsized oil production is growing at an annual average of 485,000 bbl/d—equivalent to Colombia’s annual consumption, Deloitte said.

E&Ps looking for inventory in the Eagle Ford and Bakken can also bridge the valuation gap across the shale basins; keep the overall production profile of U.S. shale basins stable; and help bring back private equity or venture capital players, Deloitte said.

“This is especially true in the U.S. upstream sector, where public company consolidations offer more favorable valuations for undeveloped inventory, compared to private equity buyouts, with premiums remaining modest at 10% to 15%,” Deloitte said.

In the Permian, E&Ps will likely have to adapt to address low oil prices and peaking productivity gains. In the Midland Basin, rigs drilled an average of 47 miles of horizontal wells through June 2024.

The Permian also faces an “all-time low inventory of drilled but uncompleted wells at 4,500, and the forecasted resurgence in global liquids consumption that is expected to increase by 1.5 MMbbl/d” in 2025.

“Against the backdrop of major acquisitions, eyes will be on U.S. shale majors to share and execute their ‘what’s next?’ strategy for the Permian Basin,” Deloitte said.

OFS M&A, cycle-proofing

With E&P efficiencies and consolidations setting the stage, the time for even more service company consolidation may be nearing.

“A period of financial strength amid an easing macroeconomic environment and a highly fragmented sector is generally followed by consolidation,” Deloitte said.

The firm pointed to SLB’s pending acquisition of ChampionX in an all-stock transaction valued at $7.7 billion. The transaction was the largest service company deal announced in 2024. Deloitte noted that SLB’s deal focuses on expanding its presence within the “less cyclical and growing production and recovery space that covers the asset life cycle from completion through decommissioning.”

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Similar dynamics were at play with Nabors Industries Ltd.’s agreement to acquire Parker Wellbore in a deal valued at $372 million. Parker’s casing-running business complements Nabors’ tubular services, Deloitte noted. 

Coming next may be a rollup of service companies now that E&Ps have consolidated.

“Considering their large upstream customers have completed megamergers in the Permian region in 2023 and 2024 and will require scalable and tech-powered oilfield services, many small-sized companies could seek exits at favorable valuations, spurring consolidation across the sector,” Deloitte said.

The firm added that buyer interest for drilling rigs increased in 2024 with deal value reaching $3.8 billion—the second-highest level since 2018.

And, during the past four years, the industry’s capital expenditures have increased by 53%, while its net profit has risen by nearly 16%. Regardless of M&A, oilfield services are on a roll. The sector reported its best performance for the 2023 to 2024 period in the past 34 years, Deloitte said. 

And some companies are engaging in increased investments in low-carbon technology projects to help balance the risks associated with the traditional oil and gas market.

“These investments will likely help companies position themselves as key players in the future energy landscape,” Deloitte said.

Oilfield companies such as SLB are leveraging their digital capabilities to deliver high-margin, lower-carbon solutions to their customers, Deloitte said. SLB is developing an all-electric subsea infrastructure aimed at reducing costs, improving efficiency and lowering carbon emissions. 

OFS companies are also implementing cost-reduction measures, including restructuring operations, exiting unprofitable business lines, implementing variable cost management programs and streamlining corporate structures.

“These initiatives have yielded substantial financial benefits—for instance, NOV Inc. reported US$75 million in annualized cost savings and Weatherford reported a 160-basis-point increase in gross margin,” Deloitte said. “By recalibrating its strategies, the sector has navigated the challenges posed by reduced demand for certain services, while continuing to drive efficiency and maintain capital discipline.”

Some OFS companies are also transitioning into “energy technology companies” by diversifying their portfolios to include low-carbon ventures such as carbon capture and hydrogen generation, Deloitte said.

Baker Hughes is developing supercritical CO2 turboexpanders to support NET Power’s low-cost, emission-free, carbon-capturing power system. And SLB is developing an integrated direct lithium-extraction solution that could be significantly faster than traditional methods, while lowering resource usage, thereby possibly reducing operational costs.

Deloitte said new technology solutions are expected to drive the long-term growth of OFS companies, “with companies like Baker Hughes targeting approximately US$6 billion to US$7 billion in new orders by 2030.”