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Frontier Energy Buys Canary Wellhead, Furthers Oilfield M&A

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Frontier Energy Buys Canary Wellhead, Furthers Oilfield M&A

Frontier Energy Group LLC, a closely held company that builds and maintains oil wells, said it acquired rival Canary Wellhead Equipment Inc. Monday in a move that underscores the ongoing consolidation in the U.S. oilfield-services sector.

Terms of the deal were not disclosed, but Frontier Energy CEO Dan Eberhart said his Denver-based company is paying less than $100 million for privately held Canary, which had headquarters in Oklahoma City, Okla. Canary offers wellhead services and manufactures parts used in oil production.

Advances in drilling methods have allowed energy companies to unlock a wealth of crude oil and natural gas from shale and other deeply buried rock formations once considered too costly to develop. The drilling boom has led to new oilfield-services companies cropping up in places where shale reserves are plentiful, such as Texas, North Dakota and the Midwest.

But recently, energy producers have been victims of their own success, having unearthed so much natural gas and natural-gas liquids, including ethane and propane, that they have flooded the markets and pushed prices into a prolonged slump. That is prompting producers to cut back on drilling some wells that won't make money at current commodity prices and move from gas-heavy basins to areas that produce mostly oil.

Meanwhile, historically low financing costs are enabling acquisitive companies to go shopping, gaining scale in areas they already operate and expanding into new regions, Mr. Eberhart said.

Denver-based Frontier Energy has been a consolidator, spending $100 million over the past three years prior to the Canary deal to acquire eight small service companies, Mr. Eberhart said.

"A lot of companies have grown up with the shale revolution," Mr. Eberhart said in an interview. "What you're seeing is small to medium-size companies gobbling up mom and pop companies."

Adding Canary extends Frontier's reach from its concentrated position in North Dakota's Bakken Shale, where Mr. Eberhart said there has already been much consolation, to the up-and-coming Mississippi Lime field and Oklahoma and Kansas and Ohio's Utica Shale.

Simmons & Co. International analyst Bill Herbert said he expects the oilfield-services industry to consolidate this year because service suppliers have outstripped demand. Small, private services companies are likely to be snapped up by other private companies or mid-size public companies while larger oilfield-services providers, such as Schlumberger Ltd., Halliburton Co. and Baker Hughes International stay out of the market for a time, Mr. Herbert added.

"This is a period of retrenchment in the industry," Mr. Herbert said. "There are too many startups. That process has run its course."

Alison Sider contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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