In only the last five years or so,
the U.S. has seen an energy revolution take place with oil and gas production
figures hurtling us back into the number one slot globally. With the nation’s
biggest management consulting and investment banking firm for the engineering
and construction industry, FMI Corp., projecting an average 17% growth rate for
oil and gas construction CAPEX through 2017, continuing to rise sharply from
the roughly $55B spent last year, the market for energy sector service
providers will likely continue to see considerable upside.
Back in 2008 most of the oil and
gas was coming out of the Gulf of Mexico, Texas and Alaska, but with the
proliferation of hydraulic fracturing and horizontal drilling technology, areas
like Pennsylvania and West Virginia (Marcellus Shale), Oklahoma (Anadarko
Basin) and North Dakota (Bakken) have played an increasingly prominent role in
bringing down energy costs for the average consumer. Moreover, the industry is
learning to drill shale better, with average well performance increases owing
to factors like better well engineering, which ultimately results in enhanced
flow rates. In Oklahoma alone more than 2.6k oil and natural gas wells were
completed last year, and over in the Marcellus, the latest EIA data indicates
natural gas production just continues growing by leaps and bounds, with over 15
billion cubic feet per day reported through July this year representing roughly
40% of U.S. shale gas production, up over 650% from 2010 production figures of
around 2 Bcf/d.
Needless to say, the immense growth
of domestic oil and gas recovery infrastructure, as well as a similar, yet less
pronounced growth in utility-scale and other alternative energy infrastructure,
has been a bonanza for EPC (engineering, procurement and construction)
companies. The Solar Energy Industries Association and GTM Research recently
reported PV (photovoltaic) solar installations grew by over 1.1K MW for Q2
2014, with even residential (up 2%) and non-residential (up 13%) showing strong
upticks from first quarter growth figures. Utility-scale solar capacity has
been doing even better over the last two years, up 309%, or nearly double that
of residential and non-residential growth, hitting around 7.3k MW by midpoint
this year.
The market for EPC service
providers to the utility-scale solar and wind sector is on-track to hit $7.2B
next year and federal tax incentives, set to expire in 2017, will likely send
sector players rushing into the arms of smaller companies, as the biggest EPC’s
find their margins tighten sharply. Bloomberg New Energy Finance recently
projected domestic renewable energy capacity (minus hydro) as doubling by 2021,
with the dearth of large utility-scale projects forcing the largest EPC
companies to rethink their business models. Small-scale PV growth looks like
the sweet spot moving forward, as the small-scale PV market size for EPC
services stands to hit around $6.3B in 2016.
Overall this is a very bullish
environment for smaller EPC providers like ENGlobal Corp. (NASDAQ: ENG),
especially considering the vast technical expertise the company has amassed in
the closely-related field of automation. With numerous successful control
system migrations (considered some of the most technically challenging work in
the industry) under their belt, ranging from vendor-sponsored jobs to full “rip
& replace” conversions, ENGlobal’s EPCM segment (as they also provide
construction management) can handle a wide variety of all the major vendor
distributed control system (DCS) hardware and software.
The numerous awards the company has
recently received, like a big project from one of the country’s leading
automated pipe handling equipment companies to do procurement, integration and
testing for a series of automated driller cabins, is a clear endorsement of the
company’s engineering and automation prowess. Another large deal, handed to ENG
by an established midstream master limited partnership, has the company acting
as their automation systems integration contractor, handling the complete
builds of and testing on a variety of process control shelters, including the
PLC (programmable logic controller) systems, as well as the railcar and truck
loading, and unloading facilities, even including all of the requisite
satellite stations.
ENGlobal has also teamed up with a
number of leaders in the alternative energy sector to bring vital renewable
fuel processing facilities to fruition, ranging from demo pilot plants to
standard processing units. The company has wide-ranging expertise in a host of
core alternative energy processes, expertise derived from first-hand experience
doing a broad array of different types of projects, from their core
competencies in refining and petrochemical processing, which dovetails with
biofuel projects, to solar and wind installations. The company’s robust
engineering know-how allows ENG to take a project from conceptual engineering
and feasibility studies through to design, permitting, construction and
management, including the necessary secondary services, all under an umbrella
that includes detailed consulting from some of the top minds in the engineering
today.
The company’s core competencies,
established through years of work in upstream, midstream and downstream oil and
gas, where they have provided full service engineering, procurement and
construction, makes ENGlobal extremely well positioned to handle the emerging
energy sector landscape’s dynamics over the coming years. The company is large
enough and robust enough to tackle any project from whiteboard to field
logistics across projects ranging from oil and gas to renewables, yet is small
enough to not suffer from being caught in the bite as federal tax incentives
get rolled back in alternative energy, or as falling energy prices impact the
shale boom.
To learn more about ENGlobal Corp.,
visit www.ENGlobal.com
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