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