Dover Energy: Artificial lifts descend
Based on its end markets, the energy segment is classified further into Drilling & Production, Bearings & Compression, and Automation. The segment makes close to 70% of its sales from the highly cyclical Drilling & Production business. Dover Corporation’s (DOV) major competitors in the segment are Schlumberger (SLB), Weatherford International (WFT), and General Electric’s (GE) Lufkin unit.
As seen in the video below, Dover Corporation provides artificial lifts and surface solutions for land-based drilling through its various subsidiaries. The demand for drilling equipment is driven by shale oil presence in the US and maturing oil fields elsewhere. Because drilling deeper into these reserves is expensive, oil exploration (XOP) companies need strong incentives in oil prices to maintain their profitability.
During downturns, it is common for companies to postpone or shelve new projects. Because stopping production in existing oilfields is costlier than excavation at depressed margins, firms in the oil industry (VDE) use artificial lifts to squeeze out as much oil as possible, thereby increasing output efficiency. This somewhat cushions artificial lift demand to a softer landing than oil production companies during downturns.
Over 95% of oil wells in the US use artificial lift technologies. Three-quarters ($1.1 billion) of the Dover Energy segment sales were derived from the US in 2015.
Types of artificial lifts
The artificial lifts are selected based on factors such as the proportion of gas and slug, depth, and expected production volumes. Rod lifts are used extensively as they are more cost-effective, but they are challenged by gas interference. Plunger lift technologies are expected to grow in the double digits in the next five years because of the increased traction due to lower maintenance expenses.
Dover’s customers: They just keep coming back
Dover Corporation’s (DOV) competitive advantages stem from market leading positions in key product lines, as well as customer switching costs due to concerns about reliability. Customers have a tendency to stick with a proven vendor since machine failure could lead to accidents and loss of valuable time in critical operations.
Because equipment such as drilling rods are highly susceptible to wear and tear, the company also makes a significant amount of revenue in aftermarket parts sales.