Layne Christensen Co's Comment on Competitors and Industry Peers
The U.S. water well drilling industry is highly fragmented; consisting of several
thousand regionally and locally based contractors. The majority of these contractors
are primarily involved in drilling low-volume water wells for agricultural and
residential customers, markets in which we do not generally participate.
Competition for Water Resources’ services are primarily local and regional
specialty general contractors, while our competition in the water well drilling
business consists primarily of small, local water well drilling operations and
some larger regional competitors. Oil and conventional natural gas well drillers
generally do not compete in the water well drilling business because the typical
well depths are greater for oil and conventional natural gas and, to a lesser
extent, the technology and equipment utilized in these businesses are different.
Only a small percentage of all companies that perform water well drilling services
have the technical competence and drilling expertise to compete effectively
for high-volume municipal and industrial projects, which typically are more
demanding than projects in the agricultural or residential well markets. In
addition, smaller companies often do not have the financial resources or bonding
capacity to compete for large projects. However, there are no proprietary technologies
or other significant factors that prevent other firms from entering these local
or regional markets or from consolidating into larger companies more comparable
in size to us. Water well drilling work is usually obtained on a competitive
bid basis for government agencies, while work for industrial customers is obtained
on a negotiated or informal bid basis.
As is the case in the water well drilling business, the well and pump rehabilitation
business is characterized by a large number of relatively small competitors.
We believe only a small percentage of the companies performing these services
have the technical expertise necessary to diagnose complex problems, perform
many of the sophisticated rehabilitation techniques we offer or repair a wide
range of pumps in their own facilities. In addition, many of these companies
have only a small number of pump service rigs. Rehabilitation projects are typically
negotiated at the time of repair or contracted for in advance depending upon
the lead-time available for the repair work. Since well and pump rehabilitation
work is typically negotiated on an emergency basis or within a relatively short
period of time, those companies with available rigs and the requisite expertise
have a competitive advantage by being able to respond quickly to repair requests.
The CIPP industry has a small number of contractors with nationwide coverage,
the largest being Insituform, a subsidiary of Aegion Corporation, and several
more regionalized competitors. Municipal work is typically obtained on a competitive
bid basis with rare exceptions of design build proposals being used for contractor
selection. Industrial work can be either competitive bid or negotiated.
Larger competitors share the same vertical integration (tube manufacturing/assembly,
wetout and installation) as Inliner, while smaller competitors rely on third
party tube supply and wetout. This saturated tube supply and the lack of having
to construct wetout facilities allows smaller competitors to enter and remain
in the CIPP business. In addition, the entrance of fiberglass products cured
with ultraviolet light has opened up competition even further. Despite widespread
competition, Inliner remains one of the most diversified providers in the industry
by offering more than just CIPP.
Management believes that many of the competitors in this industry do not possess
the capabilities for end-to-end water management systems in the same manner
as Heavy Civil, due to our ability to draw from Water Resources for expertise
and resources. This differentiates Heavy Civil from its competitors. Treatment
plant and pipeline competitors consist mostly of a few national and many regional
companies. The majority of the municipal market is contracted through a public
bidding process.
In the specialized foundation construction arena, management believes there
are few competitors. Customers are targeted that require compliance with detailed
and demanding specifications and regulations and that often require bonding
and insurance, areas in which management believes Geoconstruction has competitive
advantages due to its extensive expertise. Geoconstruction owns and operates
what management believes to be one of the largest fleet of hydromills and related
equipment in North America. In addition, Geoconstruction has implemented a sophisticated
quality control system that allows it to follow each phase of work in real-time.
Mineral Services competes with a number of drilling companies, the largest
being Boart Longyear, Major Drilling Group International Inc., and Foraco International
S.A., as well as vertically integrated mining companies that conduct their own
exploration drilling activities, and some of these competitors have greater
capital and other resources than we have. In the mineral exploration drilling
market, Mineral Services competes based on price, technical expertise and reputation.
Management believes Layne has a well-recognized reputation for expertise and
performance in this market. Mineral Services work is typically performed on
a negotiated basis.
Competition in this area is primarily from local small and mid-sized contractors
offering one part sourcing, transfer or treatment of the water management cycle,
but not the complete end-to-end solution offered by Energy Services. For many
E & P companies, price is a driving factor. As Energy Services continues
to penetrate the marketplace, the focus is to assist these companies in understanding
the value of having an end-to-end solution rather than engaging many contractors
to perform similar services.