HOUSTON—The push to become more efficient and less wasteful has brought operators and oilfield services companies closer together lately, but their relationship could grow stronger.
At least that is what energy experts at KPMG hope.
As lower commodity prices, caused by abundant supplies and not enough demand, continue to hit oil and gas companies’ profits service companies are being called upon to help operators improve techniques, tap new technology or lower costs for their services and products. Some service companies appear to be obliging despite their own economic struggles, perhaps to maintain market share.
Today’s downturn could provide an opportunity for service companies and operators to transform how they work together, KPMG principals said July 23 during a media roundtable in Houston. That’s the conversation that KPMG is encouraging producers and service companies to have now.
“The question here is not ‘can you wring 15% more out of oilfield services company X?’ ” said Chris Click, principal, advisory, for KPMG’s North America Energy Practice. “The question is ‘how do you work with your service companies to fundamentally change where we are on the global supply curve?’ ”
There is a lot of waste in the system because companies are not coordinating their activities, he said, noting for example a producer that doesn’t give a service company enough advance notice of when and where certain equipment will be needed.
“The two can come together and work better,” Click said, adding an improved relationship could lead to greater cost savings with both earning higher margins.
During its latest earnings call, Schlumberger CEO Paal Kibsgaard noted how the company is working with customers to lower the cost per barrel through improved operational efficiency and reliability, new technology, work flows and business models. He said customers are “more and more starting to buy in to the fact that we have technologies and work flows that can create more value.”
Schlumberger, he said, has had dialogues with customers on geoengineered completions and refracturing. “It is very clear that the appetite to use new technology and more sophisticated technology is growing,” Kibsgaard said. He added that some customers are willing to take on performance-based contracts, instead of a traditional contract.
Time to first oil, no matter the cost, and optimized drilling no longer dominate upstream mindsets, according to Regina Mayor, U.S. energy and natural resources advisory leader for KPMG. Other technologies and ways to streamline costs are on companies’ minds.
“Now they are sitting back and saying why is that supply boat going back empty, why am I agreeing to let XYZ oilfield services company charge me cost plus 30%. And they have quickly gone back,” Mayor said. “Oilfield service companies are hurting the most and you will see that in all of their results. Operators are saying I demand right now a 30% cost reduction, and they’re getting it.”
However, “[service companies] are giving the price discounts in an effort to maintain market share,” she added, noting they have also been forward in saying how much their services and expertise can save operators.
“We’re still seeing a lot of interest in strategic sourcing and figuring out ways to work with suppliers on the whole end-to-end spectrum,” she said. Operators are asking questions such as, “Can I bulk buy from you as a supplier? Can I ultimately get a longer-term discount? Or can you help me engineer efficiencies into what I’m doing?”
The industry is also embracing standardization, which is driving down costs.
“I’m hoping that we will see a fundamental shift in that [operator-service company] partnership,” Mayor said. “Many of the very big companies that we work with are really trying to do that. There is so much inefficiency in the way the operators connect with the service providers.”
But the oilfield services companies themselves could use some fine-tuning.
Mayor pointed out the legacy service companies’ acquisition stockpiles, many of which have not been integrated well.
“So when they go to provide a service it’s like one tiny company tacking on another tiny company’s services tacking on another tiny company’s services without it being an end-to-end process with maybe one set of contingency numbers and one set of risk profiles,” Mayor said. “We’re hoping that the oilfield services companies will use the opportunity to fundamental transform their internals and how they operate as well as how they partner with the operators.”
Velda Addison can be reached at firstname.lastname@example.org or via Twitter @veldaaddison.