Like many offshore players Oceaneering International CEO Rod Larson is concerned about staying relevant in a world of competing sources of energy, attracting top talent in a growingly digital world and maintaining safety.
“I’m pretty sure that my enemy is not on this stage. It’s somewhere in West Texas. The truth is we have to stay relevant,” Larson told a full house gathered to hear CEOs of oilfield service companies speak Tuesday, May 1, at OTC. “Rather than working on incremental commercial models—figuring out how to get into each other’s pockets over a small market—you need to figure out how to have a bigger market, and that really is making sure that we are driving costs.”
But it’s more than that longer term. The industry must be safer and more efficient with resources, he said, adding the industry will be judged on its recovery factor. “Are we actually delivering energy for the footprint we’re making or the risk we’re taking offshore?” The industry must solve these issues to stay relevant, and “if we spend too much time arm wrestling with each other we may miss the real opportunity,” he added.
Larson was among the CEOs who shared thoughts on improving efficiency and economics through partnerships and mergers and acquisitions (M&A), implementing new technology and addressing other issues facing the industry as market conditions improve.
The current environment has focused the industry, and showing up with a half a million hours’ worth of customized engineering is not sustainable, said Neil Saunders, president and CEO of oilfield equipment for Baker Hughes, a GE company (BHGE).
Speaking on technology and the impact of standardization, Saunders described BHGE’s R&D deck as being more focused. “It no longer looks like we are chasing every customer in a different way with a different mousetrap in a different geography for a different depth for a different color tree, which means you are essentially working on a hundred things and you are doing them OK,” Saunders said.
Instead, the entire life of an asset is examined along with the total cost of ownership for a customer, bringing in technology, he said, referencing a subsea tree that can reconfigured through its lifetime as an example. Added capabilities include boosting and metering as the tree moves through its life. “Those are things we’re doing. … There are a lot of customers that are pushing for vendor-led solutions,” Saunders said. “I think we can all probably produce a new class of products that are more cost effective and can be there for the life of field.”
Technology is an area that is bringing companies together.
When Subsea 7 looks at M&A it considers the technology aspect, CEO Jean Cahuzac said. Technology can be a differentiator and make a project viable. In the last couple of years, Cahuzac said the industry has seen two types of combinations: companies that provide similar services coming together, “providing more synergies and efficiency of scale” and combinations of complementary businesses that can perform better as one. Subsea 7 has pursued both.
In 2018 Subsea 7 completed its acquisition of Siem Offshore Contractors, expanding its renewables presence, and acquired stake in Xodus Group. In 2017 Subsea 7 grew its presence in the Middle East through its acquisition of certain businesses of EMAS Chiyoda Subsea, and it acquired Seaway Heavy Lifting, adding to its renewables, heavy lifting and decommissioning services.
“We are prudent. We invest in new business but only at the right price,” Cahuzac said, adding the downturn presented the company with investment opportunities.
When Aker Solutions partners with other companies it looks for leaders in their respective areas, according to Aker Solutions CEO Luis Araujo. “We don’t believe that everybody can develop all technologies to attract companies.”
Aker Solutions partnerships’ include one with SBM that seeks “solutions that combine the floater and subsea” and another with ABB and MAN Diesel & Turbo, which delivered the world’s first subsea compression system for Statoil’s Åsgard Field. The company is also working with Aker BP and Aker Solutions to develop tiebacks.
Forming partnerships with clients is low-hanging fruit, Araujo said. “We have to stop, in this industry, being so confrontational, so price oriented. … If you look at other industries clients and suppliers align.”
Subsea companies have been successful in working together to bring new technologies and solutions through partnerships and mergers, but they still face challenges.
Thierry Pilenko, executive chairman of TechnipFMC, addressed some of these challenges. His biggest concern in the medium term is not about the company but about customers, he said.
“There has been so much deflation in the market—most of the deflation, in my opinion, coming from discount price concession, bankruptcies, investors being wiped out ... We are not so capable of making the difference between what is coming from pure price concession versus what is sustainable,” Pilenko said. “For the medium term, my biggest concern is that many of our clients say the current cost environment is sustainable because many of the changes that happened are structural, and I don’t believe so.”
Expecting 50% off of umbilicals compared to three years ago will not last forever, Pilenko said. “Inflation is going to come back.”
In the meantime, companies continue working to advance technologies through partnerships and mergers. This includes the combination of McDermott International and Chicago Bridge & Iron Co. (CB&I).
Shareholders of both companies approved the merger May 2 to create a vertically integrated company that combines McDermott’s offshore/upstream focus with CB&I’s technology and infrastructure offerings.
McDermott CEO David Dickson spoke about how the company overcame challenges a few years ago, changed leadership and entered an optimized phase to control cost before looking for ways to better compete. In early 2017 McDermott saw an opportunity in CB&I to develop technology with an aim to become more diversified and generate scale to compete.
“McDermott really is a story about turnaround and transformation focused on diversification rather than consolidation,” Dickson said.
Partnerships also continue to take shape in the subsea sector. This includes Schlumberger and Subsea 7’s plans to form a joint venture that builds on the success of their Subsea Integrated Alliance. The alliance merged the subsurface, subsea production system and subsea processing systems skills of Schlumberger’s OneSubsea with Subsea 7’s subsea umbilical, riser and flowline systems expertise.
Olivier Le Peuch, president of Cameron Group, a Schlumberger company, said the alliance is moving to the next level with life-of-field technology advancements and performance-based delivery.
In addition to lowering costs, making subsea developments more attractive and competitive requires more cooperation with operators, more integration, taking risks and investing in optimization and digital assets, Le Peuch said. “If we do this right not only will subsea survive but will thrive.”
WTI discounts are $6 to $7 a barrel, increasing pressure on producers to shut in wells.
One analyst dubbed it “OPEC-aggedon.” Another a crash of historic proportions. Others: disaster; and, low-cost producer deathmatch. A Raymond James March 9 report summed it up: “When it rains, it pours.”
By now you’ve read way too much about the effects of the first oil price war of the new decade—it’s not going to be the last.