Increased need for oilfield services could tempt majors toward acquisitions: CEO

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Increased need for oilfield services could tempt majors toward acquisitions: CEO

Oilfield services companies could be a target for future acquisitions by oil majors that need both advanced technology and technicians to help them exploit their large US shale positions, a veteran oil company CEO said.

While exploration-and-productions companies typically hire service and equipment providers on a fee-for-service basis, OFS costs were depressed in the recent industry downturn of 2015-2016 as providers agreed to take less of a return to at least keep their doors open. Even as oil prices rose above $60/b, except for a few months in late 2018 and earlier this year, prices and returns for oil services and their providers are still relatively low.

As a result, it may be more cost-effective for the biggest consumers of services and equipment to have them in-house, Tracy Krohn, CEO of US Gulf of Mexico producer W&T Offshore, said at the Louisiana Energy Conference.

“This business is changing,” said Krohn, who started W&T in 1983. “Basically, E&Ps have to produce more and cut costs. I wouldn’t be surprised to see majors gobbling up service companies.”

The problem is personnel and equipment, he said, adding, “you can’t just manufacture personnel, although you can manufacture equipment. Where will you get these people, and how can you lower costs?”

OIL SERVICES DEMAND RISES AS SOPHISTICATION INCREASES

The demand for oil services is great and getting more so as the technology component of that sector becomes more sophisticated.

Shale production is also service intensive, and the amount of services used in extraction has risen especially in recent years as oil companies continue to devise improvements in well drilling and completions.

Use of increasing artificial intelligence and advanced analytics to make more informed decisions that better pinpoints the reservoir location and provides a clearer image of oil and gas reserves prior to drilling, and digitalization to better manage equipment and improve safety through automation, have all helped ultimately push down the cost of oil extraction and boosted corporate margins.

While at times different subsectors of the oil and gas industry have merged — for example, at one time drillers had E&P segments, and power companies had upstream natural gas divisions — eventually the parent companies sold off those businesses as non-core.

But as long as the oil and gas industry is short-skilled labor, the potential for bringing businesses that supply them may tempt large oil companies and majors, which are currently ramping up their presence in US shale.

For example, at their respective March analyst meetings, ExxonMobil and Chevron each said they plan to at least double or more their shale output. ExxonMobil expects to produce 1 million b/d of oil equivalent in the Permian Basin of West Texas and New Mexico by 2024; for Chevron, its output in the basin will be at least 900,000 barrels of equivalent/day by then.

Moreover, outsourcing oilfield service functions “isn’t cheaper if you don’t have any personnel,” Krohn said.

“Things cycle around,” he added, referring to the trend of outsourcing non-core functions, versus acquiring them. “But I think personnel will be a big issue in the future.”

https://www.hellenicshippingnews.com/increased-need-for-oilfield-services-could-tempt-majors-toward-acquisitions-ceo/

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