A Blueprint for Building an Oilfield Services Company in 2020
In the past month and a half, we have seen the world as we know it in the Canadian oil patch decimated by two low probability, Black Swan events. One event, the Covid-19 pandemic, has had a worldwide impact — threatening the safety and well-being of every person in every country of the world and in reducing the demand for the majority of products and services we as consumers rely on in our everyday life. The second event, the Saudi Arabia / Russia oil supply war has flooded the world with oil causing the price of benchmark West Texas Intermediate crude to go negative for the first time in its history. On their own, either one of these events could massively affect an industry but collectively these events will forever transform the Oil and Gas industry...and for the better!
If you sit back and look at the Oil and Gas service business today, you will see an oversupplied industry, low on significant innovation, not to mention one that has not made money for investors over the past 10 years. Any real innovation such as rotary steerable drilling, which has increased the drilling rate of penetration significantly, is practically given away to the Producers who know service companies will drop their prices to almost nothing to get or keep the work. Further, any profit made continues to get funneled back into maintenance or to buy more of the same assets to be deployed at even lower day rates in an effort to out-duel the many competitors present in the market. Oilfield service companies are at a new 3-way crossroads — one continuing to play the same old game, a second to discontinue operations or a third to go full force into the new era of providing services meeting a new standard of low-carbon and low-greenhouse gas (GHGs) emissions. One thing is clear — the industry is going to be forever changed, and what resurfaces must be a new way of extracting our resources — low-carbon, low-GHGs, efficient, and highly profitable for the companies developing and deploying this new technology.
Making the tough road ahead rougher is the fact that “Service” in the Oil and Gas service industry is dead! — or at least a producer’s willingness to pay for it is. So why do all oilfield service businesses try and stumble over themselves to out duel the next company? This mentality has killed the oilfield services business. The only two things that will drive the industry forward from here will be green innovation and digital transformation. Do it cleaner with less people and more efficiency! We are already seeing the industry giants such as Schlumberger, Halliburton and Baker Hughes tout green innovation and digitization as the buzz words for the next decade. It makes sense as they are making less and less from the traditional services that they have grown their businesses on — drilling, pressure pumping, artificial lift, etc.
So, where does the oilfield services industry go from here? Well for starters it would be best to observe the moves and the actions taken by their customers, namely the global producers such as Shell, Equinor and BP. Gone are the days of the simple mix energy portfolio consisting of just upstream oil and gas operations. Today’s global producers not only have a geographic mix of traditional upstream and downstream operations but also in the mix are short and long cycle oil and gas portfolios, LNG, hydrogen, and making up the highest growth portion of their operations, a focus on a mixture of renewable energy sources (wind and solar). Aside from the environmental benefits the increased focus on renewables will have, producers have also determined that in order to attract capital, they must be focused on extracting energy in a way that reduces carbon and GHG intensity.
We have in front of us the opportunity of a lifetime. While most will look to continue to repeat the same old business practices using the same old equipment, processes and systems, it is those who see how the world’s energy mix is transitioning and who see where the capital migrates to (yes, it is moving towards lower carbon and lower GHG opportunities) who will seize the new energy opportunity. Companies such as Acceleware who offer unique technology with the ability to lower a producer’s carbon and GHG intensity and who significantly lower the economic and environmental cost of extracting oil will become the new leaders in the new “Green Oilfield”. The sooner both oilfield service companies and producers align and start collaborating on this new shared “green” vision the better as without it we may never be in position to attract capital and grow the Canadian oil industry from here.
About the Author:
Chad Robinson - Managing Director
Chad has over 18 years of accounting, finance and private equity experience, specialized in the oilfield sector. Since 2006, in his role as CFO, he was instrumental in the rapid growth and development of Canada's largest premier private directional drilling company, Pacesetter Directional Drilling, which financed its growth solely with cash flow and conservative leverage. In 2015, the firm was acquired by the world’s largest oilfield services company, positioning it for future growth. Prior to Pacesetter, Chad was in corporate finance and research with a prominent Calgary-based Merchant Bank, which armed him with unique talents for value creation initiatives, corporate and sales strategies, financial structuring and modeling, team building, and industry analysis. Chad is currently the Managing Director of SCF Partners Inc. in Canada, he serves on several private company boards and is Vice-Chairman of the Board of CUPS, a non-profit serving impoverished families in the Calgary region. Chad has an ICD.D designation, an MBA in corporate finance, a master's degree focused on resource economics, and a bachelor of science in chemistry.