Fundamentals are strong for service companies who find their roles changing as international oil companies (IOCs) and national oil companies (NOCs) compete for oil and gas assets worldwide.
Michael G. Parham, vice-president of investment bank RSM EquiCo Capital Markets LLC, said NOCs seek technology expertise, which traditionally came from IOCs.
But major IOCs have downsized during industry downturns, and much daily operational expertise has shifted to service companies.
“The ExxonMobils of the world really have become more like lean fund managers. They are not the guys who actually drill,” Parham said. “They relinquished that role decades ago. Frankly, they haven’t trained people internally in technical practices that they farm out to Halliburton and Schlumberger. Even those service companies are so big that they have lost touch a little bit with what it takes to get the job done at the hole.”
Some NOCs appear inclined to establish alliances or possibly acquire “middle-market” service companies, Parham said, noting representatives from Middle Eastern and Asian NOCs attend trade shows to acquaint themselves with contractors.
“I think you will see more and more interest in acquiring,” service companies, Parham said of NOCs. “I’m talking about stuff that is off their radar screen but up their alley in terms of what they need. Something like a wireline company could do wonders for profitability and production, but it’s still far down the food chain,” Parham said.
A strong reason to buy a service company is to acquire access to skilled labor.
Meanwhile, Halliburton and Schlumberger are acquiring smaller service companies in the interest of protecting their market share, Parham said.
Middle Eastern NOCs
One Middle Eastern service company reports rising demand from NOCs and IOCs. AlMansoori Specialized Engineering of Abu Dhabi has more than 800 employees working in 15 countries.
“While our area of operations has traditionally been in the Middle East, we are currently expanding into North Africa and Southeast Asia,” Nabil Alalawi, AlMansoori chief executive officer, told OGJ during a phone interview from a Moscow trade show.
“We have seen a huge change with the NOCs as far as how they do business with local companies,” Alalawi said. “NOCs realize that multinationals can pack up and leave suddenly because of security issues. Home-bred service organizations are not going to leave their home base.”
Alalawi said oil companies are increasing their business with host-country contractors and encouraging them to expand. And he foresees brisk demand for services for at least 5 years.
“In the past, we were last on the list because oil companies thought we could not have the capability or quality of the multinational service companies.” He also sees more cooperation now between IOCs and NOCs than he saw 15 years ago.
“We interact with clients,” Alalawi said. “One day we see a national oil company representative, and the next day we see an international oil company representative working on the same project. The whole concept of doing service work is far more refreshing now than ever before.”