Deloitte: NOCs seeking broader services, technology

NOCs are seeking broader service capabilities and more technology, and this trend could prompt more consolidation among service companies, a speaker told the Deloitte & Touche oil and gas conference Dec. 12.

Paula Dittrick
Senior Staff Writer

HOUSTON, Dec. 13 -- National oil companies are seeking broader service capabilities and more technology, and this trend could prompt more consolidation among service companies, a speaker told the Deloitte & Touche USA LLP oil and gas conference Dec. 12.

Chad C. Deaton, chairman and chief executive officer of Baker Hughes Inc., foresees continuing consolidation within the oil service industry in general. He declined to comment on any specific deals that Baker Hughes might be considering.

"Service companies need a strong balance sheet and the mass to take on big projects," Deaton said in response to questions after his speech to participants at the Deloitte annual conference in Houston.

"More NOCs are acting like IOCs [international oil companies], Deaton said, noting that every NOC must be handled as a unique, individual customer with its own level of drilling expertise.

State-owned oil companies are becoming increasingly important customers for Baker Hughes, Deaton said. Meanwhile, oil production is becoming increasingly complex as companies target more-remote frontier areas and reach into deeper water.

Farouk Al-Zanki, Kuwait National Petroleum Co. chairman and managing director, also confirmed the need for more drilling and production technology.

"Over the next 5 years, Kuwait will need to develop more complex reservoirs," al-Zanki said. Kuwait plans to invest $64 billion over 14 years on its upstream efforts, he added.

R&D investment scale needed
Given increasing complex international projects, service companies need to be large enough that they can afford to invest heavily in research and development, Deaton said.

Deaton said the three largest service companies—Schlumberger Ltd., Halliburton, and Baker Hughes—spend a combined $1.5 billion/year in research and development.

"The way you differentiate is through technology and through the quality of people that you have, and the footprint that you have around the world," Deaton said.

Activities of Russian oil and gas companies outside Russia are providing increasing business for Baker Hughes, Deaton said in response to questions about Russia.

TNK-BP reorganization
It's common for Russian oil companies to own their own service divisions and drilling rigs, said Tim Summers, TNK-BP chief operating officer.

TNK-BP's six drilling subsidiaries are being consolidated into one company, and that process is expected to be finalized by June or July 2008, Summers said. The process includes an evaluation of whether to spin off the services division.

"I think that (decision) will come in 2008," Summers said.

When asked what BP has brought to TNK-BP, Summers listed the integration of skills and an organizational model along with technology.

"In Russia, we're bringing together reservoir engineers, petroleum engineers, and drillers," Summers said. TNK-BP also has clarified its needs and expectations to contractors, he said.

Contact Paula Dittrick at paulad@ogjonline.com.

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