GCC oilfield services and equipment sector revamp strategies

OFSE skeeze pixabayIn the GCC, the total spend on gas is expected to grow by four per cent over the next 10 years – led by Kuwait and Qatar with 19 per cent and seven per cent, respectively. (Image source: Skeeze/Pixabay)Amidst lower oil prices, global oilfield services and equipment (OFSE) industry has taken a strong hit and are realigning their strategies to suit the current scenario

This is largely due to the fact that a slew of major oil producers have planned, introduced, and set in motion cost-cutting initiatives, according to Bjorn Ewers, partner and managing director at BCG Middle East.

Worth US$65bn and almost seven per cent of the global market, OFSE is an important part of the GCC. Within the GCC, Saudi Arabia accounts for 40 per cent of the market and is expected to grow the fastest — by about eight per cent per annum between 2017 and 2020.

Interestingly, the forces currently shaping the GCC’s OFSE landscape are different from those affecting the global OFSE industry. Across the GCC, energy players are increasingly applying improved and enhanced oil recovery techniques, designed to help them extract the maximum amount of oil from mature fields. Global OFSE companies are already familiar with this type of activity and now they need to bring such expertise to the GCC.

Globally, oil companies are making significant cuts to CAPEX – between 10-30 per cent of the CAPEX budget has been cut by IOCs and NOCs. From their perspective, oil companies are expecting their service providers to react and are renegotiating contracts with OFSE companies in order to meet their new targets. As part of their efforts to reduce costs and elevate efficiency, IOCs have also radically shifted their strategy from volume to value and this has had a huge impact on the bottom line of OFSE players.

In response to this, OFSE players have reacted accordingly and have significantly reduced their cost base including their workforce, Ewers pointed out.

Schlumberger reduced its global workforce by 26 per cent since November 2014. Moreover, in recent years, the oil and gas industry’s returns have eroded amid low and stable prices — and this, in turn, has made investors skeptical of the industry’s ability to create value.

Looking ahead, the offshore industry will continue to serve as a key source of production growth globally. In fact, 62 per cent of new global oil production from now until 2020 will come from offshore — and this will generate an economic value of US$65bn. Given this context, OFSE companies will have to reorganise their activities and focus on serving this segment of the industry.

Ewers noted that naturally, today, this is the largest driver of spending for GCC NOCs looking to offset the production decline in mature fields.

GCC countries are determined to maintain their production capacity – so as to not lose market share. In 2015, mature fields accounted for about 36 per cent of oil companies’ total external spending.

When it comes to gas production, it is now becoming as vital as crude production. The reality is, government gas price subsidies in several GCC countries have sparked a rise in demand; and so, at present, some GCC countries like Kuwait, Oman and UAE are actually importing gas.

Remarkably, an increasingly large amount of oil produced in the GCC is directly used for domestic consumptions.

Overall, in the GCC, the total spend on gas is expected to grow by four per cent over the next 10 years – led by Kuwait and Qatar with 19 per cent and seven per cent, respectively.

Across the GCC, the growth of unconventional oil is also climbing to the top of governments’ agendas. This is driven by three main factors. First, unconventional oil sources can help GCC countries meet their capacity target. For instance, by also producing heavy oil, Kuwait aims to increase its capacity to four million bpd by 2020.

Secondly, unconventional oil production can help address local consumption needs. Following the completion of the Khazzan Tight gas field project, Oman set out to extract around 8.3mn cu/m per day of tight gas to meet its growing demand for energy.

Lastly, developing the skillset needed for unconventional oil production can help NOCs stay on top of technological advancements in oil and gas. Based on this, GCC E&P spending on unconventional oil is set to grow about 33 per cent until 2017 (led by heavy oil). On their part, OFSE companies can also play a pivotal role in helping NOCs and governments by providing the local workforce with the training necessary for the proper implementation of new technologies.

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