Transcript Document

Gwendolyn Fricker
Senior Manager
RPI Service Conference
December 2003
Strategy & Information
Support
Market Research, Corporate
Intelligence, and Special Reports
Corporate Communications
Strategy Review/Development
Business Opportunity
Support
Internal Controls and
Operations Management
Target Identification
Business Assessments
Negotiation Support
Business Process Optimization
Internal Operational Controls
Session 2
The Russian Majors: Strategy
in Relation to Oilfield
Services
The Russian Majors and
Oilfield Services
Reasoning for Divesting Service Companies
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International ‘best-practice’
Oil company management time is
diverted from core activities
E&P company management does
not have expertise in services
Opportunity cost of capital (leads
to reduced E&P CAPEX)
Access to latest technologies spread the burden of R&D
spending
Specialized service companies
are better able to manage assets
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Improve Key Variable
Performance of Oil companies
– also helps banks/funds do
comparisons
Improve utilization of
equipment and employees
Reduce costs
Improve quality and service
time
Use of third parties adds
transparency to transactions
Cost of downsizing in event of
downturn.
The Russian Majors
and Oilfield Services
Reasoning for Divesting
Service Companies
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International ‘best-practice’
Oil company management time
is diverted from core activities
E&P company management
does not have expertise in
services
Opportunity cost of capital
(leads to reduced E&P CAPEX)
Access to latest technologies
Specialized service companies
are better able to manage assets
Improve Key Variable
Performance of Oil companies –
helps banks/funds do
comparisons
Improve utilization of
equipment and employees
Reduce costs
Improve quality / service time
Use of third parties adds
transparency to transactions
Cost of downsizing in event of
downturn.
What
Should
their
Strategies
be for
Oilfield
Services?
Should they sell?
To whom? When?
How?
‘Issues’ for Oil Companies
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Maintain or reduce lifting
costs– especially for highmaintenance fields
Increase expertise in ‘core
competencies’- exploration &
reservoir planning/mgmt. (?)
Lack of internal information
to take effective decisions
Avoid being monopolized by 12 external companies
Ensure access to equipment
when needed
Decrease downtimes
Improve quality and service
level
Session 3
Independent E&P Operators: Options
and Challenges of Contracting
Service Providers / Vendors
Oilfield Service Offerings and
‘Independent’ Operators
Sample Solutions
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Workovers / well
servicing
Drilling
General Infrastructure
(electric lines, private roads,
social assets)
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Pumping and
Treatment
Pipelines (connection
to trunk pipelines)
Located small,
independent company
Purchased drilling rigs
and created internal
dept..
Diesel generators, plan
primary work in winter
Double pay.
Eventually, build own
pipeline.
The Issues
E&P Companies
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Entry Barrier to E&P
sector
Increased costs compared
to majors – source of
delays
Additional CAPEX to
develop internal services
and/or build infrastructure
Limits effectiveness of
operations
Service companies
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Life line for poorly
financed closely-held
companies.
Market niche for Russian
independents and Foreign
oilfield service companies.
Session 4
Growth Strategies for
Service Companies
Growth Opportunities
Distribution of Service Expenses - Major Russian oil company
- 85%* closely-held service companies
- 15%* other
Russian Oil and
Gas Companies
Sell
Service
Companie
s?
Divest
Opportunities?!
Hold
Opportunities?!
•Spin-offs into separate legal entities significant
•Divestitures limited - ‘the jury is still out’
•JV successful for introducing technology
* In terms of revenue.
Acquisition for ‘Assets’ or
‘Market Share’
Year
produced
Qty
Book Value
% of Total
on 31 Dec book value of
2002 (USD) Fixed Assets
0
1987
1988
1996
1997
1999
2000
2001
2002
2
3
3
655
9
4
37
121
22
$8 993
$0
$0
$483 400
$100
$429
$42 944
$634 956
$5 687
0,76%
0,00%
0,00%
41,09%
0,01%
0,04%
3,65%
53,97%
0,48%
Total
856
$1 176 509
100,00%
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77% of Company owned-tools
have been in service since 1996
and have exceeded their
‘service life’.
Similar tools in west = 3-year
service life.
$1.8 million balance sheet
liability for 1996 equipment
plus inventory.
Acquired equipment was
 past service life at time of
sale/transfer to Company
 sold at restated book values +
28.9% markup.
Session 5
Competition and Russian Oilfield
Services: The Role of Foreign Service
Providers and High Technology
Pricing and Cost Structure
Russian Service
Companies
International Service
Companies
(closely-held)
LOWER PRICES are a
function of
HIGHER PRICES are a
function of
 Lifting cost control
 High personnel costs
 Related party
 Operating cost structure
transactions
 Lack of trust
 Low rate of
reinvestment
 R&D costs
 Efficiency of operations
in Russia
 Corporate Overheads
Cost Structure
• Comparison of Cost structure.
• Foreign Company charged 1.8 more for ‘comparable’* service.
Distribution of Revenue from Specific Service
(Costs as a % of revenue)
100%
26%
90%
80%
70%
46%
60%
47%
50%
40%
32%
30%
20%
14%
10%
0%
3%
25%
8%
Foreign Service Co
Profit
Corporate Overheads and local G&A
Russian Service Co
Direct materials
Field Cost incl. Personnel
Internal cost multiple between
Foreign and Russian
Company
Corporate
Overheads and
local G&A
10,14
Direct materials
1,25
Field Cost incl. Personnel 3,16
The Technology Premium Dilemma
Short-term
1994-2004
Increase value of
company- market
capitalization
and/or Capital
Accumulation
Corporate Priorities
• Improve
transparency
• Image
• Reduce production
costs with focus on
‘short-term’
• Visible production
increases
• Improve margins
IPOs
Selloff
M&A
Refocus
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Mid-Term
2004-2008
Long-Term
2008 - future
Operational
Process
Restructuring
and
Personnel
Effective
Decision
Making
Across the
Company
Develop Core
Competencies
Field and asset
management
Information systems to
support operations and
management
Quality and quantity of
well, reservoir and
production data
Reservoir and
Production engineers
?
Ability to
evaluate the
return on
Technology
and Quality.
Session 6
Uniting Western and Russian
Technology, Equipment and Expertise
for Cost Effective Solutions
Uniting Russian and Western
Technology
Russian
Equipment
Imported
Equipment
• Import duties
• Spare parts
• Repair and
Maintenance
• Workforce
Qualification
• Client requirements
• Certification issues
Where is the
Balance?
Uniting Western and Russian
Technology
Workover Rigs
 New rig in US –
$750 thsd to $1 million
 Refurbishment in US* $250 thsd.
* re-certifying the frame and derrick, replacing the engine with a new highly fuel-efficient engine, replacement of drums,
brakes, lines, and installation of advanced lighter-weight materials for flooring.
Roundtable
Practical Application of Technology in the
Russian Oil and Gas Industry:
Opportunities, Challenges, Economic
Effectiveness