May 2019 marked the 50th anniversary of the Offshore Technology Conference (OTC) in Houston. While attendance figures may not be as high as in previous years, the event still provides a useful barometer for sentiment and activity across the oilfield service (OFS) industry.
The past five years have been amongst the most significant for the industry, a theme we considered in our Review of The UK Oilfield Services Industry’ in January.
I was eager to see how the key themes in our report compared with the mood in Houston.
Profitability has returned to the global oilfield service industry and, while US onshore still generally provides the best returns for supply chain participants, international growth is very much back on the agenda. There was much discussion about South America, Russia, Asia, Africa and even the North Sea permeating the International Lounge of the conference centre.
Yet, while supply chains are welcoming an improving market for profitability, invariably conversations ended on a common theme of cash flow. In terms of transactions and inorganic growth, M&A teams appeared focused on payback periods and opportunities that would generate cash flow immediately.
Those discussing new technology and its deployment highlighted the CAPEX required to bring these developments to market and the speed in which they would be recovered.
Given the focus of the conference, it is not a surprise technology appeared on every agenda. Topics of conversation resonated with our observations in the OFS report. Data acquisition and processing, analytics and digitisation were key themes across the supply chain. A theme more apparent at OTC than we observed in our report was the acceptance of defined digital strategies across the supply chain.
These strategies are no longer seen as enhancements to existing cost centres or new products to improve customer experience.
Moreover, many organisations are forming views on standalone digital strategies that pervade entire organisations, from administrative cost centres, all the way to sales executives on the front-lines.
Perhaps a bi-product of all-encompassing strategies is the familiarity of the bespoke platforms used by the leading OFS companies, often customers and route to market partners of many in the supply chain.
It was not uncommon to hear examples of how delivered services could feed data directly into customer systems.
Discussions about technology weren’t restricted to digital solutions. In our report, we concluded that much of the newly-deployed technology is increasingly focused on maximising the economic life of assets or finding cost-effective solutions to challenges like decommissioning.
These observations weren’t contradicted at OTC. Although, it was clear that in order for technology enabling service companies to deliver high-quality services with greater internal efficiency, higher profit margins are an increasing priority.
The enduring pressure on the supply chain means there is likely to be an underlying focus on technology in the short to medium term.
The transition to cleaner energy generation is here to stay. Operators are increasingly looking at ways to minimise their carbon footprint. This includes a focus on how hydrocarbons are extracted, in addition to the way energy is produced.
Side conversations on these issues raised questions that are likely to form the debate for future events. The most interesting and recurring of these was the potential impact that a collapsing oil price could have on energy transition.
One interesting debate was about whether over-supply and a sustained low level of commodity pricing would significantly prolong the expected transition to electric vehicles, on the basis that low fuel costs versus high electricity pricing would essentially ‘price out’ the transition for the global consumer.
Other challenges focused on the relationship between energy consumption, economic activity and quality of life. Perhaps the most enduring question is whether the focus of energy transition is too fixated on how we generate energy and not on the consumption that ultimately fuels demand?
For oilfield service companies and revenue opportunities in the renewables sector, the messaging was mixed. In some niche areas, often subsea, the supply chain is establishing accretive relationships and new revenue streams.
Many service companies are finding the turnkey style projects and modest margins difficult to incorporate into existing operating models. In some cases, fortunes should improve as better understanding between supply chains and operators develops.
For others, greater opportunity perhaps lies in adjacent industries with similar exposure to hazardous environments and capital and operating expenditure profiles more closely aligned with oilfield services.
Going the distance
The mood at the conference was one of cautious optimism. Increasing activity and a return to profit for many is of course welcome, as are the opportunities in adjacent industries and via new technologies.
Challenges and uncertainties remain but, in general, many now feel in a better position to address them with the resilience the industry has been built upon.
The motto for this year’s conference was ‘going the distance’. Encouragingly, despite the challenges that lie ahead, the majority of the supply chain appear to be preparing themselves to do just that.