Team 2: Oilfield Services Industry Analysis
Oilfield service companies have had a stronghold in the drilling industry since the advent of directional drilling and hydraulic fracturing. While the former was first used on production well sites in the late 1940s, the latter was invented in 1947 by Floyd Farris and J.B. Clark. However even with these technologies being available as early as the 1940s, the first real commercially repeatable systems was used in the 1990’s, pioneered by George Phydias Mitchell. An oilfield service company is generally broken into the following segments: seismic imaging, drilling, characterization, completions, subsea, production, well intervention and well testing. Although oilfield services do have some overlaps within the oil and gas industry in areas such as, equipment, procurement and construction firms (EPC firms), software application development firms and international consultancies. The oilfield services industry also enjoys a global demand, with mid-major oilfield service firms competing domestically, with onshore land based operations and production. While the majors are truly global, including, Halliburton, Schlumberger, Baker Hughes and Fluor, mid-major companies do not have the capital to do so. Using the Porters Five Forces Model and Stakeholder Theory an evaluation of the industry from a holistic perspective follows (Refer to Appendix B for a diagram of the analysis) Bargaining Power of Buyers
The buyers from oilfield services companies are Oil and Gas Exploration and Production (E&P) companies and are generally divided into three distinct segments. The first segment is the Multinational Integrated Oil and Gas Companies (the majors), comprising upstream (E&P), downstream (refineries and trading) and midstream (pipelines) and operating units. The majors include firms such as Exxon, British Petroleum (BP), Chevron and Shell. The second segment is comprised of National Oil and Gas companies (NOC), who face the challenge of always balancing political pressures and profitability.
These NOCs include firms such as Statoil,
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Sinopec, Petrobras. The third and final segment is the Independent Oil and Gas companies, pure E&P enterprises: Anadarko, Devon, Murphy Oil and Chesapeake. Bargaining Power of Suppliers
The Oilfield services industry uses a multitude of suppliers to build drill rigs, assemble downhole tools, compress water and move equipment between locations. These suppliers include, EPC firms, contract manufacturers (CMs), scientific parts suppliers, telecommunication companies, integrated circuit manufacturers and original equipment manufacturers (OEMs) for devices such as: telemetry equipment, sensors, detectors and industrial computers. The only supply chain area of concern with the oilfield service provider is the scientific parts suppliers. These suppliers are critical for the industry due to the market’s availability of the mineral/commodity in question and in some cases the government regulations that are placed on this commodity. For example, measurements while drilling (MWD) tools typically use gamma ray radiation reflections off the bore surface to measure the temperature, pressure and topology of the well, but plutonium is a highly regulated industry. As such, if the vendor of the scientific part is forced to cut supply, it would significantly impact the oilfield services companies. Competitive Rivalry
The oilfield service industry segment contains firms of varying sizes with the bigger firms functioning on a global scale while the smaller firms functioning more locally in specific geographic regions and frequently in specialized operations. In this environment the handful of major players such as Baker Hughes, Schlumberger, Halliburton and Fluor that dominates the oilfield service industry. Their dominance is derived from three main factors. Firstly, their ability to make large capital investment in specialized equipment, workforce, R&D...
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