Digital Technology, Integrated Disciplines Driving Changes in Service Sector
Authors: Braswell Gentry 
Published: February 2015

Evolving deepwater operations, the emergence of unconventional plays such as shale, and the increasing digitization of the oil field are driving the evolution of the oil and gas industry service sector and changing the way service companies posture themselves in the global market.
“Back in the 1970s and 1980s, service companies were very specialized,” said John B. Parry, principal energy analyst with the consultancy IHS Herold. “What you have been seeing is a merger of a lot of these disciplines.” Merger and acquisition (M&A) activity in the service sector was robust last year with takeovers involving several venerable names, including Smith International, BJ Services, and Boots & Coots.
Contributing to this trend are operators that like to have a “one-stop-shop” business experience on big projects—to be provided with as many services as possible from one company, Parry said. And service companies are learning from and growing through their acquisitions, he added. “Even Schlumberger is going to learn from Smith. Baker was a huge supplier of services downhole, but they did not have a workover. So now, they have BJ. It makes them stronger financially, and reduces their risk in any one given area,” Parry said.
Minimizing Risk
Service companies are growing larger to share more risk, and to have more discipline and technology to minimize risk, Parry said. Current merger and acquisition trends in the service sector reflect the increasing need for integrated service disciplines, consolidated geographical operations and fortified financial posturing. For example, a service company that only specialized in Gulf of Mexico jackup rigs would be in big trouble right now because of the recent drilling moratorium, so a geographical balance is important just as is diversity in service, he said.
An IHS Herold report titled “Review on the Oil Field Services Sector” predicts a healthier growth outlook for oil and gas service companies this year after being hard hit by the Gulf of Mexico drilling moratorium in 2010. The review compared oil company financial performance against performance for service companies and off-shore drilling contractors.
The service sector still faces challenges. Even with the moratorium lifted, the return to drilling has been slow, which has fed a decline in rig utilization rates while new-build rigs continue to enter a sluggish market, the report said. And the service sector is facing some of the same issues as operators. “The industry will be challenged by more remote operations, deeper waters, more difficult logistics, increasingly complex geological settings, and greater degrees of temperature and pressure,” Andrew Gould, chief executive officer of Schlumberger, said in a recent speech.
At a recent Bank of America/Merrill Lynch Global Energy Conference, Baker Hughes discussed its geomarket management teams’ more holistic view of the market. The company’s priorities are to improve international profitability, eliminate inefficiencies, and to revise its geomarket structure with particular attention to deepwater, unconventional, conventional and alternative energy market segments.