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Doug Sheridan
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Doug Sheridan is Managing Director of EnergyPoint Research in Houston, Tx, an independent market research firm specializing in the measurement and monitoring of customer satisfaction and supplier performance in the oil and gas industry. Prior to founding EnergyPoint in 2003, Sheridan held... More
My company:
EnergyPoint Research, Inc.
My blog:
Oilfield Insights
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  • How Halliburton's Betting On Innovation

    Resilient Through the Ups and Downs

    When EnergyPoint Research published its first-ever report in 2004, Halliburton (NYSE:HAL) was grappling with asbestos-related legal issues inherited as part of its ill-fated Dresser Industries acquisition. In addition, its now-jettisoned KBR subsidiary was taking flak in the media and in Washington D.C. over a series of inutile contracts with the U.S. military.

    At the time, we weren't sure if these dual distractions were contributing to the company's then-lackluster oilfield customer satisfaction scores. In retrospect, it appears they were. Halliburton's ratings improved appreciably once the issues were resolved and management was able to more fully concentrate on its mainstay energy-services business.

    And concentrate it did. The company smartly swore off major acquisitions, choosing to focus on organic growth opportunities within its existing portfolio. As shale development began to take off domestically, its hydraulic fracturing expertise became increasingly coveted by upstream clients.

    By mid 2009, after managing through the prerupt decline in global rig count in late 2008 and early 2009, our surveys indicated Halliburton was effectively hitting on all cylinders. Unfortunately, nothing lasts forever. As both demand and expectations grew, customer satisfaction began to decline in 2010. Everything from equipment wear and tear, to soaring prices for guar gum, played a part.

    A trend of more subdued ratings for Halliburton have since resulted, including for domestic hydraulic fracturing services and deepwater applications.

    Customer Satisfaction Off Recent Highs

    Betting on Innovation

    While our data point to Halliburton having lost some of its ratings vigor over the last 18 months, the company might have an ace up its sleeve with its new Frac of the Future (NYSE:FOF) initiative.

    FOF is an ambitious multi-faceted, multi-year effort to reduce the maintenance costs, downtime, horsepower, physical and environmental footprint, and onsite headcount required for frac jobs. Two of FOF's major components -- Sand Castle proppant storage units and Q10 pumps -- are in the early phases of implementation.

    Our initial interviews with oilfield customers suggest high levels of interest and enthusiasm for the concept. While competitors have introduced new twists of their own in the space, none are as joined in their approach or design.

    For example, while Schlumberger's (NYSE:SLB) HiWay offering has its devotees, many customers see it as limited in its application. FOF's appeal is its applicability across a larger swath of well types.

    If successful, the FOF effort has the potential to bring about a paradigm shift in terms of what customers both expect and receive from their pressure pumping suppliers.

    We're certain competitors will be watching closely. The bigger question is whether what they see compels them to emulate.

    Weaker Marks in Completions

    Lower Ratings in Services

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Business relationship disclosure: My firm, EnergyPoint Research, does and/or seeks to provide data subscriptions services to oil and gas industry participants and stakeholders, including companies covered in its posts, reports and articles.

    Tags: SLB, HAL, commodities
    Jan 21 8:51 PM | Link | Comment!
  • OneSubsea To Shift Market Currents

    Cameron (NYSE:CAM) and Schlumberger (NYSE:SLB) announced this morning the formation of OneSubsea, a 60/40 joint venture partnership that will focus on manufacturing and developing subsea products and services worldwide.

    Cameron will contribute its existing subsea division and receive $600 million from Schlumberger. For its part, Schlumberger will contribute its Framo, Surveillance, Flow Assurance and Power and Controls businesses.

    The partnership is expected to benefit from Schlumberger's expertise in subsea processing and platform integration and Cameron's position in subsea pressure control.

    As we have written previously (see here), the products that today's supplier base provides customers in the subsea are rated materially lower by customers than most of the other segments EnergyPoint Research tracks in its independent surveys.

    From our standpoint, the move by CAM and SLB move should benefit customers by combining the subsea capabilities of two of the industry's most well-regarded names in a segment that needs to see both performance and standards rise.

    We also believe the move, to some extent, represents evidence of Schlumberger and Cameron taking steps to provide greater focus in their respective core businesses, continued evidence of a reversing out of the several-year trend toward bundling that our data have shown to be ineffective for customers (see here).

    We suspect customers will welcome the JV, if for no other reason than it provides greater competitive pressures upon supplier standards and performance in the subsea segment. The financial implications to Cameron and Schlumberger of the JV, while potentially material, seem less significant than the financial implications on certain competitors.

    Accordingly, we see potential competitive risks for Dril-Quip (NYSE:DRQ) and FMC Technologies (NYSE:FTI), both of whom derive significant portions of their earnings from subsea product lines. Aker Solutions (OTCPK:AKKVF), National Oilwell Varco (NYSE:NOV) and GE Oil & Gas (NYSE:GE) could also see their subsea market shares impacted.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 15 5:32 PM | Link | Comment!
  • Lockstep Strategies Not The Answer

    Within the upstream oil and gas industry, there's a relatively limited number of companies possessing the size and scope to be considered fully integrated and/or global in nature.

    On the services side, the roll (listed alphabetically) includes Baker Hughes (NYSE:BHI), Halliburton (NYSE:HAL), Schlumberger (NYSE:SLB) and (NYSE:WFT) Weatherford International. Within the capital equipment segment, it's Aker Solutions (AKSO.OL), Cameron International (NYSE:CAM), FMC Technologies (NYSE:FTI), GE Oil & Gas (NYSE:GE) and National Oilwell Varco (NYSE:NOV).

    On a combined basis, these nine super suppliers currently represent about a quarter of all supplier-segment sales to the global upstream market. Yet, none of these same suppliers currently enjoy above-average ratings in EnergyPoint Research's independent customer satisfaction surveys. And current trends don't suggest the situation will significantly change anytime soon.

    SA Chart #1

    The Perils of Lockstep Strategies

    Even as customers appear increasingly underwhelmed with the performance of the industry's highest-profile names, shareholders seem to sense something's amiss as well.

    As evidence, the eight super suppliers that we consider relatively pure-play oilfield names (GE, as a cross-industry conglomerate, is excluded) have seen their stock prices rise just 29.4% in the 24 months ending June 30, 2012. This compares to a rise of 63.3% for the Philadelphia Oil Services Sector Index (OSX) over the same period.

    The strategies, offerings and capabilities of these large suppliers are now so strikingly similar that customer ratings and financial performance seem to have effectively converged. This has made it even more of a challenge for both customers and investors to see much in the way of differentiation among companies.

    Suppliers' efforts to fit in have, in effect, made it substantially more difficult, maybe even impossible, for them to stand out. The result is that customers are now able to more effectively push price as the final differentiator.

    SA Chart #2

    SA Chart #3

    Alas, Size Isn't the Prize

    Whether it be from a lack of differentiation stemming from a persistent group-think mentality, difficulties in running increasingly diverse and far-flung operations, or the inevitable "averaging down" of customer experiences as a result of bundling efforts, the deck seems stacked against today's growth-through-diversification model.

    Until a renewed focus emerges within the oil and gas industry's most influential circles, one emphasizing individual suppliers' core competencies emerges, customer satisfaction and performance levels of the largest suppliers will likely continue to languish.

    Change is never easy, but the first step in achieving better performance among the industry's largest suppliers may very well be in these companies and their customers recognizing that a supplier's real strengths lie not in its similarities with its competitors, but in its differences.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 21 11:45 AM | Link | Comment!
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