Discussion Of Oil Service Provider: Schlumberger Oil And Gas Company (Essay Sample)

Oil service provider Student University Introduction Oil and gas industry is made up of companies which provide petroleum and natural gas products and services. The sector focuses on upstream and downstream customers. The upstream customers are the exploration and production while downstream consists of refining and petrochemicals. Some of the largest oil and gas service provider are Schlumberger and Halliburton. Schlumberger a world leading company providing technology for oil reservoir characterization, drilling, extraction, production, and processing of the oil and gas industry. It has branches in about 80 countries and its spread worldwide. It supplies a range of oil and gas products and services beginning from exploration through production systems for hydrocarbon recovery optimizing oil reservoir performance. Another example is Halliburton is one of the world’s largest oil and gas multinational company in the world located in America with its operations in more than 70 countries. This company provides natural gas and petroleum products and services from exploration, extraction, and production. It has affiliates, branches, brands worldwide. It was founded in the year1919 by Erle P. Halliburton. The oil and gas industry sector are facing major hit from the rising global demand, very high volatile prices and increasingly strict environmental policies and regulations. The three major challenges facing this industry reduced costs, optimization of the industrial base assets performance and taking care and improving its environments. The major drawback for oil and gas service providers is reducing costs to compete effectively with other companies. The need to remain competitive on the market despite the fact that the production costs are high makes these companies operate at losses sometimes. Optimizing the production systems to ensure quality products and upholding the environment utilities are priorities for the oil companies. This enhances maximum production with reduced extraction costs and therefore offsetting exploration costs. The environment protection policy is becoming increasingly stringent for the oil and gas companies to achieve. This industry uses energy resources and water and hence subject to the policies. This rises the license requirements containing the companies on extraction, production and distribution procedures and systems. More requirements are to have environmental transparency in the operations. The governments are introducing ambitious carbon reduction policies. This is drawing back more investments and new companies joining the industry since this industry sector must have emissions because it deals with crude oil and petroleum products. This is compelling companies to devise new ways to extract the oil beds without having much pollution. It’s a requirement to have highest safety standards since oil rigs are dangerous places to work. The regulatory policy aims at protecting marine life and coastal environments against crude oil pollution. Spillage of oil on water kills are all the marine life compelling more environment protection regulations. Moreover, improving the performance together with sustaining their supply is a big demand for this industry. The companies are compelled to sustain their supply while extending the existing sites extractions or seek new sources for the crude oil or gas. Once the old sites are exhausted, it becomes costly to venture into new sites which adds up extraction, drilling, transport and refining costs. They are needed to have a maximum and consistent supply with much reliability. They should have no unplanned shutdowns and improved performance to have secure valorization of assets. The existing wells are rapidly drying compelling, and it is proving difficult to access new wells. The oil beds are deep underground, difficult to locate and drill and far from the existing companies sites and production systems. Cutting edges technology is required to extract oil from the new sources. Moreover, skilled engineers are required to carry out the operation. Failure to find new sources would mean the oil industry has collapsed. All these challenges are chasing away investors from investing in oil companies. First and foremost, the fluctuating prices and reduced prices are making investors seek the more profitable investments. In this paper, Schlumberger oil and gas company is discussed and well explained in details. Schlumberger, a world leading company, provides technology for oil reservoir characterization, drilling, extraction, production, and processing of the oil and gas industry. It has branches in about 80 countries and its spread worldwide. It supplies a range of oil and gas products and services beginning from exploration through production systems for hydrocarbon recovery optimizing oil reservoir performance. Challenges The oil and gas industry faced low oil prices as from 2014. In 2014, the oil price decreased by about 25% from June to December CITATION Mar14 \l 1033 (Marko, 2014). This indicates a four-year low and a big challenge to the company. The international Energy agency said that the oil prices would remain low due to the strong supply levels. There is lots of oil on the market that doesn’t equalize the demand. In 2015, the prices had fallen below $50 per unit due to the sluggish outlook for global oil demand growth and much higher supplies from U.s shale oil fields. This compelled them to protect their cash flows by cutting down the exploration and spending budgets for the year 2015. The company then restructured and resized the company to compete effectively under the low price pressure. It reduced the capital expenditures to $3 from $4 billion in the year 2014. Moreover, the company took a $199 million pre-tax charge in the Eagle Ford Shale, $806 million charges on Western Geco project and $296 million charges on headcount reductions. Schlumberger has had losses. In 2016, the company reported about $1.69 billion loss. Losses pull back companies and may retard their growth. The company has failed projects which make the company undergo major losses after investing. Moreover, the company suffered losses after venturing into Eagle Ford project that went sour when the oil prices went down in 2014. It reported a challenging year for the broader energy space which made crude oils plummet by almost 40%. Schlumberger took significant charges relating to write-downs of assets and cut about 9000 jobs on exploration and production spending. Schlumberger is being challenged by Halliburton, its major competitor on patents. Halliburton is requesting the U.S Patent and Trademark agency to cancel Schlumberger's licenses that are old ideas that have been renewed CITATION Tsv18 \l 1033 (Tsvetana, 2018). The two are world’s largest oil service provider companies. Halliburton comes into the market before Schlumberger, which is more stronger on the international market. The Patent Board has decided to review Halliburton’s request. This move is threatening the six patents held by Schlumberger. It's more likely for the rivals to win the arguments. Schlumberger has willingly dropped some patents while the rest are waiting for the board to make the final decision. The board is supposed to finalize at the end of 2018 to determine the legal Schlumberger’s patents. One of the patents being challenges is the use of fiber optic tools for checking and monitoring the interior of the deep wells, sensors used and the ways of precise controlling of the fluids. It claimed that it used to elements combining them with known methods to have predictable results. Losing of patents is results to lower profits and lower growth. Schlumberger is facing tough competition from its competitors who they are competing for the market share together. In 2017, Halliburton international revenue in Q4 increased by 11% sequentially while Schlumberger’s revenue grew by 2%. Competitors will lower the market share, make prices to go lower and even take some of your customers. Schlumberger cannot operate at a higher price than the low market price to cater for the high extraction expenditures. It has to withstand the pressure and operate at the low market price. Being an oil producer is a drawback since the company is somewhat competing with its clients. The bulk of the business was being contributed by the oil producers clients. This means that this move will make the company lose some customers who are oil producers. This strategy brings about both positive and negative outcomes. This is a revenue added project, but at the same time, the company may be losing it core customers. Opportunites Schlumberger has created some strategies to help curb the major challenges they are facing and keep consistent high performance while competing with the other companies in the industry. In 2017, Schlumberger has decided to take on an ownership stake in the upstream production of gas and oil instead of simply offering the services for doing so. This strategy aims at being a potential model for the major oilfield services companies in the industry that have drilling prowess have challenges in lackluster activity. The company has seen opportunity in this strategy and has decided to invest billion dollars on the strategy. Deciding to become an oil producer and a drilling servicer simultaneously, is a great opportunity for growth and higher profits. Considering it an oil driller, becoming an oil producer is easier since they have oil reliability and effective supply chain. Initially, Schlumberger provided the technology, equipment and systems for oil drilling and extraction, and analysis of oilfield data and supplied to oil producers. These projects enhance the corporate sustainability of a company. Schlumberger launched Schlumberger production management (SPM) in 2011. The returns as from 2011 to 2016 was 7% higher than the rest of the companies production unit...