Providing the higher quality became the key factor for service companies in Egypt without taking their eyes off the price aspect to keep themselves within the competition
Egypt’s drilling service sector is currently wracked with the debate of whether low costs equipment best serves the needs of drilling operators or whether high quality, but high cost tools proves a better long-term investment. Such debate has generated a call by some for a protocol on quality standards in the domestic market.
Now service companies are faced with how to maximize profit while still delivering quality to operators. Here in the Egyptian market, there have been a series of complaints about the equipment, follow-up, engineering services and costs.
High costs of deepwater drilling forces operators to consider both competitive prices as well as high quality equipment with advanced performance that can sustain harsh conditions and heavy wear. BG, BP, Shell, Hess and Statoil are among the major companies operating in the deepwater arena. All are trusted names due to financial solvency and proven experience in deepwater drilling projects.
The Mediterranean and Gulf of Suez are key locations for service firms that tackle the difficulty and higher costs of deepwater drilling. Drilling requires updated and sophisticated technology to avoid the standard risks that are part of such an endeavor; deepwater drilling especially takes a toll on equipment due to high temperatures and pressure. The environmental wear on drilling equipment creates incentive for both service and manufacturing companies to develop and provide a superior product. Therefore there is a high level of competition to deliver state of the art deepwater drilling supplies at a competitive price in the service market. Yet many domestic companies advertise their prices without much guarantee of their product as a means of getting a foot in the service market door.
Officials within the service sector emphasize that higher quality of services correlates with a substantial price increase but advocate for reliable equipment investments as the most sustainable means of doing business. Despite consensus on the need for high quality services within this market, many officials commented on the growing number of service providers offering a low cost product as a means of entering the market and gaining a share in the profit.
The use of low quality equipment has detrimental results for drilling operations and requires constant re-purchasing of tools, incurring a long-term drain of funds. While quality in the Egyptian market should have the same definition as anywhere else, providing the highest quality at a low cost and insuring after sale service on the product, here in Egypt this is not always the case. It is this predicament that has many members of the petroleum industry calling for market reform and warning against the low quality items that have penetrated the service market.
While higher cost tools require a larger initial investment their durability is proven to be better and longer lasting thus generating better results and putting the debate over which tools are better to purchase to rest.
In light of this inter sector debate and dissatisfaction with service quality, there is a call for some sort of overarching protocol in terms of a market standard for service products. Supporters of such reform believe the Egyptian market requires restructuring of provided services and a general quality policy in order to stop the infiltration of low quality equipment. Yet no one has specified whether they are calling on the government for a sectoral agreement in terms of such a protocol.
Members of the sector argue that low priced products with seductive but unrealistic benefits have had a negative effect on the service market in Egypt and do not aid in the expansion or development of the drilling sector. With more players from the private and public sectors of the industry contributing to the market, the competition has seen a surge over the last period. Many members of the service community see this as a positive move since it forces companies to try and out do each other in offering a superior product at the lowest price.
The “cheaper is better” motto is only applicable if quality of cheaper products is comparable to the higher priced brands. A misconception in the Egyptian market is that high end products are only acquired by connections and favoritism, instead of being chosen based on their merit. A standardized agreement would rectify these misconceptions and act as a means of ensuring quality to all potential buyers.
Companies and participants alike are calling for more cooperation between companies or a protocol in the market to determine the quality of services offered to the operating companies in Egypt.
In a climate that attracts investments of leading companies in the exploration and production field, a protocol would greatly add to the potential economic gains in the industry and make it a more appealing investment arena. “Quality needs a lot of effort, and the complete commitment from the government” commented a chairman who preferred to remain anonymous. Such a campaign will take time but would potentially remedy the internal issue the sector faces.
The implementation of such a reform would call for restructuring at every level as well as redefining strategic planning and goals. A protocol lays the foundation for the expansion of exploration and production activities, thus benefiting all divisions working in the petroleum sector. In addition, an agreement between the production companies is needed for the supply of common high-quality services that will also exclude products that do not meet the market standards.
Such an agreement stands to span the entire petroleum sector and create room for fair competition within the industry, in turn generating more competitive products and services. Yet a protocol in itself is not the only measure needed to rectify this niche market: service failure is often attributed to mismanagement and a lack of qualified or dedicated personnel.
A common standard for quality is not without its challenges especially in light of the fierce competition within the sector. There is however a widespread support base for the quality of occupational safety and health, but little has been done to implement real results. Such support is rooted in the immeasurable benefits it stands to provide. There is also a demand for some sort of reward and punishment system in service contracts to motivate companies to deliver better service without prejudice and to promote the principle of fair competition in the market.
Yet skeptics believe such a standard cannot be attained due to pervasive corruption, which hampers progress in the petroleum industry, an industry they feel lacks proficiency and well-trained local personnel.
Despite the seemingly positive concept of an overarching protocol in the drilling service sector, this reform movement does not go uncriticized and many suggest it fails to protect small businesses operating locally as a result of the lack of financial capacity to use high quality services. These small firms have hundreds of Egyptian workers and may be badly affected as a result of the reduced market shares for companies.” Our companies mainly consist of Egyptian labor and we rarely rely on foreign.” official said.
Many in the service world cited that such companies, who are often structured along a familial and a almost clannish basis, were founded when products were faulty and little could be done without an “in” into such a company.
Many such companies have succeeded in entrenching themselves in the domestic market by acting as general contractors and providing integrated services to the operator they have allied themselves with.
Some officials in the services sector are in favor of liberalization of the market, advocating it will provide high quality services and move way from clannish business practices. They point out that other neighboring developed countries liberalized their market with positive outcomes.
Yet companies like Halliburton do not seem willing to depend on the market and its conditions, and instead of lobbying for an overarching agreement on service standards, they created an internal system to combat service, quality and corruption issues.
Each company has its own standards and policies but major companies tend to rotate around similar standards, with a different process of implementation. Yet such a trend indicates that they are not dependent on market set standards and instead of encaging the market in protocol debates, seek to create an internal system that regulates their performance in the service market and the standard of equipment they generate. This may indicate that increasingly, Halliburton and it’s like are signaling a trend in the service sector where companies turn inward to avoid market downfalls and a lack of access to market regulation
By Tamer Abd El-aziz