Service Companies: Between Innovation and Oil Prices

Service Companies: Between Innovation and Oil Prices

By Nadine Abou el Atta

An interview with Baker Hughes Vice President, Jerome Jammal, to explore the pressure of dropping oil prices on the current climate for service companies.

In today’s oil industry, innovation is paramount to staying ahead, especially when it comes to service companies. Currently the Egyptian petroleum industry is presenting a challenging climate for service companies in particular; to better understand the whole picture, Egypt Oil & Gas sat with Mr. Jerome Jammal, Vice President of Baker Hughes.

Baker Hughes is one of the world’s largest oil field services companies, operating in over 90 countries, and providing the industry with products-services for oil drilling, formation evaluation, completion, production and reservoir consulting.

Technological innovation is at the core of Baker Hughes DNA. Baker Hughes is the combination of several leading technology companies that have developed and introduced technology to serve the petroleum service industry in Egypt, and around the world. Its combined history dates back to the early 1900s. “During its history, Baker Hughes has acquired and assimilated numerous oilfield pioneers to ultimately achieve the company purpose: The simple statement, ‘Enabling safe, affordable Energy, improving people’s Lives’ articulates who we are, reflects what the company stands for, and encapsulating the driving force behind everything that we do” said Jammal.

Jammal explained that energy, along with food, water, and shelter, contributes to a better quality of life for people, hence the presence of ‘improving people’s lives” in their vision.

“Our strategy for delivering on our purpose is simple; value for our company, for the energy industry, for our shareholders and for the communities in which we work through. Efficient wells, optimized production, and improved ultimate recovery,” he continued “every major oil and gas play exhibits a unique physiology and demands a tailored approach. In Egypt, Baker Hughes is helping customers to develop energy reserves with the latest technologies at a cost-effective manner, in a safe and compliant environment, and with the best-in-class people.”

Achievements in Egypt

“Being the largest non-OPEC oil producer in Africa and the second-largest dry natural gas producer on the continent, Baker Hughes fully understands the strategic role of Egypt in Africa and the Middle East Region. Egypt is an important country for Baker Hughes business, being driven by stable levels of activity, as well as maturity of business style. Egypt has had one of the highest drilling and workover environments in Africa. We have been a major player and partner in the industry throughout the full cycle for decades, and we continue to invest in our people and technology to support the demands of our customers in the country,” said Jammal.

When asked about the company’s major achievements in Egypt, Jammal answered “Baker Hughes has been a leader in providing operators in Egypt with advanced technology solutions, helping operators save cost, and enhance production in a safe manner. Our company is renowned by its high-tech drilling evaluation solutions which made it possible to drill the first horizontal well in the Mediterranean, achieving all the customer’s objectives, by precise steer and land the well as per plan, then drilled 485m horizontally in the reservoir.”

Baker Hughes deployed for a recent major discovery in the offshore Egyptian water a Rotary Steerable System with a more advanced bottomhole assembly, the latest Formation Evaluation technology, and completion systems technology, with flawless execution.

Baker Hughes Kymera & Talon Drill Bits –using the latest technology– were run to drill the longest 8 ½ ” hole in the OBA-D Area: The New Stay Cool TD 407X sets a new field record, achieving one of the fastest and longest directional run ever in Sitra 8 field.

“In addition to the various production optimization products currently deployed in the market, I want to point out our micro cure remediation treatment product which is being used to remove previous wellbore damage, while significantly improving the production rate in various fields in Egypt,” he added.

Challenges Faced

When asked about the major challenges the company is facing in Egypt, Jammal explained that the competitive market landscape in Egypt gravitates around the low price products and services, and this model creates challenges in introducing new technology, and in turn leads to missed opportunity by end users to reap the great value these best in class technology can bring to their assets. In addition, some of the most significant challenges nowadays are the lack of funds with some customers, as well as the high percentage of EGP settlement in exchange of USD, where devaluation of the currency in the last couple of years have negatively impacted all investors.

In discussions of the foreign currency shortage the country is currently facing, Jammal addressed the issue saying “the lack of foreign currency coupled with the deterioration of the Egyptian pound has made it difficult, and created a lot of pressure on our operations in Egypt,” he continues “this situation has hindered us from major investments in the country. Having said that, we have seen some improvements recently, and we are hopeful this trend will continue to stabilize and get things back on track.”

Egypt Oil & Gas asked about the recent reported 39% drop in the company’s worldwide revenues in Q3-2015. “Baker Hughes business, similar to other services providers, is heavily dependent on the plans of the Oil & Gas producers, and the global decline in oil prices has made a significant impact on their activities. We continue to adjust to the difficult market conditions and have taken decisive actions to cut spending companywide and focus on strengthening our revenue and profitability so we will be well positioned for growth when the market stabilizes. We also remain focused on developing innovative products and customer service.” Jammal confirmed.

When asked about the efforts of some operators to renegotiate contracts, Jammal answered “we understand the need for the producers to manage their cost so they can continue looking for, and further develop their reserves,” adding “during a down turn, the fastest reaction from operators is reduction in cost, where they mainly focus on the discounts of the services they are provided. We, at Baker Hughes are also looking very thoroughly into every element of our business to manage and optimize cost, and hence, cope with market conditions. We are partners with our producers and we are exerting all efforts to help them carry on their activities. We are looking to optimize operations for the lowest cost, and furthermore using high-end technologies which in turn maximizes value for customers.”

Egypt Oil & Gas further addressed the subject by noting Minister of Petroleum, Eng. Tarek El Molla’s notion to renegotiate contracts with E&P companies, which could further the pressure on service companies, or dramatically improve the current environment. “We believe that reviewing deals with E&P companies will be positive for all relevant stakeholders. More favorable terms for operators could entice them to further invest in Egypt, in turn increasing activities, and opening new opportunities for Baker Hughes and other service companies. I believe we are already witnessing some positive impact as a result of the contract renegotiation since several IOC’s have committed to substantial investment in the Egyptian market,” explained Jammal.

In conclusion, Jammal addressed the prospects for the Egyptian petroleum industry in 2016 saying “the supply-demand fundamentals are called into question. The market outlook for 2016 still looks increasingly challenging with a potential of further drop in activity, the shortage in cash flow is one of the main catalysts that is driving operators to curtail their CAPEX on major projects. My take is that the major operators will have a conservative outlook on spending for next year even if we see a gradual improvement in oil & gas prices. Egypt on the other hand is moving fast in the direction of insuring payback for investors fueling the appetite for more investment in the oil & gas sector.”


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