(As originally published on LinkedIn, 18 July 2017)

Adapting to a new oilfield

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By: Lance Mortlock, EY Canada’s Strategy Advisory Services leader

Since the downturn started, oilfield service companies have reduced employee counts by as much as 50%. These smaller sizes mean companies need to rethink how they do things, find new ways to solve industry problems and be creative in how they provide services while doing more with less people.

Even though most Canadian oil is produced in the oilsands, unconventional makes up more than a million barrels per day. Canada’s oilfield service companies provide support to unconventional producers and are broken down into four areas: drillers and service providers, seismic companies, engineering and construction companies, and logistics providers.

But as things evolve we anticipate the industry transforming into three groups:

  • The integrated service providers are leading the merger and acquisition push. Using the current downturn as an opportunity to increase their market share, acquire new products, services and technologies, and simplify projects for customers through in-house solutions.
  • The specialists are focusing on specific parts of the market and unique sets of digital solutions targeted at certain products or services.
  • The logistics providers are offering a range of assets to industry, from vessels, trucking and rigs to helicopter transportation. They also support services such as oilfield logistics, skilled people and storage solutions.

Integrated service providers are changing the way they do business

In the past, integrated service providers have shown resistance to the idea that modern resource development requires the sector to change operating models. But that way of thinking has started to shift and integrated service providers are recognizing the need to adapt through digital innovation.

Specialists are finding their stride

Specialist companies operate at all levels of oil production and provide specific products and services, or operate in specific markets. Generally, companies operating in this space have skills or innovative technologies which allow them to compete with integrated service providers at a much lower cost. It, is anticipated that specialist companies will be targets for acquisitions and investment opportunities.

Logistic providers have challenges on the road ahead

In the current downturn, logistics providers face challenges and a business model that needs to adapt. They need to differentiate the services they provide in order to meet different demands and provide value.

By failing to prepare, you prepare to fail

Common among all three oilfield-service areas is the need to plan for a different future. Operators are looking at ways to reduce points of contact and reduce costs:

  1. Companies need to think strategically about how they position themselves for future growth
  2. Companies need to be flexible and shift with the changing oil sector
  3. Companies need an innovative operating-model approach to the changing demands
  4. Companies need to know how to best leverage innovative technologies including digital

Identifying areas for adaptation and growth are critical to the continued success of an industry that has faced the biggest challenges it has ever seen. Oilfield services companies who have planned ahead will have a distinct advantage over their competitors as prices start stabilize.

For a closer look at the issues facing oilfield services industry, read EY's latest report: Oilfield services consolidation: Transforming the value chain.