International Conference on Services and Equipment for the Russian Oil

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International Conference on Services and
Equipment for the Russian Oil Gas Industry
Session 5 Competition Russian Oil Field
Services December 3rd 2003
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Price Value Added Competition Competitive
Advantages Market for Technology can all be
discussed philosophically but the real world
is the real world
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Case of 3D Sesimic Value Migration
The value of this technology to the Oil
Companies has been billions of Dollars
Meanwhile the Seismic companies themselves are
losing money
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The Oil Gas reserves of the Russian Federation
certainly represent a huge opportunity (at least
for Oil Companies)
But what kind of opportunity does it
realistically represent for Service Companies?
(Russian or Foreign)
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Market size estimates of some selected oilfield
products services (Rigs/Drilling does fully not
include Oil Company in house Service
Organizations)
Millions
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A view on Pricing Competitive Advantage
Russian in Russia Western in Russia U.S. in U.S.
Logistics / Customs 2 13 2
QA / HSE 2 6 5
Training 1 2 2
Materials Costs 20 20 20
Wages Benefits 25 55 50
Research Development 2 5 5
Depreciation costs Capital Investment 1 6 6
Low Productivity Costs 10 0 0
Profitability Standards 7 13 10
10 11 10
US Price 100 70 120 100
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Clients benefit from these differences
Russian in Russia U.S. In U.S. Variance
QA / HSE 2 6 3
Training 1 2 1
Research Development 2 5 3
Capital Investment 1 6 5
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Service Companies spending more in these areas
expect enhanced profitability for extra value
delivered
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If desired technologies are not available locally
then some differential is inevitable
Russian in Russia Westen in Russia Variance
Logsitics / Customs 2 13 11
Extra Costs QA / HSE 1 1
Extra Costs Wages Benefits vs. Productivity 35 55 20
Profitability Standards 7 13 6
10 11
US Price 100 38
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The numbers LUKoil compares Shows for Parker
Drilling a net (assets minus debt) investment of
584 million generating a sales profit of 11
million
So the return in 2001 is 1.88 A saving account
pays more with less risk
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Future Expectations

• Relative prices of Russian and Western Service
  companies will converge over time
• Differentiation in technology between Russian and
  Foreign services will decrease
• Some In-house service organizations will be sold
  off or divested while others will become more
  separated and independent but will remain under
  the control of the oil companies
• The total market for Oil Field Services in the
  will grow about 20 (in terms) over the next 5
  years

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Thank you!