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International Conference on International Conference on Services and Equipment for the Services and Equipment for the
Russian Oil & Gas IndustryRussian Oil & Gas Industry
Session 5 Competition & Russian Oil Session 5 Competition & Russian Oil Field Services Field Services
December 3rd 2003December 3rd 2003
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Price Price Value Added Value Added Competition & Competitive Advantages Competition & Competitive Advantages Market for Technology Market for Technology
can all be discussed philosophicallycan all be discussed philosophically
but the real world is the real worldbut the real world is the real world
Case of 3D SesimicCase of 3D SesimicValue “Migration”Value “Migration”
The value of this technology to the Oil The value of this technology to the Oil Companies has been Companies has been billionsbillions of Dollars of Dollars
Meanwhile the Meanwhile the Seismic Seismic
companies companies themselves are themselves are losing money losing money
The Oil & Gas reserves of the The Oil & Gas reserves of the Russian Federation certainly Russian Federation certainly represent a huge opportunityrepresent a huge opportunity(at least for Oil Companies)(at least for Oil Companies)
But what kind of But what kind of opportunity does it opportunity does it
realistically represent for realistically represent for Service Companies?Service Companies? (Russian or Foreign) (Russian or Foreign)
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Market size estimates of some selected oilfield products & servicesMarket size estimates of some selected oilfield products & services(Rigs/Drilling does fully not include Oil Company “in house” Service Organizations)(Rigs/Drilling does fully not include Oil Company “in house” Service Organizations)
$ Millions$ Millions
0
200
400
600
800
1000
1200
PressurePumping
Rigs D&E Lift / ESP Wireline Seismic Fluids Complet. Bits Chemicals
Russian
Foreign
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Russian in
Russia
Western in
Russia
U.S.in
U.S.
Logistics / Customs 2 13 2
QA / HS&E 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
A view on A view on Pricing Pricing & &
Competitive Competitive AdvantageAdvantage
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Russian in
Russia
U.S. In
U.S. Variance
QA / HS&E 2 6 3
Training 1 2 1
Research & Development 2 5 3
Capital Investment 1 6 5
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Clients benefit Clients benefit from these from these differencesdifferences
Service Companies spending more in Service Companies spending more in these areas expect enhanced these areas expect enhanced
profitability for extra value deliveredprofitability for extra value delivered
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If desired technologies If desired technologies are not available locally are not available locally then some differential is then some differential is
inevitableinevitableRussian
in Russia
Westen in
Russia VarianceVariance
Logsitics / Customs 2 13 1111
Extra Costs QA / HS&E 1 11
Extra Costs Wages & Benefits vs. Productivity 35 55 2020
Profitability Standards 7 13 66
10% 11%
US Price = 100 3838
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The numbers LUKoil compares The numbers LUKoil compares
Shows for Parker Drilling a net (assets minus debt) Shows for Parker Drilling a net (assets minus debt) investment of investment of 584584 million generating a “sales” profit million generating a “sales” profit of 1of 111 million million
So the return in 2001 So the return in 2001 is 1.is 1.8888% %
A saving account A saving account pays more with less pays more with less
riskrisk
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Future ExpectationsFuture Expectations• Relative prices of Russian and Western Service companies will Relative prices of Russian and Western Service companies will
converge over timeconverge over time
• Differentiation in technology between Russian and Foreign Differentiation in technology between Russian and Foreign services will decrease services will decrease
• Some In-house service organizations will be sold off or divested Some In-house service organizations will be sold off or divested while others will become more separated and independent but while others will become more separated and independent but will remain under the control of the oil companies will remain under the control of the oil companies
• The total market for Oil Field Services in the will grow about The total market for Oil Field Services in the will grow about 20% (in $ terms) over the next 5 years 20% (in $ terms) over the next 5 years
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Thank you!Thank you!
