17 June 2016
Hard Hit US Oil Sector Looks to Innovation and Overseas Markets
Skipping the usual upbeat tones of tradeshow delegates, attendees at the Offshore Technology Conference Houston were brutal about the tough times the industry is facing, with many pinning their hopes on new technology and overseas buyers.
Cancelled projects, slashed budgets and mass redundancies were the talk of the Offshore Technology Conference Houston (OTC Houston), billed as the world's leading oil and gas sector exhibition. The American market seems to have been hit especially hard, forcing US-focussed companies to cut costs drastically and diversify in order to survive, all the while waiting for the per-barrel price to rise once again.
Overall, it seemed that pretty much every exhibitor at the OTC was feeling the effects of the severely depressed crude market. Unusually for a trade show – an environment given to nurturing positive hyperbole – few seemed willing to venture that they were not facing tough times.
Henry Machdo, a Sales Representative for Torqlite, an Ohio-based hydraulic torque wrench manufacturer, said: "Budgets are on hold. I have a lot of customers who are just shutting down.
"I had a customer who had about 100 employees. He let go of 75 of them. It's hitting hard."
While all oil service and equipment makers reported that business was decidedly grim, some niches are clearly suffering more than others. Hardest hit of all seems to be those businesses focussed on the exploration and development of new oil fields.
Companies more involved with maintaining existing assets and production – while not exactly thriving – are experiencing notably less pain. One such firm at the show was Corrpro, a Louisiana-based corrosion control firm. James A Brandt, an Engineering Supervisor for the company, said: "The segment of the business that's been most affected is oil and gas production, as well as, most certainly, anything related to drilling activities.
"A large proportion of our business is asset preservation, so we are dealing with existing facilities and they need on-going protection. Overall, it hasn't affected our business as much as you might think. The exhibitors who are totally focused on new oil and gas exploration – those guys are hurting."
Another company experiencing limited success with maintenance-related products and services is Tracerco, a Texas-based process diagnosis company. Jim Bramlett, the company's Business Development Manager, said: "It's a case of cutting costs at every corner for the operator unless it's business critical. The only projects that we're seeing come to fruition are flow assurance-related, where something has actually blocked production in a pipeline. In that case, they need to get it back up and running."
While times are tough for Tracerco and others, the company was celebrating the success it had found with an innovative new product, one developed to answer a specific customer need. Bramlett said: "Our new Discovery technology is the world's only subsea CT scanner. Scanning with the Discovery can show the asset integrity of a flow line, while also identifying, locating, and characterising exactly what deposits are in the pipeline. We were pushed along by one of the majors who had a desperate need for it."
Another company leaning on technology to secure a trading advantage was London-based Subsea 7. Isabel Green, the company's Investor Relations Director, said: "We've got a strong suite of intellectual property with more than 150 active patent families. This enables us to come up with such innovations as our electrically-heated pipe.
"By laying a heated pipe you can, on certain developments, cut down the amount of pipe that you need to lay. So, whereas you might have needed a pigging loop – two or three pieces of pipeline lying next to each other to send the pig back again – by heating the pipe you can keep the oil warm while production is down. Although the pipe in itself will be more expensive to lay, it saves you money in terms of the reduced volume required."
Other companies at the show were taking quite different approaches to weathering the storm. While low prices means the oil sector is suffering, cheaper energy is a boost for other industries. This has seen a number of oil sector suppliers diversifying in an effort to stay in business. Jason Hubertus, Senior Sales Engineer for Pennsylvania-based Kennametal said: "Houston is very reliant on oil and gas, so what we've done is to expand geographically. We are now trying to find customers who are involved in aerospace, automotive, medical and so on."
Another oil sector equipment supplier pinning its hopes on alternative customer sectors was Clifford & Snell, a UK-based safety equipment company. Trevor Gage, the company's Signalling Products General Manager, said: "Capital expenditure gets slashed fairly quickly if it's a high ticket item. The people who are further down the food chain feel the impact of that. If they're not building a new system or a new platform, then the draw of components manufactured by companies here at the show drops dramatically. The other side of that is that there are other industries that require this type of equipment, allowing us to diversify."
With pressure on budgets, products that offer money savings clearly have an advantage. With this in mind, Gage highlighted the appeal of his company's two-in-one beacon and siren unit. He said: "You typically get a standalone siren or a standalone beacon, so to reduce the footprint and cost we have a beacon and a sounder in a single enclosure. There's one set of wires and one installation. One compact device buys you the same features and benefits, giving you a real cost reduction."
Overall, the US seems to have been especially hard hit by the oil price drop, forcing some oil equipment companies to look overseas. Samuel Chellam, Sales Manager for American Block, a Houston-based drilling equipment maker, said: "The downturn has affected us tremendously. As with a lot of companies we had to get better on pricing. The main thing is that now you can't keep as much inventory.
"Right now the North American and domestic market is down. We also have an office in Dubai and that office is doing okay. We are kind of relying more on the international market right now. Some companies in the US, though, are still drilling. They've signed contracts where they are still selling oil at $67, so they are still working. We try to locate those companies and provide them with the proper equipment."
Matt Hickl, an Engineer representing DrawWorks, a Texas-based drilling casing tool maker also saw potential in the overseas market. He said: "We've had to reduce staff down to one third now. Overseas is still purchasing quite a bit and there are still quite a few people interested in the new technologies. Even though it is a slow time, they've got to keep going forward."
Just as the American oil and gas sector is seen as having been first to suffer, the perception at the show is that it will also be the first pick up again. Samuel Chellam of American Block said: "What we have done here domestically is drilled a lot of holes, but we capped them, so there is going to be a lot of completion. There is a backlog on completing these wells, so domestically we are eventually going to be very busy indeed."
The Offshore Technology Conference 2016 was held at the Reliant Center, Houston from 1-4 May. Despite tough times for the industry, the event featured some 2,600 exhibitors from 47 countries and attracted 68,000 visitors.
James O'Donnell, Special Correspondent, Houston