DW: Supply chain players who diversify offering better positioned for recovery?

Historically, the oil & gas industry has witnessed merger and acquisition (M&A) activity through cycles, as companies try to create value in volatile oil price environments, Douglas-Westwood, an energy intelligence group, said in its DW Monday report.

The current downturn has resulted in a number of M&A opportunities for suitably placed players. However, DW said, last Monday’s merger announcement of General Electric (GE) and Baker Hughes (BHI) is of a different nature compared to what we have seen so far, whereby the merger will create a fullstream offering, encompassing the entire lifecycle from exploration to downstream and power generation.

As operators are struggling with increasing production costs, and the need for production optimization and improved operational efficiency is growing, GE may be on to a winning diversification opportunity, DW said. If the merger is successful, GE will improve its core capability through product and service bundling, and thus create more value for its customers in a distressed oil price environment. The transaction has potential of significant cost synergies, currently projected at $1.6bn by 2020, according to GE, but it remains to be seen where these cost savings will stem from.

But is there enough demand for fullstream services? Since the downturn the industry has faced divestment activity, as operators have cut out less profitable segments of their businesses and moved away from the fully-integrated business model. Whilst a fullstream offering may improve cost competitiveness, indiscriminate cost-cutting and inefficient resource allocation could prevent companies’ potential to grow as the sector recovers. Total global OFS spend has been significantly impacted by the downturn, with expenditure falling 49% between 2014 and 2016. Through to 2020, DW expects OFS spend will only recover to 69% of 2014 levels.

According to DW, GE’s merger with BHI matches the rationale of other recent deals, including Schlumberger’s acquisition of Cameron and Technip’s merger with FMC. These transactions are likely to result in increased standardization of manufacturing practices and improved project efficiency for cash-constrained operators, though demand has to be sustained for fullstream offerings to be successful. Supply chain players who are using the market correction to diversify offering are likely to be better positioned for the coming recovery, however the success of fullstream offerings will depend on companies’ tolerance towards risk and demand evolution in the transition period.

dw-full-stream-ahead

Share this article

Follow Offshore Energy Today

Events>

<< Jul 2019 >>
MTWTFSS
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31 1 2 3 4

Uganda International Oil and Gas Summit 2019

Uganda International Oil & Gas Summit will once again examine the industry’s developments…

read more >

8th OIL & GAS AFRICA 2019 CONFERENCE

OIL & GAS AFRICA is one of the most prime regional & international Oil and Gas conferences in East Africa…

read more >

Gas Indonesia Summit 2019

Gas Indonesia Summit & Exhibition is returning for the fourth edition in Jakarta…

read more >

Shanghai Int Petrochemical and Offshore Oil & Gas and Chemical Industry Technology and Equipment Exhibition 2019

cippe Shanghai has attracts both…

read more >

Jobs>

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply

Looking to fill a job opening?

By advertising your job here, on the homepage of OffshoreEnergyToday.com, you'll reach countless professionals in the sector. For more information, click below...

apply