With the annual Abu Dhabi International Petroleum Exhibition & Conference attracting some of the most important clients in the global energy sector, it is no surprise the largest oil companies are eager to showcase their capabilities. Few are bigger than the US’ Baker Hughes, which, since the merger with fellow US firm GE earlier this year, is now the world’s second-largest oil services company.
Speaking to MEED on the sidelines of the 2017 event, Lorenzo Simonelli, CEO of Baker Hughes, was keen to stress the potential of the recently expanded company.
“I would say we are unique,” says Simonelli. “We have married together complementary products and services that are broader and more relevant to the energy space. If you look at upstream, we now have all of the oil field services. You have midstream, with rotating equipment, compression, liquefaction and then the valves, pumps and meters for downstream and petrochemicals refineries.”
According to Simonelli, GE’s digital industrial capabilities have added a key asset to Baker Hughes’ offerings. “The GE store allows you to go into gas to power, molecule to megawatt projects, and also apply big data prognostics to increase capabilities to anticipate failures,” he says.
While Simonelli acknowledges that lower oil prices since 2014 have caused challenges, he says things are looking up for 2018.
“Overall, there is a sentiment that things are getting back to a normal; you are starting to see oil reserves and stock come down, and a balance of supply and demand,” he says. “It is definitely more optimistic, and people are getting more realistic that the days of $120 a barrel are gone and the $60s are here now. And $60 feels much better than $20.”
The CEO says improving productivity and boosting efficiency are vital if the oil services sector is to secure growth and regain sufficient margins.
“If you look at the impact on the oil services industry from $120 [a barrel] to $20, it has resulted in a huge amount of restructuring,” he says. “Now while we are having more stability for pricing between $50-$60, we have to make sure we are sustainable. We have to ensure margin recreation for shareholders and also focus on reinvesting in the business for our customers.”
The move to improve the efficiency of the business has led to the launch of a $3bn share buyback programme. “What we have done is take shares out and redistribute them to shareholders, which shows confidence in our plans going forward,” says Simonelli.
The CEO says the drive for efficiency is also being undertaken by clients. “There are different models being developed for businesses: Adnoc is looking to IPO [initial public offering] certain segments, and companies working with oil field services providers are looking for more integrated packages and solutions,” he says. “There are a lot of differences in the way people approach things now.”
Another emerging trend in the region’s energy sector is the increased willingness of national oil companies to form partnerships with major foreign services firms to manufacture products and provide services locally. A prime example of this was the announcement in November that Baker Hughes is forming a company with Algerian state oil firm Sonatrach. The new company will establish a 20,000-square-metre manufacturing facility in Algeria, which will have the capacity to develop oil field equipment and perform maintenance on existing equipment. Sonatrach will hold a 51 per cent share in the new firm, with Baker Hughes holding the remaining 49 per cent. The Arzew facility will provide training for more than 200 local engineers during the first seven years of operation.
Simonelli says that under the right circumstances, there will be further opportunities for partnerships. “It will happen as it makes sense,” he says. “You can’t create facilities everywhere. It has to be where there is volume and also a capability for creating good technical resources. We will continue to look at where it makes sense.”
With lower oil prices and tighter margins driving the quest for increased productivity, utilising the latest technologies is starting to form a core part of the energy business. According to Simonelli, effectively using data and digital technologies will be at the core of Baker Hughes’ future operations.
Importance of data
“Companies today really don’t use the data they have,” he says. “There’s a study by [US-based] McKinsey & Company that says only [about] 2 per cent of data gathered is utilised and translated into meaningful information. So if you look at that and other inefficiencies within the industry, we will start to utilise the data at hand to make better prognostic decisions. Can you actually increase production by maximising the value chain through all of the equipment? It is very important those algorithms start to be written, and that is what we are focusing on.”
The CEO says GE’s Predix system – a software platform for data and collection from industrial facilities – will allow programmes to be developed to improve performance and efficiency across Baker Hughes’ product lines.
The decision by several regional oil companies to privatise assets is set to add a new dimension to the Middle East’s hydrocarbons sector in the coming years. While little is known about what parts of these oil firms will be sold to private investors, Simonelli does not expect it to significantly affect the oil services market in the near future.
“It will mean there is another conduit involved in a discussion when a service is rendered, but it doesn’t sound like many of these privatisations will be of the majority of the holding of the firm,” he says. “It is something that will play out, and we are supportive of the opportunity to continue to develop nations and give back to people.”
Simonelli adds that Baker Hughes will not be seeking to acquire a stake in any of the upcoming sell-offs. “We will stay focused on integration we have to do and help our customers be successful,” he says. “We are not looking to get [into conflict] with customers or take on reserves and having to be a reserve accountant.”
While much has been made of US President Donald Trump’s ‘America first’ policy to encourage US firms to focus on manufacturing and creating jobs in the domestic market, Simonelli says Baker Hughes will maintain a global presence.
“We have to be global,” he says. “Our slogan is: ‘We create impact on a global scale and for local capabilities’, and it’s important we can bridge both.”