As the industry moves to producing from hotter, harsher, and deeper pay zones, oil producers are facing newer, complex challenges. Traditionally, operators would overcome these production obstacles by working with an oilfield service (OFS) company, whose responsibility it would be to design fit-for-purpose artificial lift solutions.
But what happens to operators when the landscape changes, and suddenly their dedicated service company is under new ownership or becomes a competitor?
At the heart of the artificial lift service industry is of course, service. According to Gareth C. Ford, Founder, CEO and President of Valiant Artificial Lift Solutions, “Now more than ever, customers in this industry are looking for ways to reduce operational risk. As uncertainty grows due to oilfield service company acquisitions, mergers, or divestures, Valiant provides operational stability as one of the only independent, global artificial lift solutions companies focused on quality products and reliable service.”
The current landscape of oil and gas service is changing, and it has huge implications for customers. In just the last six months, the industry’s largest service providers have merged, acquired or planned to divest business units, and entered new roles in a frenzy to gain an upper hand in the rebounding market. These types of movements create a lot of instability for operators.
While there is plenty of speculation about how this disruption will impact the industry in the long run, the fact remains that this type of large-scale organizational change won’t happen overnight. In fact, “Industry experts often advise that it can take between one and three years to synthesize and integrate the new company.”1 During this transition period, several challenges arise that can negatively impact the company’s operational activities and reduce the quality of customer service.
When companies undergo organizational change, customers suffer.
Three of the most common challenges companies face during this kind of transition are:
According to a 2010 PWC survey of companies that had completed mergers and acquisitions, “communication challenges were one of the top factors that caused company synergies to fail.”2 When employees and managers don’t have clear instructions or information, it leads to speculation and rumors that create distrust within the company. For example, in the current situation there is uncertainty about whether product lines will be discontinued, and customers are wondering if they will be working with new personnel. “Every day we hear a customer is impacted because a competitor can’t deliver the right equipment on time or their lead times are weeks out. In this market, oilfield service companies must be adaptive and responsive to issues that impact operators’ production goals,” says Austin DeGraaf, Account Sales Manager. Ultimately, disruption among oilfield service companies means that employees and customers are left in the dark, which leads to more frustration and confusion.
The service industry is built upon the backs of good field service personnel. Most equipment failures, not due to downhole conditions, happen upon start up or within the first 30 days. “An experienced field service cable and installation person are key to ensuring maximum equipment run life”, says Frank Claborn, Regional General Manager. Therefore, a major challenge companies face during integration is employee retention. Resulting from negative attitudes about the transition and uncertainty about the future of the organization, employee turnover can result in loss of knowledge and customer relationships, but it also has large financial implications associated with the cost of hiring new employees. While losing personnel will inevitably impact daily operations, it can also threaten business continuity, which is key to any oilfield service company’s success. “Valiant has been successful at attracting the best field service personnel in the industry”, says Jeff Smith, Regional Field Service Manager.
In this market, service companies must be adaptive and responsive
One of the biggest, yet often overlooked, obstacles that can make or break a successful transition is the challenge of merging company cultures. In fact, several studies show that the majority of failed M&A’s are due to differences in organizational culture.3 While it’s tempting to treat the transaction as a purely mechanical process, the reality is that mergers and acquisitions bring shifts in management practices and strategies, which can have negative implications on the people within the organization. For example, if employees from the two companies are reluctant to work together, or managers have conflicting goals and values, the organization is not going to run efficiently and there is going to be opposition within the company.
In conclusion, the recent competitive shake-up in the oilfield service industry will likely create new organizational challenges that put downward pressure on service quality and impact customers’ production goals. Therefore, one constant in the market that will continue to be a differentiator is service. This means that the future of service companies will ultimately rely on their ability to be nimble and responsive in how they help customers overcome new challenges. As an independent supplier with a global presence, Valiant can respond more quickly than larger companies and deliver reliable service, thus providing stability in a changing landscape. Currently, there are too many future unknowns to make solid predictions about how this disruption will influence the market, but for these companies, that ambiguity can have significant consequences. Eventually, the dust will settle, and the market will stabilize, but until then, the outlook for customers remains uncertain.
To find out how Valiant can help you support worry-free operations, please give us a call at 405-605-4567.