Energy, Oil Service Cos May Need to Combine - Technip CEO

HOUSTON, (Dow Jones Newswires), May 07, 2008

Oilfield services companies will need to join forces in the next few years to avoid a downturn of the sector's own making, the chief executive of French oil services company Technip SA (TKPPY) said Wednesday.

That could mean merging with each other or, for the first time in decades, with energy companies, Technip CEO Thierry Pilenko said.

During a panel at the Offshore Technology Conference in Houston, Pilenko floated the idea of international oil companies acquiring service firms as a way to manage a growing labor shortage facing the entire energy industry.

International oil companies explore for and produce oil and gas, but separate service companies perform much of the technical work involved, including designing and building platforms and servicing wells. The workforce at most energy companies is aging, and the industry is struggling to cope with the expected wave of retirements.

National oil companies often operate their own service firms, though few can match the range of operations and technology offered by independent names such as Schlumberger Ltd. (SLB) and Halliburton Co. (HAL).

Executives with international oil giants Chevron Corp. (CVX) and Total SA (TOT) were skeptical of Pilenko's idea. "You can't really buy the people," said Bobby Ryan, vice president for global exploration at Chevron.

Ryan noted that Chevron attempted to retain "every single technical employee" at Unocal when the two merged in 2005, but it found that many balked at working at such a large company. He predicted that the workforce at independent service firms would also bolt if acquired by a major oil company.

Patrick Pouyanne, a senior vice president with Total, said the French oil giant had a "good relationship" with oil-field services companies, so there is no need to bring those people in-house.

Pilenko predicted that oil-field services companies are headed for a schism on top of the labor problem, with providers of high-end services continuing to prosper, but the rest of the sector falling into a slump.

Many new, specialized companies have formed to take advantage of what Pilenko termed the "sweet spot," easy-to-enter sectors such as seismic exploration and shallow-water drilling, which have grown rapidly over the last few years. These upstarts have pushed larger companies to focus on frontiers, such as drilling in the Arctic or designing platforms to produce oil in ever-deeper waters, he said.

Ultra-deepwater drilling and Arctic exploration still suffer from a shortage of rigs and technology, but signs of overbuilding are mounting in more-established territory, he added.

"For the middle ground...this is where we start seeing capacity issues come up," he said. "Whether the price of oil is $80 or $120 does not change that picture."

Larger service companies will need to find additional capital to pursue more ambitious projects, necessitating either joining up with rivals or the exploration and production companies themselves, Pilenko said.

"In the next few years there will be some level of consolidation," he said, speaking on the sidelines of the conference.

Copyright (c) 2008 Dow Jones & Company, Inc.

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