Up Close: Production Technologies – Small but growing with a positive outlook for the future of PT and M-I SWACO – Benson
In each issue, Momentum sits down with one of the many experts within the M-I SWACO organization for a candid look at their area of expertise and how it impacts not only our company but the industry as well.
Up Close recently visited with Worldwide Business Development Manager of Production Technologies Charles Benson to talk about the unique product segment and how Production Technologies—from produced water treatment equipment to hazardous waste handling—works with the other product segments within M-I SWACO.
Momentum:
What is Production Technologies and how did the product segment come about?
Charles Benson:
It started with just production chemicals, with the acquisition of Dynea in 2004. Dynea was a predominantly North Sea company. They had some operations in the Middle East and Asia/Pacific and M-I SWACO, as part of our strategy to expand from drilling and completion into production, wanted to acquire a production chemical company and they did so in Dynea. The Production Technologies segment, however, goes beyond production chemicals. It includes specific equipment that we’ve got now in the group, like produced water treatment through the acquisition of EPCON and their CFU technology. We brought the SULFATREAT* business into PT, which was already in the company: in production chemicals, we had liquid products for removing hydrogen sulfide (H2S). But SULFATREAT has fixed-bed technology that complements what we do in production chemicals and extends our capability. And it’s not something that any of the traditional production chemical service companies have.
We acquired a company called FORTUM, which is a drag-reducer business. This makes us the only company in the world that’s got an Eastern Hemisphere drag-reducer manufacturing capability. And there are only two other main players in the oil drag-reduction market worldwide.
Momentum:
Who makes up the PT group?
C.B.:
Because Dynea was fundamentally a Norwegian company, Norway is still the place where most of the technical activity is taking place. We’ve got the global R&D manager, who’s based in the UK but responsible for the people that work in R&D in Norway, the UK and Australia. And that’s Dr. Neil Granger. Monica Norman is VP of Emerging Technologies based in Stavanger. She’s responsible for emerging technology. PT is regarded as an emerging technology, so she has a technical role to play in the business. Neil reports to Monica.
We’ve also got tech services labs around the world. There’s a tech service lab in Aberdeen to support the needs of the region; the regional tech service manager is Ian Gilbert. We’ve another tech service lab in Bergen that primarily looks after our main clients there. In Dubai, we have a tech services lab. Regional Tech Services Manager Simon Hunter looks after that. And that covers Africa, the Middle East and Asia/Pacific.
The Western Hemisphere—the Americas—is an emerging area for us. The market is certainly as big as the Eastern Hemisphere—Europe, Africa and Asia/Pacific—if not arguably bigger. We bought a company up in Canada called Enerchem, and we have John Hamilton and his team in the west and Dena Caines in the east. For Central and South America, we’ve got Larry Greenblatt, who’s the Technical Service Manager in that region. He’s got one or two guys working for him. We’ve got reasonable business in Mexico with a few guys. And then we’ve got a tech services manager in Brazil, Steve Davis.
Equally in Europe and the Middle East, we have established an operational organization. Erling Sendstad is in Stavanger, Norway. Erling’s got people in the UK, Norway, Denmark, mainland Europe, Russia, Sakhalin and Caspian who all report to him through a dotted line structure. And we’ve got George Makar as the operations director for PT based in Dubai. And we’ve got people in West Africa, the Middle East and Asia/Pacific reporting in with a dotted line to him.
On a country basis, our people report to the M-I SWACO country manager, so I think one of the challenges we’ve got is to try to make that work. It makes sense for it to be that way, but we’ve also got to try to make it work as a joined-up function line. In most cases the country and regional management are from the drilling side of our business, and we need to ensure that the correct level of focus and investment is given to growing the PT side of the business.
Momentum:
What are you doing to make the sale to internal M-I SWACO as a whole?
C.B.:
That’s really partly what my job is, to get us communicating better as an organization. The first part in this process is to spend a lot of time getting out there and meeting the country managers, the regional managers, and
finding out who we’ve got because in some cases we didn’t know. Just trying to get an email group established with PT is quite a challenge. And hopefully with more visibility of what we’re doing through our email newsletter PT World and things like that, people will start to get more excited about what can be done with PT. And the country managers will say, “Hey, I believe in this now; I’m going to put some effort into this.”
I think getting the regional managers on board is extremely important and a big challenge. You’re always going to get a country manager who wants to get involved for whatever reason and one who doesn’t because he thinks it is a disproportionate amount of effort for the return he’s going to get in the short term. He’s measured on his P&L for the year so what we’ll have to do is build on the ones that are on board and try to find ways to get the other ones on board as well. That’s probably not going to happen overnight.
Momentum:
What are some of the external challenges that PT faces as a business unit?
C.B.:
In production chemicals-—and again geography plays a big part in this—our single biggest challenge is getting to the size where we’re playing with the big boys in terms of production chemicals globally. Much of our competition is globally positioned. Local customers are not an issue, but if you’re talking about a major oil company, chances are you’ll never win business with them until we are much larger, unless it’s a single application. If it’s a single application, they might say, ‘Okay, we’ll let you have a crack at it; you may end up having the best product and we’ll let you supply it.’ But in most cases these days, the market’s driven by what they call chemical management contracts. So an oil company actually puts out all their business to one company by region, and unless you are globally aligned with the majors of the world, then you’re banging your head against a brick wall. As our business is fragmented today, this is a major challenge in getting ourselves onto the global agreement list with these companies.
Momentum:
As a small production chemistry group, can PT compete with the big guys?
C.B.:
I think that we’ve got the technology. There are areas where we can improve, for sure. There are areas where we lead. But you can say that about anybody. So why would somebody buy from us? I think in service quality, we’ve always had people who are really keen to serve the client well. We don’t want to lose that. But that’s simply not good enough. If you want to do business with the major companies in production chemicals, you need to be global. And we’ve not been calling on the global offices of these companies; we just don’t have enough people to do this.
Now that we’re trying to go global, one of the things we’re trying to do is identify people within the PT group who can buddy up with the corporate account managers that M-I SWACO has on the drilling side. Tom Abramson, for example, the Account Manager with ConocoPhillips, with his background and heritage in fluids and ES, has his focus on that side of our business. PT has quite a lot of business with ConocoPhillips in the UK, so the account manager for ConocoPhillips UK Production Technologies could become a buddy for Tom. Tom then knows he can phone up this guy and ask him questions: ‘Who are the right people to talk to in ConocoPhillips on the PT side?’, ‘Who should I take along to a meeting?’ We don’t want to create another corporate manager for the customer, but by having a buddy system in place, hopefully the corporate account managers will feel a bit more comfortable going and talking about PT things.
Momentum:
How else is PT planning to grow, as a business itself and as a product segment within M-I SWACO as a whole?
C.B.:
There’s quite a big gap between where we are and the very top production chemical companies. So to get to that level just by simply setting up a new sales person in a new location, is not going to be effective. It’s going to have to be done by acquisitions as well. There are a lot of small companies we could buy and we will; we are targeting a few of these right now. So we need to be focused and start bringing in companies that fit with our overall strategy. But in the current climate, this is certainly very difficult.
On the technology side, we need to augment the EPCON product line with other complementary equipment technologies, so we haven’t just got oily water capability but extend this to include, for example, sand management, so we can offer a packaged solution rather than just one part of the total solution.
Momentum:
Where does Production Technologies fit into the rest of M-I SWACO, as a drilling company?
C.B.:
Ultimately, a well is completed and put on production. At that point, we get involved in terms of production chemicals, and they’re used from the reservoir right through to the refinery. Generally, the simplest way to describe it is, we provide a service of flow assurance so that the produced liquids passing through the pipes do so in the most efficient and least damaging way. With Production Technologies, M-I SWACO as a company goes from drilling the well right through to the refinery, whereas before it ended at the completion.
I think it’s interesting to note that we also have opportunities as PT to sell to and buy from the organization, cutting both ways. What has become very apparent to me is that as far as DS is concerned, they are probably more than anything a product segment that can buy technologies from our segment. And similarly in Wellbore Productivity. For example, we came up with a displacement chemistry for WP before that they had to buy from a competitor. Now we’re doing it as an internal sale, so we’ve stopped that profit from leaving the company. In turn, we’ve been able to use kit from ES and Specialized Tools, particularly on the filtration side, to provide complete solutions to our PT customers. There was a bit of modification to the equipment but not a whole lot; it’s just joining it up in a way that they wouldn’t traditionally use it. It hasn’t required any real investment, if you like, in modifying it. The purpose for which it’s being used is different. In fact the CLEANCUT equipment we have used was not for solids handling at all, but using it as a big separating funnel and that’s certainly not what it’s used for by ES. This case was a project for a super major at a gas terminal where they had accumulated a lot of radioactive waste, which is naturally occurring waste in our industry. With a combination of PT technology, CRI kit and filtration from ST, we were able to turn up on-site and provide a total solution, which I think is a key differentiator for M-I SWACO.
I don’t think there is anybody else out there that could have done that. Sure, they could go out and find some other companies and bring it together, but not from within one company. And it’s a lot easier to manage it when it’s from within one company. And everything links together back to the health and safety procedures that are consistent across the lines. And it worked for us well. It’s worked extremely well. The customers have always been blown away by it. That’s something we want to build on.
Momentum:
What other kinds of problems does Production Technologies solve?
C.B.:
Water is produced with the oil; in fact, we produce more water than oil as an industry. Offshore, we probably produce five times as much water as oil-—so we’re actually a water treatment company instead of an oil treating company. A lot of the problems come because of the water. You can get scale like you might get if you boil your kettle. Our scale is somewhat more complex than that, but the principle is the same. So we come up with products that will prevent that scale from either forming in, or from sticking to, the pipe. If you get scale in the near-wellbore region, production decline results. To prevent this, we place chemicals into the reservoir that effectively self-dose and prevent the scale from forming.
Wherever there’s water, you generally get bugs, so bacteria are a problem in our industry, and we provide products to mitigate the activities of bugs. Wherever the water is, from the reservoir through to the terminal, there is potential for bacterial activity. And because in most cases we try to exclude oxygen from the system, these bugs are what they call “anaerobic”; they use sulphate, which is present in the water, as their source of oxygen. While taking the oxygen from the sulphate, they produce H2S as a by-product, and H2S is a very poisonous and corrosive gas. They also can lay down biofilm like you might see in a stagnant pond, a lot of green, horrible, slimy stuff. That can potentially happen within the system if you don’t control the bugs.
Chemicals are used to prevent corrosion, scale, wax deposition or biological growth and in many other applications, but they’re not always 100% efficient. In fact, they’re never 100% efficient. Ultimately you’ll have to go in and try to clean things up. So for scale we’ve got scale dissolvers; for biofilms we have products like oxidizing agents and cleaning chemicals. And we have products for treating the oil itself. Every oil is different, fortunately for us. Some of it’s got a lot of wax, some of it has no wax, some of it has asphaltene, some naphthenate. And so every application is different and the solutions we provide need to be tailored to each application.
Momentum:
What are the most successful PT products?
C.B.:
Demulsifiers and corrosion inhibitors are probably the largest markets globally, with scale coming in a close third. Our SULFATREAT product line is also a very strong area for us, and with our liquid scavengers we have a unique offering in the marketplace. Our EXKAL* concept for descaling, decommissioning and decontamination is another unique offering that our competitors don’t have. In fact, only last year we were awarded the prestigious International Platinum Award from Energy International for a decommissioning project we did with Shell.
Interestingly, the types of challenges and so the strengths that exist within the company vary by region. If you look at the Middle East, for example, they have historically had virtually no scale problems. Clearly our best products in the Middle East would not be scale inhibitors. So our strongest areas in the Middle East are demulsifiers and corrosion inhibitors. I think corrosion inhibitors, wherever you go, do very well because there’s water everywhere. We are very well known for our scale dissolving capability. We’re becoming better known for our wax and naphthenate control capabilities. Our success in demulsifiers is surprising, given we’re not a basic manufacturer of demulsifiers, whereas all of our competitors are. And that’s something we’re looking at now. But we’ve recently won a major contract in the Middle East against all competitors, so it’s obviously not preventing us from gaining business in those markets.
Momentum:
What does the current economic situation mean for PT?
C.B.:
I think this is probably the one thing we have that is so different from the rest of M-I SWACO during this period: at the very least, we expect PT to continue to grow during this time of low oil price and rig count. When the price of oil is high, the oil companies are chasing the barrels because their product is worth a premium. When the price of oil is low, they have to chase barrels to make the numbers work, the revenue numbers. There’s been such a massive investment in the infrastructure that they’re not just going to mothball it and wait for oil prices to come back. They have to continue producing. In fact, we often see our business growth accelerate during these times as the operators focus on maximizing production from their existing well stock rather than drill or side track new reservoir footage.
That said, one slight difference this time from previous downturns is that the demand for oil has actually shown a slight dip. Previously this hasn’t been the case. But that’s just a temporary blip. In fact, I’ve talked to several of the majors to get their take on it. One global category manager for production chemistry with a major oil company said they already know, and it’s in the budget, that they’re going to spend more on production chemicals in 2009 as a company globally than they did in 2008. And with every day, more water comes; with more water comes more challenges for production chemistry and more of a need for process equipment to meet the increased volumes; more volumes to be treated means the production chemicals market will grow through this downturn. In the worst case, we’ll have a year of slow growth. If there is a slight slowdown, this might not be a bad thing overall, as the growth of the Production Technologies segment has been so fast that it’ll hopefully give us time to catch our breath. We can improve some of the procedures and processes that we’ve got, so we’re a better company when the light begins to appear at the end of the tunnel.
Either way, we have a great business and it can only get better still.
