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Oil company or service company?

Zeke Zeringue Executive Vice President and COO Halliburton Energy Services With
the growth of integrated solutions arrangements and the increasing responsibility
given to the major services companies, a great deal of discussion has been generated
about the respective roles of the oil company and service company.
March 1, 1996

Zeke Zeringue
Executive Vice President and COO
Halliburton Energy Services

With the growth of integrated solutions arrangements

and the increasing responsibility given to the major
services companies, a great deal of discussion has been
LATEST IN COMPANY NEWS
generated about the respective roles of the oil company
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9/24/22, 9:04 AM Oil company or service company? | Offshore
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of skills required for the projects and, within their News
frame of reference, a familiarity with existing Allseas
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service and supply organizations to provide the various
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applied by the service sector, which possesses a great
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technology and procedures outside the knowledge of 2022
the generalist. It also does not enable the application of US & Gulf
of Mexico
technology across traditional service lines.
Head of
Mexico's
By merging the skills and knowledge of the generalist powerf…
with the detailed expertise available from a major Sept. 9,
2022
service provider, a better solution is applied.
Furthermore, where the necessary technology is not in
existence, the opportunity is recognized and technology
developed.

Recognizing the drivers for success from an oil

company perspective, and marrying reservoir
understanding with technology, the service company is
able to better provide the optimum solution.
Recognizing this, major service companies have begun
to hire expertise that would traditionally be resident
only in oil companies.

The service company should not, however, be involved

in areas that position it to compete with oil and gas
companies in their core businesses (prospect

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9/24/22, 9:04 AM Oil company or service company? | Offshore

acquisition,exploration, transportation, refining, or oil

and gas marketing). However, the service company
should be willing to take a high level of responsibility
for developing oil and gas fields and base financial
performance on project results.

In contrast to merely bundling discrete products and

services together, effective integrated solutions align
interests by encouraging a level of shared risks and
rewards for meeting project goals. This alignment can
occur within integrated services, lead contractor, field
management, or lifecycle management arrangements.
These arrangements require the service company to
take more responsibility and base compensation on the
success or failure of the overall project.

One method for accomplishing this is through

incentive/penalty payments that help align mutual
interests. Team members stand to gain or lose
depending on each other's activities. An incentive plan
bases a share of the providers' compensation on one or
more performance measures.

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9/24/22, 9:04 AM Oil company or service company? | Offshore

Another method is the payment-related-to-production,

which is beneficial in helping align the interests of the
oil company and service company. This method
optimizes the relationship between cost control and the
quality of end results. Both parties are measured on the
same basis.

In traditional bid arrangements, the solutions have

often already been determined. Perhaps one service
company has developed a particular technology or
process by which the oil company could save
significantly in total cost. Each service company,
however, is asked to bid only on the baseline product or
service.
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9/24/22, 9:04 AM Oil company or service company? | Offshore

The industry must shift to a situation whereby the oil

and gas companies approach the service companies
with the opportunity and information to recommend
the optimum solution. The service company should
evaluate the challenge, recommend the most effective
solution, and share in the risk and reward of applying
the solution.

ADVERTISEMENT

A fully-integrated service company is best able to draw

upon expertise and support of its entire organization
without logistical or motivational barriers. It can access
all technical capabilities across discrete lines to provide
well or field solutions. Also, when unique challenges
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9/24/22, 9:04 AM Oil company or service company? | Offshore

are faced, the integrated service company can more

easily work with competitors.

Oil and gas companies are beginning to achieve this

cooperation on large scale developments that require
significant financial resources. Service companies must
also begin to address ways they can work together to
provide solutions without compromising their
competitive position.

Much of the technology being developed today provides

little commercial benefit over a long period of time. In
many cases, three or four companies spend millions of
dollars to develop the same technology. When
technologies do not give a service or oil company a
significant competitive edge, the technology should not
remain proprietary. Similarly, we must realize that the
best solution may not come from one company's
portfolio in every project. Companies must be flexible
enough to look at alternatives put forth by other
providers.

The key driver to encourage application of the best

technology is incentive/penalty arrangements.
Correctly structured incentives encourage service
companies to look inside and outside for the best
technology for that application.

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9/24/22, 9:04 AM Oil company or service company? | Offshore

Oil and gas companies have an opportunity to spread

risks while maintaining proper roles through these
integrated solutions arrangements. The ability of
service companies to align interests and share in the
risks and rewards will be the key to a profitable future
for the industry.

This page reflects viewpoints on the political,

economic, cultural, technological, and environmental
issues that will shape the future of our industry.
Offshore Magazine invites you to share your thoughts.
Send your manuscript to Beyond the Horizon,
Offshore Magazine, Box 1941, Houston, TX 77251 USA.
Manuscripts will not be returned.
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Copyright 1996 Offshore. All Rights Reserved.

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9/24/22, 9:04 AM Oil company or service company? | Offshore

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9/24/22, 9:04 AM Oil company or service company? | Offshore

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9/24/22, 9:04 AM Oil company or service company? | Offshore

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