Thread by @Jarushub

Understanding Oil & Gas Industry IV

(Read Parts I-III in my earlier threads)

OIL SERVICING

Oil servicing companies are specialist contractors that have expertise in handling different aspects of oil and gas activities. They do not own the crude oil, unlike E&P companies.

These are specialist contractors that help upstream (and sometimes midstream and downstream) companies carry out their projects. Examples of activities they handle are seismic data gathering and analysis, drilling, pipeline construction, plant construction, well servicing etc

Oil and gas companies contract with them to handle an activity for and pay them. Like the word implies, they "service" the industry. Some of them also have some proprietary technology.

I like to give this analogy. If I buy a land (lease, actually. Land, like oil field, is not permanently sold in Nigeria). If I decide to build a house on the land, I will need services of different external experts -surveyor, architect, bricklayer, carpenter, welder, painter etc

Now, all these guys will work on my house project and I will pay them for their expertise and work for me. But they don't own the house. I do. The E&P company is like me, who owns the house (the oil field, the product - crude etc), while oil services are like the bricklayer etc

They don't own the field or the oil, but E&P companies need their expertise and equipment (eg drilling rig) to help them. Examples of popular oil servicing companies are Schlumberger, Baker Hughes, Saipem, Halliburton etc

Oil servicing companies usually have more staff & contractors, because it doesn't make sense for E&P companies to keep many staff because they are not in perpetual projects (they may not have a project in 3 years) but oil servicing move their personnel from one client to another

It also does not make economic sense for E&P firms to buy and keep certain equipment like rigs. So they hire from drilling firms (oil servicing firms), in fact contract the while drilling process to them and only have their few staff supervise.

The foregoing means oil servicing is more subject to oil mkt volatility (and layoff) than E&P because as the industry experiences difficulty (say low price), E&P coys pause or hold off projects & that means no job for oil servicing contractors. With heavy workforce, most lay off

Also, oil servicing companies typical don't pay as much as E&P companies because they don't own or sell crude, they only charge a fee! If it's not crude money, e no fit be like crude. Block gold is the real money!

And oil servicing usually have large workforce to share the fee

So this elementary explanation should give an idea of what oil servicing companies are and differences between them and E&P companies.

And why oil servicing, despite not owning or selling crude oil, may be worse hit in oil crisis than even guys that sell crude!