What is the role of the small technology company among operators and integrated service companies?
Size matters. It is not for nothing that today's Western military forces have ditched battalions in favor of small, tightly knit combat groups that are highly focused and emphasize rapid action. In a similar way, small companies can keep large counterparts on their feet. Small companies may not achieve gigantic economies of scale; equally, they won't have huge overheads. But because they can act rapidly, they often can beat the giants when it comes to developing new technology.
True, operators develop technology in-house, through joint industry projects and with best-in-class companies. For example, Shell and Petrobras respectively are involved in the monobore and the Procap 3000 initiatives - two examples of technology cascading downward. Underlying the monobore (a vision of drilling and casing a single-diameter well from top to bottom) is the creation of two businesses to develop the downhole tools, tubes and market for expandables. Procap 3000 - a range of exploration and production technologies - is paving the way in ultradeepwater development. Drilling contractors have introduced simultaneous drilling and completion of two wells by way of the dual-derrick system. Additionally, the billion-dollar think tanks and research and development facilities that major service companies own are continually creating new technologies.
So how do small companies compete against this backdrop? And how do they succeed without the benefit of marketing channels or the influence of larger service companies?
Small, savvy companies can distinguish themselves by providing a service that includes applications analysis, technical recommendations and rigsite support through end-of-well reporting. And if they can maintain market leadership, they will attract the attention of operators interested in new technology.
BP and TotalFinaElf, among others, select market leaders in what they deem essential technology and work with those leaders to develop technology. (Tough luck if you're not No. 1.)
But for operators fed up with the volume and complexity of contractors, the easiest course may lie in integrated services outsourcing. This certainly does away with the tangled thicket of service providers and offers the lure of a single point of contact. However, the appropriateness of integration depends very much on the location and nature of the project; the right approach for a development in China probably is inappropriate for Brazil. Critics would argue that integration tends to discourage small company services, as the main service provider will fulfill most technology requirements in-house. Only where technology is unavailable can a small company enter the project, filling a gap that no other business can. Integrated services often mean small companies are required to meet wide-ranging legal or other tender requirements, many of which are applicable only to the major service provider. While safety is nonnegotiable, it seems unfair to insist on the same levels of insurance liability for two different scopes of services. This asks small companies to bear more project risk without an accompanying increase in the reward.
Maximizing production is on the mind of every competent drilling or completion engineer. A common way of doing this is to kick off from an existing wellbore and drill a lateral. Imagine a scenario where a lateral has been drilled 300 ft (92 m) into a reservoir. Gradually, penetration rates become painfully low and the rotary table stops. Enter small Company X with a tool that has the potential to extend the lateral section by improving weight transfer. Skepticism abounds among the drilling contractor and the directional company. But due to the persistence of Company X's field engineer, the drilling engineer takes a calculated risk, and as the tool disappears downhole, a rig hand mutters "no way is that going to work."
About 1,200 ft (366 m) of drilled pay later, the operator can't get enough of Company X. The enthusiasm is infectious - the directional company also is singing praises.
Across the hydrocarbon machine, most parties profit. The drilling contractor and directional company benefit from the extra footage drilled, either from a drilling incentive scheme or by gaining kudos. The operator gains 900 ft (275 m) of pay, adding extra production. All companies except Company X are benefiting handsomely. Hidden in the tangled thicket of sub-subcontracts, the small company is not on the reward list. Apart from getting paid a day rate (and perhaps repeat business) the small company will not see much else.
The dilemma: How to reward so many different service companies?
Perhaps this is where value or performance pricing can help. The operator and small company set a performance target and price the work accordingly. If the contractor overachieves, it receives a proportion of the gain. Conversely, if the company underachieves, it invoices less than the original price.
It is self-evident that operators and small companies need to work more closely in developing cost-lowering technology. Increasingly, drilling engineers are becoming project managers rather than specialized engineers. So it lies with the service provider to effectively market service benefits to the operator. This is where small companies trip up. Without established marketing channels, small companies regularly miss out on opportunities. Operators can help by focusing a small company's resources on specific projects where applications are plentiful.
Cynics would argue operators are not in the business of making small companies richer. But this misses the point. Sign-posting a project helps accelerate product development and operator savings.
To that end, small companies must improve their marketing to demonstrate service benefits. They also must develop partnerships with operators and be service-oriented rather than supply-oriented.
Operators need to keep on the lookout for small companies, invest in their technology and encourage integrated service providers to use their services. And last but not least, all must reassess how the reward is spread across the hydrocarbon machine.
Editor's note: For examples of small companies that have distinguished themselves, check out Balmoral, DPI, Gearhart and PSL.

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