How Oilfield Service Companies Combat the Profit Margin Squeeze

Are you one of the “lucky” oilfield service companies who survived the downturn? Whether you sailed through thanks to saving ahead, or you barely survived, thanks to downsizing and scrimping wherever you could, congratulations! You made it. Oilfield service companies are once again in growth mode.

While growth is certainly good news, margins remain tight. If you’re like most of the oilfield service companies we work with, you’re still stuck in a profit margin squeeze for a few reasons.

1. Energy companies are investing in exploration and fracking operations again. However, well operators still expect to pay the low rates you negotiated when times were tough. Meanwhile, overhead costs keep climbing. Yes, oil prices have improved, but budgets remain tight as everyone is trying to make up what they lost during the downturn.

2. With a large fleet of equipment to maintain, high labor costs, and larger overhead, large oilfield service providers have a tough time competing with their smaller, more nimble competitors.

3. The combination of high customer expectations and a highly competitive industry environment creates challenges in determining the best way to compete and win business you normally would have been assured to win.

How Oilfield Service Companies Are Responding

You haven’t made it this far only to stop now! You can no longer rely on being able to upcycle to increase profits through higher oil prices. For large oilfield service companies to compete effectively, you need to think about:

1. How can you differentiate? What services can you offer that your competition can’t? How can you add more value without adding more cost? Some companies are using IoT remote sensors and predictive analytics to anticipate equipment and resource needs in advance, which improves responsiveness and ensures production uptime.

2. Where can you adjust operations to meet contract commitments, but optimize margins to ensure continuity? Field service software and mobility can help the oilfield services team stay connected to corporate, and have instant access to contracts and service level agreements with electronic processing of delivery tickets through to invoicing.

3. How can you operate overall with greater efficiency? EnergyCONNECT, built on Dynamics 365 for Finance and Operations, helps control costs through improved operations, including industry must-haves like AFE Management, and Equipment Rental Management. Managing the cradle to grave lifecycle of your equipment will help you run more efficiently and improve your margins.

Author: David Huether, VP- Engagement and Alliance Management

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