BUSINESS & ECONOMICS: Service venture seeks improved NPV for non-conventional prospects

Risk/reward sharing on projects

Th 71118
Th 71118
Syntheseas proposed to offer a range of services, from reservoir evaluation through topsides facilities.
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The recent ABB and Schlumberger venture that resulted in the formation of Syntheseas goes back several years, and could offer a glimpse of what the service company of the future will look like. Syntheseas is a 50/50 joint venture between the two companies aimed at helping operators make the most of prospects either too big or too small for a traditional service company to handle.

After working together on a number of projects, the two companies set about determining the right way to join forces. The two evaluated product lines, strengths, and weaknesses and talked with the prospective operators. The result was not a merger, which reportedly was never even considered, but the formation of this new company.

One way to visualize the venture is to imagine Schlumberger approaching a well from deep in the reservoir, while ABB is headed to the same well from the topsides of a platform. They meet at the mudline, and all the ground the two have covered is the new company's area of expertise.

That's a lot of ground - so much so it begs the question: What will Syntheseas not do? They won't operate a drilling or completion rig, or get involved in exploration projects, and they will not take an equity stake in projects. Everything else is fair game.

Alan McGovern, Vice President of Marketing and Technology for the new company, said the services Syntheseas does not provide services in-house, such as drilling. It can be contracted out, but for the business model to work, everything else is under Syntheseas control. The goal is to do everything for the operator from the reservoir to the point of delivery. This frees the operator up to do what McGovern said they do best: find, buy, and appraise assets.

Increased NPV

Syntheseas will search for projects that would benefit from a fully integrated service provider, McGovern said, but Schlumberger and ABB will continue as always to offer discrete services and product lines to the market place. The difference is key since Syntheseas is filling a specific niche.

McGovern said Syntheseas would be the choice for operators who need to get more out of a prospect than traditional production scenarios can offer. Such a prospect could be marginal, or so big it requires extra attention to produce optimally. The point, McGovern said, is to increased the net present value (NPV) of the prospect.

To attract operators, Syntheseas is also open to a risk/reward sharing approach to projects. In most cases, Schlumberger's reservoir technology will give the company a competitive edge on how best to deplete the reservoir, while ABB technology can be used to optimize the production equipment. Such savings allow the company to take on more commercial risk than a traditional service company.

Control diminishes risk

McGovern says that when Syntheseas has more control over a project, it is able to take on more risk. If Syntheseas evaluates a project and finds it can increase the NPV, and the company is willing to do the job in part for a percentage of this increase, that can be a real incentive for the operator. In cases where an independent is trying to leverage its stake in a promising field, the assistance an integrated service company can offer makes a real difference. The resources Syntheseas draws from Schlumberger and ABB would be difficult and very expensive for a small operator to gather on its own.

On the other end of the spectrum, Syntheseas can offer operators early returns on huge ultra-deepwater investments. Because the company takes a risk sharing approach to these fields, it has the incentive to control costs and manage the various components of a production solution effectively.

In some cases, Syntheseas may decline the project. That could be for a number of reasons, but it is clear that the new venture is targeting a certain type of field. For those that don't fit the Syntheseas model, there are still parent companies and their competitors for the operator to work with.

ABB and Schlumberger will support Syntheseas, not only by providing the new venture with personnel, but also by referring clients. Prospects either of the parents sees as possible Syntheseas candidates will be referred. This integrated approach is something the market has been pushing for, according to McGovern.

In talking with operators, McGovern said that most were particularly interested in working with a single service company that could provide a wide range of technologies. Specifically, he said they wanted to integrate different technologies into one development. McGovern said this integration is a key focus area of the new company.

In areas such as intelligent wells and intervention systems, where ABB and Schlumberger systems may overlap, efforts have been made to offer the best-in-class solutions for a particular application and to resolve any interface issues.

Technology handling

Another stated goal of Syntheseas is to improve the rate at which new technology is brought onto the market. Syntheseas is in a unique position to both evaluate and apply new technology with the shared goal of reducing cycle times, increasing NPV, and overall recovery. Because the staff is made up of ABB and Schlumberger employees, McGovern said Syntheseas understands new technology and where it can best be applied in an overall system. In cases where new technology is developed by Syntheseas, this will be made available to both partners, however, new technology developed by Schlum-berger or ABB on their own, will not be incorporated into the new company.

Syntheseas relies on technology, but it is really the integration of products and services that could give the new venture an advantage. Rather than pursue technical innovations as parents do, Syntheseas will focus on those innovations that would specifically apply to the work it is doing.

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