There is no large-scale and efficient oil and gas production around the world without a large and diversified oilfield services sector that complements the major players.

Mariano GARGIULO Southern Cone Vice-President BAKER HUGHES, A GE COMPANY

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January 5, 2018

Mariano Gargiulo, Southern Cone vice-president for Baker Hughes, a GE company (BHGE), talks to TOGY about the status of Argentina’s oilfield services sector, the factors that will impact whether or not Vaca Muerta can successfully be developed and ideal technologies and methods that can be applied in the domestic industry.

BHGE was established in July 2017 through GE Oil & Gas’ acquisition of the multinational oilfield services provider. Prior to the deal, Baker Hughes was present in Argentina for several years, completing its first hydraulic fracturing operation in the country in July 2011 for YPF in the Neuquén Basin.

• On diversity in the sector: “There is no large-scale and efficient oil and gas production around the world without a large and diversified oilfield services sector that complements the major players. We need to have a long-term vision to resolve all the issues that restrict that wider growth.”

• On achieving cost reduction: “The challenge for all of the services companies, oil and gas companies, and the government is to further reduce costs significantly. There is only one way to do that, and that is to gain efficiencies in every centimetre and in every activity across the entire value chain. That is a task that will not be accomplished by one party, but rather by all parties openly working together in an unprecedented way to develop new ways to produce value.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Mariano Gargiulo below.

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How will Baker Hughes’ merger with GE Oil & Gas redefine the company’s presence in the local market?
At the end of 2016, we announced the merger of Baker Hughes with GE Oil & Gas, and in mid-2017, the merger was completed, giving birth to the first and only full-stream company in the industry and bringing together capabilities across the entire value chain of the oil and gas industry. We now have two very complementary companies, bringing together the upstream, midstream and downstream sectors for the very first time.
In Argentina, in particular, the ability to remove interphases and find new and more efficient ways to provide services is quite critical. We are present and active as strongly as ever with all our product lines, without exception, and are extremely committed to being a very active player in the search for the most efficient ways to produce oil and gas in the country.

What are the company’s main areas of concentration in Argentina?
We have a very strong presence in the entire country and in every basin: conventional and unconventional. The vast majority of the oil and gas production in Argentina comes from conventional resources. Those fields require technology and dedication to continue to produce. Vaca Muerta is fundamental for the future, but the core production from conventional resources is critical today and tomorrow, too.
Many fields in Argentina have produced very well for a very long time, thanks to the right types of exploitation and technologies, and those fields will continue to produce very well for many more years if we continue to look after them. That is why we should not lose focus on conventional fields, and why BHGE has remained present in and has concentrated on all basins in the country, including Vaca Muerta, of course.

 

What was the state of the local oilfield services sector in 2017?
The oilfield services sector in the country struggled throughout 2015 and 2016 with the reduction of activity and with overcapacity, which led to a reduction in pricing, in many cases, quite below break-even points.
Paradoxically, even under those conditions, costs still remained too high. The challenge for all of the services companies, oil and gas companies, and the government is to further reduce costs significantly. There is only one way to do that, and that is to gain efficiencies in every centimetre and in every activity across the entire value chain. That is a task that will not be accomplished by one party, but rather by all parties openly working together in an unprecedented way to develop new ways to produce value.

What technologies are available today that could be used to improve unconventional developments in Argentina?
First, it is very important to realise that the recipes from other places do not necessarily apply in Argentina. For example, in places such as the United States, it is not common to routinely deploy technologies related to the detailed understanding of the reservoir. That has worked fairly well in the United States because their economic equation and cost matrix is clearly different.
In our case, however, I am convinced that we must deploy more technologies to understand the reservoir in a much more comprehensive way. That will allow us to increase productivity per well. This is fundamental in Argentina, given the local economics.
Second, we must always remain very conscious that the utilisation and deployment of technology is a moving target that needs to be evaluated in situ. We must continuously find our own sweet spot of technology utilisation. To do that, we must directly connect the local engineers and scientists from service companies and oil and gas companies so they intelligently select and deploy exactly what technologies are needed in type and quantity, and not more and not less. The key part is to connect and listen to local scientists, who are the ones that can understand the specific local conditions very well.
How has the Vaca Muerta framework agreement that was signed in January 2017 impacted BHGE’s operations?
It is very important because it started to put a focus on a very critical issue, which is productivity. It addressed productivity by putting the emphasis on the input side of the equation. It is imperative now to continue to focus on productivity, utilising our resources as efficiently as possible, but now putting a strong emphasis on the output side of the equation. This second part, in my opinion, is much more important and we must concentrate on that.

How adequate is the infrastructure to develop Vaca Muerta?
It will require huge developments and it should all start very soon. As soon as activity increases, if the infrastructure development does not follow, we will face bottlenecks. We must invest in infrastructure simultaneously for the overall development of Vaca Muerta. Everything must happen in parallel and it will. Argentina does not lack capabilities to develop infrastructure. If the overall economics are in place, the development of the infrastructure will follow the growth in well construction.

Is it possible for Argentina’s services sector to grow and diversify beyond the traditional major oilfield services players?
It is always a necessary thing. Without the continuous development of that wider offering, there will never be a Vaca Muerta of the size we all envision. There is no large-scale and efficient oil and gas production around the world without a large and diversified oilfield services sector that complements the major players.
We need to have a long-term vision to resolve all the issues that restrict that wider growth. For example, removing all restrictions and barriers to import used equipment is a clear example of a critical measure that will help to grow and develop a much wider and local oilfield services sector. We have made some progress on that matter but, in my opinion, not all that is needed.

What are the strengths and weaknesses of local human resources?
The quality of the labour force is vital in an industry such as oil and gas. Fortunately, Argentina has always been a leader in talent creation for the industry. The country has been producing oil and gas for more than 100 years, and in many periods of that history, Argentina has been a leader in the world. That does not occur without an outstanding labour force at all levels. From the young workers and technicians at the wellsite to the engineers, scientists and management in towns, Argentina has always produced outstanding human capital.
Nevertheless, for Vaca Muerta to grow at the accelerated pace that it needs to grow, a fundamental challenge for the industry will be to develop and train the additional required human capital in time. To do that, it is essential to establish long-term and firm business contracts that would allow services providers to plan ahead and develop the required talent in time. This is not trivial and the need for all of us to plan ahead is critical.

What midstream and downstream opportunities are available to BHGE?
When you construct a well and you need to produce hydrocarbons, you need processing, compression and transportation for those produced hydrocarbons. These services are all covered by BHGE. Today as BHGE, we can address upstream, midstream and downstream as one. That opens a whole new world of opportunities to reduce costs and create value.
Our digital service line, which is based on digitalisation, sensors and big data, will also be key in increasing efficiencies in the midstream, downstream and upstream. It does not truly exist yet in the latter. We must work extremely closely with our customers so we can unleash the entire value of all this new outstanding potential for the benefit of all. We are committed to doing so.

For more information on BHGE in Argentina, including the company’s work in unconventional resource areas, see our business intelligence platform, TOGYiN.
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