with Ashley Jerome D’sa, Chief Executive Officer, Oil Field Instrumentation (India) Pvt Ltd
You promoted this company almost twenty years back. Could you share with our readers the initial vision behind the creation of Oil Field Instrumentations (OFI)?
OFI was promoted by Mr. F. D. Neterwala and I have been with the company since its inception. India has opened up significantly over the years, allowing the increasing entry of foreign direct investment (FDI). The situation is therefore very different from what it was over two decades ago, especially in the eighties. The foreign exchange crunch in the country compelled the public sector undertakings to indigenize imported products and services. In those days it was only ONGC and in a limited way Oil India who were involved in exploration for oil and gas.
Moreover, only international companies were providing E&P related services in the country those days. Among these service providers, Geo Services, the largest international mud logging service provider – now part of Schlumberger, had an interesting profile and offering for us.
One of the Neterwala Group Companies was the largest chromatograph manufacturer in the country in those days. Chromatography is the heart of mud logging. When applied to oil and gas (O&G), it is a technique which allows an analysis of the hydrocarbons. This is how OFI and Geoservices decided to collaborate and bid for tenders from ONGC jointly. We were planning to eventually enter into a Joint Venture (JV) with Geo Services, which would have perhaps happened if the processes and permissions did not take that amount of time. Tenders in those days took as long as four to five years to be finalized at times. All licensing pertaining to collaborations, in those days, were strictly controlled and took a very long time to obtain. The initial agreement with Geo Services was that we would be manufacturing the mud logging units and Geo Services would be providing the services. Unfortunately, by the time the process was finalized, the requirement had been reduced to six units instead of 32 units. It was therefore not viable to go through the entire arrangement as perceived. However we still executed the contract. In the meanwhile, the early 90s saw a change in the government policies shifting the focus from indigenization to globalization, and more incentives for foreign companies arose.
At this point, we had the choice of either getting out of the business or developing the product ourselves. As we had already invested some resources and developed certain capabilities we decided to try and develop the product ourselves. We persevered and we were in the end very successful. In the matter of six months, a few dedicated and motivated engineers got together and were successful in developing the first prototype. We went out to the market and in a short time; we had captured a major share of the market. We owe our gratitude to ONGC for giving us the first opportunity. We have been the largest mud logging company in India since then ¬- 57% market share in 2011.
What have been the main challenges in taking leadership?
We had to literally reinvent the wheel. Although chromatography is used in several industries including O&G, and although we had contacts in upstream, those were not with the exploration groups. We had engineers and chemists, but no geologists in our team. We had to start off from scratch, and in those days, technology was not as advanced as it is today – there was no access even to internet, and we did not have any technology partner. We took it up as challenge: we had to succeed, somehow.
In the mid nineties, multinationals (MNC’s) came in, and it began with a small Australian company, Command Petroleum, taken over later by Cairn Energy. We were the logical choice for all the new entrants, as we had a competitive local offering.
We always believed in delivering quality, unfortunately when we started working for these companies (MNC’s), we identified a big gap between what we had to offer and what was expected by the international players.
We had to unlearn a lot of what we had learnt in the past and get familiar with new practices, for which we brought in experts from abroad to help us streamline our processes and product including training of personnel.
You are leading a company whose business model is based on state-of-the-art technologies. Prem Vasistha, Vice President of PGS India, told us that in India, the main players are not willing to pay the price for new technologies. How do you assess this statement and what are the main challenges you see in the sector?
What Mr Vasistha says is quite true. Unfortunately, in this market, you need to compete with companies which are not as serious about quality and given that most tenders are decided only on the basis of the lowest cost it is indeed a challenge.
Albeit this, we keep upgrading ourselves in terms of the level of technology. Our vision is to be the largest mud logging company in the world at some point, and this can be achieved only through high quality coupled with appropriate level of technology.
We have developed our own internal mechanism to handle this. One of our biggest advantages is that we do everything ourselves thanks to our manufacturing as well as Research and Development capabilities. On the strengths of this, we develop hardware and software products, and we build our own units. I am not sure of how many mud logging companies in the world can claim the same.
When you rely on third parties, your flexibility is automatically reduced. When you do it yourself, you have a significant cost advantage.
In February this year, Kitara Capital, part of Oman based group, announced the investment of $11M in OFI. What were the rationales behind this and what new strategy have you defined in line with this entry of new capital?
The finances came in primarily to grow the company externally.
While we are planning to grow this business on our own, it is also important that we have other verticals in the service business. Therefore we have acquired two companies last year: a directional MWD company and another company which provides geophysical surveys.
Indian upstream activities have boomed in the last years. The government has placed a lot of emphasis on increasing crude production, especially through the New Exploration Licensing Policies (NELP), the latest one concluded in March 2011. What growth opportunities do you identify for a company like OFI within this context?
The general impact of such policies is the increasing entry of foreign investment and private companies in the Indian upstream market. Obviously, this has also given more opportunities for growth in the sector that we are in. We have been working on almost every project: with ONGC for instance, we have been working with them in all the assets and basins – onshore as well as offshore. We have also been working with private and MNC’s like Cairn, Reliance, GSPC, British Gas, Shell, Gazprom, NIKO, Hardy Petroleum and many others. If the exploration industry continues to grow we hope to see growth in OFI’s business as well.
There are both private sector and public sector companies: what do you see as the main difference in working with both?
This industry is very challenging as a whole. Now, whether you work with the public sector companies or the private players, the challenges are very different in nature. State owned enterprises offer stable and steady revenue over a long period of time, whereas in the private sector, the contracts tend to be on a shorter term.
In the public sector, in case of a recession, the government ensures that the activity continues, whereas private players are tempted to withdraw from the market. Even during the recent economic crisis, the activity at ONGC was not really affected.
The move from NELP to OALP – Oil Acreage Licensing Policies – was supposed to happen last autumn, but has now been pushed further back. What are your expectations from this shift and how do you see it impact your business?
It will definitely attract further investment. Under the NELP companies have to follow a fixed format and process and must participate in the tenders. With the new Open Acreage Licensing Policies, whether it happens in 2012 or 2013, there should be more opportunities for new players to come in. This would also give easy access of geological data to E&P operators. In India we are endowed with around 138 billion barrels of oil and oil equivalent, but most of them lie in frontier locations/deep water and ultra deep water. In order to search for these resources our country needs advanced technology which perhaps would come as a result of this initiative.
I sincerely hope that some majors, for whom India remains out of scope, will consider coming to this market.
Outside India, OFI entered the Middle East markets. Could you explain to us the main lines of OFI’s internationalization strategy?
We are expanding internationally and plan to increase our global footprint in a big way. As of now, we are operating in a few countries outside India in the MENA and Asia Pacific regions.
However, in all these countries, we are late entrants, and it is not easy to enter a market that is already established. With the unrest in the MENA region progress is a bit slow for us at the moment in this part of the world, but I am confident we can achieve our objectives in the long term.
The important parameters measured provided by your services include Total Depth, Rate of Penetration, Rotation per minute, Stroke per minute, Mud Flow, Conductivity, etc. Mr Mahurkar of PwC said the problem in India that keeps foreign investment limited is the lack of available data for exploration and production (E&P). Do you agree?
Mud logging is essentially the monitoring of critical parameters, while exploring for oil and gas. While drilling it is very important to capture various data and this is one of the most important services for drilling exploration wells.
The following parameters are monitored in mud logging: Drilling data – includes penetration, depth, WOB, RPM etc, Mud data – includes density, conductivity, temperature, flow etc, Gas data – includes total gas, Chromatography,H2S etc. and Geological data – lithology , fluorescence etc
What Mr Mahurkar of PwC is referring to is perhaps the lack of data prior to exploration that would attract investment. This data is not exactly the same as what is obtained from the mud logging units. However with time I am sure that the quality of data provided to prospective bidders for exploration blocks will and should improve.
What kind of recruitment strategy do you have in place at OFI and what are the special in house trainings you set up to guarantee that the safety aspects become a strength at OFI?
We are in a manpower intensive business, and within this, OFI is a competency based organization. Indian companies are fortunate enough to operate in a country with an easy access to post graduates engineers and geologists. We recruit them and put them through regular training processes.
We assess competencies that are both functional and behaviour related. We also help them acquire these competencies. We have in place a year-round training program on all different subjects and aspects, with multiple levels for in house trainings.
As far as safety is concerned, OFI’s entire workforce is subject to safety training right from the time of induction into the organization. These programmes are mandatory, often provided by different institutes.
OFI is an OSHAS 18001: 2007 certified company.
What is your strategy to remain the market leader in India and what are your personal ambitions to grow OFI in the international markets?
We shall continue to do whatever we have been doing and improve on the same in areas of product development and training in order to maintain our market leadership. I do hope that the Indian industry will grow further so as to help us grow our business in the region.
The main growth of our business would essentially come from internationalizing our services, and that is what we are focusing on today.
Do you have a final message to the readers of OGFJ?
It is good to be in a country with activity growing year on year. I encourage people to focus on quality and invest in developing technology, required in this country, especially for deep water and ultra-deepwater explorations. India should have its own home-grown technology and capabilities.