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Interview

with Cheng Xu, President, Schlumberger China

17.02.2012 / Energyboardroom

Schlumberger entered this market in the 1980s at the invitation of the Chinese government, bringing with it its proprietary oilwell logging technology—the original innovative hallmark of the Schlumberger brothers. The company has since gone on to offer a much more comprehensive range of services here. How has Schlumberger’s approach to the market evolve over time, and how has this approach reflected an evolving China?

We were first invited to China to provide a technology window. The Chinese had just opened the door, and were interested in utilizing new foreign technology. The topic was raised during a visit by the Chinese Vice Premier to France, in a conversation with the French president. The Vice Premier was previously the Minister of Petroleum and knew the Schlumberger name quite well. After this discussion, Schlumberger was assigned to three locations on the mainland: Karamay, Shengli and SiChuan. As you noted, we first entered with the technology we are widely known for: wireline logging.

Over the years, we have expanded these three locations to reach almost every oilfield in China—including Daqing, where we saw increasing water cut and declining production. We also work offshore, where there is a strong level of cooperation between Chinese NOCs and Schlumberger. However, today we provide much more than technology. Our excellence in execution, capacity to innovate, and investment in the development of people have turned us into more of a partner than service provider. This is reflected in long term service agreements with our Chinese customers.

Today, we offer nearly the full range of Schlumberger services in China: 13 out of 16 product lines are present. Our strength lies in the comprehensive services we provide to the upstream sector, including reservoir characterization, drilling and production services. We are particularly strong in helping our customers map and understand their reservoirs. When you can provide efficiency coupled with a comprehensive service range, your customers become more inclined to utilize just one service provider rather than several.

This is becoming even more relevant as China looks into the development of unconventional resources, which requires thorough understanding of the geology, precise well engineering and flawless execution, not to mention taking into account protection of the environment. Our experience gained in North America helps tremendously, however it is not enough and this is where long-standing relationships with national service bureaus come into play.

For example, we work together with a CNPC service division on a project contracted by Shell. This is great, because both sides benefit from such cooperation by putting the best suitable technology and knowhow together to increase efficiency.

This partnership actually extends beyond national borders, as we often work together on projects managed by Chinese NOCs in places such as Africa, the Middle East, and Central Asia.

How does your company mitigate such dynamics? How does it ensure it does not cannibalize its business as a service provider, and does not lose out on contracts as a competitor?

When Chinese companies go overseas, they face situations which can be quite different from their experiences at home. They need the help of an international service company. So we see more and more cooperation between Schlumberger and Chinese oilfield service companies both inside and outside China.

Can you extrapolate further on your positioning relative to competitors within China itself? For example, how do you compare against the other major international oilfield services companies?

Our main concern is to ensure that our Schlumberger strengths contribute to the safe and efficient development of China’s natural resources.

With 30,000 wells drilled every year in China, there is room for everyone, and enough challenges for us to focus on.

It is often noted that Western oilfield services companies are needed on this market for their technology and management expertise—however, our interviewees have said that wherever possible and wherever the capability is available, the Chinese would prefer to execute projects utilizing their own domestic companies. How long can international companies stay ahead of the curve and secure business within China?

In that respect the China market is no different from the rest of the world. Our company culture of constant innovation, backed up by substantial R&D investment, together with excellence in execution allows us to stay one step ahead.

More specifically, for the years to come we will be able to offer something unique in areas like deep water exploration and shale gas development, as China increasingly focuses on these areas.

Indeed, China is gearing up to exploit shale reserves that, by many official estimates, are larger than those of the U.S. Unconventional resources like shale were a huge boon for Schlumberger in North America for many years. Firstly, how realistic do you believe it is for China to replicate the U.S. shale story, and secondly, how can Schlumberger position itself to maximally capitalize on this sector as it has in America?

To answer the first part of your question: yes, I believe that China will be able to replicate this story. The reserves are there. The geology is different, and more difficult—but the Chinese will find a way! They must find a way, because they need these resources. Deepwater too, is very challenging, but the Chinese will manage.

As for the specifics of our role in this, we will certainly participate. Shale gas extraction is about service intensity and cost containment. Our value will come from reservoir description and well engineering expertise, operational efficiency, and our ability to manage complex logistics and supply chains. In any case, I’m sure that we will be successful. One reason which gives me confidence is the quality and diversity of our work force. We have 10% to 15% expats on our staff, which brings a lot of outside experience. 85% to 90% Chinese employees on the other hand give us a wealth of local knowledge and the ability to engage local customers.

What is the value proposition that you make to these staff members? Why do they choose Schlumberger?

We have a unique advantage because our HR policy is to recruit only the best. To that effect, our worldwide Ambassador Program covers top Chinese universities including the Petroleum University of China. As Schlumberger China President, I am also the Ambassador for these universities. In this role I regularly visit academia and students to explain our organization, its mission, its values, and its equal opportunity culture. I also supervise scholarship and internship programs. I can testify that all these elements put together make for a very attractive work environment. Once recruited, our employees often choose to stay with us because we offer truly diversified career opportunities, continuous training and development, and international career paths.

You mentioned your Beijing technology center, and Schlumberger is a company that invested $919 million in R&D in 2010—more than all other oilfield services companies combined. How does Schlumberger integrate China into its R&D effort by leveraging the Beijing Geoscience Center? Is it interesting for the organization to establish a fundamental research hub in China, as it has in other BRIC markets like Russia and Brazil?

We started the Beijing Technology Center ten years ago, and have been focusing on manufacturing and sourcing since 2005. We may plan for a research center in the future but it is not yet on the agenda. One step at a time….

In this line, how do you believe China’s energy needs will evolve over the next five years, and how will Schlumberger complement those needs?

There are many technical and efficiency challenges facing the industry in China. What Schlumberger carries on doing is to bring its technology and knowhow to the market. The industry is shifting towards more gas exploration and development. Therefore, we will participate to a larger part in the development of both conventional and unconventional gas resources. Our goal is to deploy our full sixteen product lines in China and integrate them to provide a solution, rather than just a technology window.

What is your final message to the international readers of Oil & Gas Financial Journal?

As China needs more clean energy resources, Schlumberger can play an increasingly important role in the process of finding and extracting these resources. Towards this end, we are fully committed to work more closely with our partners, including the national service companies, to provide the best technology and service combinations to our customers. I am very optimistic about our future in China.

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