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Interview

with Colin Smith and Paul Day, Managing Director and Business Development Director, Petrowell

06.04.2009 / Energyboardroom

To begin, would you please give a brief history of Petrowell by way of the vision behind its founding, and milestones and achievements since that time?

Petrowell started in 2001, although has been in its current form as a manufacturer and designer of completion tools since 2003. At its inception, Petrowell was well aware of the changing aspect of the industry, and that oilfield completion techniques of 10-15 years prior wouldn’t necessarily apply going forward; the only thing always guaranteed was change. Petrowell knew there was an opportunity for a small service provider with engineering excellence to get into the market and focus on new areas, like open-hole completion and remote operation completion, in the expanding subsea markets of West Africa and burgeoning business in the Middle East, so these were focus areas for Petrowell along with the UK. Petrowell was looking for technology and services that would suit not just the low-cost land markets of the UK and the Middle East, but the expensive, more investment heavy markets like West Africa and the Gulf of Mexico as well as the North Sea. Petrowell’s core initiative was to select and develop relationships with major international oil companies, because they were the big investors in these fields, as well as the NOCs of the Middle East. In the UK, Petrowell identified new entrants to the North Sea, who arrived at the same time as Petrowell. Without any established service company ties in the area, these companies were ideal for Petrowell to develop relationships with large independents.
Petrowell’s management has a background in big service companies like Halliburton and Baker, as well as working with small service companies bought by bigger service companies. As such, we were aware of the pitfalls of being a small service provider, and some of the frustrations of being a small service provider sucked up by a larger service provider. Petrowell wanted to concentrate on technology and equipment development with operators, and then provide a platform to the larger service companies where they could buy and license our technology and take it into a much larger global footprint. Petrowell did not want to be a company with 5,000 employees; at currently 120, with a 15-20% increase anticipated in the next few years, there are no ambitions to be a superservice company. Petrowell wants its products reach a wide appeal, and is prepared to use and allow ourselves to be used by larger service companies accordingly. Petrowell recognizes from previous experience that achieving this larger appeal in the most efficient way involves forming alliances and relationships with larger service companies and allow them to take our products forward, rather than jealously guarding technology and pretending we could be all things to all people, which wasn’t really what Petrowell was about.
Currently, Petrowell has very strong relationships with two of the world’s largest service providers, Weatherford and one other, and two smaller providers as well. Petrowell prides itself on having good time to market, innovation, and doing things more quickly. If we focus on a certain area in the UK, West Africa, or the Middle East, what we’ve done there does lend itself to other areas, and that’s what attracts the Weatherfords and others. The reasons are often different, one area focused on operating and rig costs such as West Africa and others skill shortages and general demand on well services infrastructure. RFID (Radio Frequency Identification) is a technology that can address both concerns.
Petrowell has taken technology from other industries and packaged it for use in the oil and gas industry. One example is in RFID, where millions of dollars are spent annually in development, and Petrowell has taken the technology to the next level in our industry, even as we recognize such activities form a tiny part of the overall sector, dealing with hundreds or thousands of chips, compared to the seven billion chips sold last year worldwide. However, what Petrowell is doing with RFID is quite unique, in partnership with companies like Marathon, the principal IP holder, from which Petrowell has a global license to bring the technology forward. This demonstrates the strategy of bringing a working technology to larger service providers, who take it globally and maximize the return. The technology demands a global footprint and our relationships with the larger service providers should ensure it gets one.
In this way, Petrowell does not have a great deal of pride, and is more interested in the financial aspects of making things happen, where before in other companies pride may have stopped companies getting products to market on a global scale. We are happy to have larger companies re-badge our products and develop many of the unique applications suited to our products.

Speaking to this global expansion, Petrowell has already established offices in Houston but what is the importance of Aberdeen as a springboard for technology overall?

In terms of expertise, whether engineering or applications, Aberdeen over the course of the last 20 years has put itself in a position with an enormous oilfield skills base. It’s not like other cities that have sprung up without infrastructure, although in comparison Houston is on an entirely different scale. However, when Aberdeen first identified itself with the oil and gas industry, there was a lot of enthusiasm in the local government to make it work, in terms of infrastructure, developing expertise, education, and private investment.

In 2007, you said the opening of the Houston office would mean 2008 represented a pivotal year for Petrowell in a key market. How has the US expansion panned out thus far?

Petrowell had to be in Houston, because many operators run deepwater fields exclusively from there, regardless of their actual geographic location, and technology developments applicable on a global basis are handled out of Houston. Petrowell had agreements with a number of MNCs and had to have the presence to take the existing products, those in development, and those we were asked to develop to the next stage of implementation and application. Houston was a springboard to integrate Petrowell into the technology groups of the world’s biggest operators, the top four of which are based in the city, and also to demonstrate relationships with the service companies whereby if BP asks for Petrowell to be in Australia, we can say we will be there with Weatherford, for example. This approach has proven to be very successful.
Although Petrowell has one other international office in Baku, Azerbaijan, the aim is not to have multiple Petrowell-branded offices, but rather to adopt the most expedient and cost-effective method to support customers wherever they are in the world. Petrowell’s money is better spent on products than infrastructure, and because infrastructure and supply chain management exist around the world, Petrowell wants to plug into that in a way beneficial to us and our customers.

How receptive was the Houston community to a smaller, Aberdeen-based company setting up shop there?

It all comes down to business. They were receptive because Petrowell could do things and provide things they didn’t have. In the context of a booming industry, if companies had $10 million to invest, they could spend it expanding what they already had in an exploding industry; why would they do something new, when it was possible to get a slice of an already existing, ever-increasing pie? Most companies’ focus was perhaps though still on R&D and technology, was and is mostly on grabbing as much of the expanding market as possible. That was our perception. Petrowell was very well-received by companies as a means to new technology development, without affecting general business. Clients could carry on their existing business, and we would then tackle some of the new product issues they had, and when those became a reality, and viable, they could be snatched up and dropped into their empire, so to speak. In previous days, the attitude might have been more hostile, but we’ve certainly not seen that. Our clients have embraced Petrowell and our openness; had we been very insular and protective of the technology, and try to do everything on our own, it would have engendered a more hostile reception. Generally, whoever Petrowell has worked with in terms of service providers has been very surprised how open and willing we are to work with them and “hand over the jewels”, so to speak. Petrowell doesn’t displace products, but adds to a portfolio, and takes products to market that don’t yet exist.
Petrowell does have, for want of a better term, “me-too” products, but these are basically sold into the wider market just for cashflow, and not in areas like West Africa, Alaska, or the Middle East, areas not immediately on our doorstep. The company’s focus is on taking new technology and products nobody has, that compete very favourably with some of the existing technologies and far outstrips their benefits. That’s why many of the service companies will continue to work with us.

How do Petrowell’s products fit in the context of lowering oil prices?

The oil price isn’t down in relation to 18 months ago, and $60 oil 10 years ago would’ve been viewed as fantastic; it’s not all doom and gloom. One drawback of very high oil prices is that they create a barrier to new technology. If a company produces wells at $150 per barrel, why would it do anything differently? There’s a certain point where oil prices are depressed and activity is so low that there’s really no need for new technology because there’s no activity. Conversely, when the oil price is too high, it’s a grab for production.
There’s a point between a depressed market and ridiculously high one where Petrowell fits in. $150 oil probably didn’t help, stifling a lot of what Petrowell did. There’s a crossover point where innovation, cost savings, and a new way of doing things incrementally start having a much greater appeal. Petrowell is quite happy to come off the peaks, and while the company does not want the troughs, either, the hope will be to stay in that crossover point which has largely characterized markets throughout Petrowell’s existence.
While some bigger companies may be tightening up their purse strings, Petrowell should become more attractive as a partner of choice, because we are still bringing innovation and a new slant of opportunity to their business without requiring them to bet their own money. Petrowell is an attractive partner, even for service companies in a contracted market, because we offer another piece of ammunition. They’re still bidding for work, and if they have a unique selling point that we may be able to bring them with a new technology, open hole packer, or operating a tool, that’s attractive for them, and the current market situation is unlikely to squeeze us.
Larger service companies with aspirations are tightening their purse strings, but will also be investing more heavily in technology, despite some capex and opex cutbacks. They have to be focused on technology because that’s where they get on a level playing field with their peers. Technology budgets don’t carry along the same kind of spending as many capex-intensive budgets, the requirements for 500 more trucks or pumping units, for example. Petrowell only needs a fraction of those budgets to make a real big difference.

How would you describe the management stile and corporate culture at Petrowell?

Petrowell has a very flat structure, giving people the freedom to express themselves without having too much of a dictatorial management stile, where the idea is to provide a platform to bring forth their own innovation and ideas. It’s a very good way to keep our engineers stimulated, and if we ever lose that stimulus, people will fly the coop. You don’t collect the group of individuals Petrowell has, and then put them on a steady path of drudgery. There needs to be refreshment and growth, and this is manifested in Petrowell’s low attrition rate.

Having previously worked for much larger companies, is it a challenge reverting back to this much leaner structure?

We don’t want to create Petrowell in the image of larger service companies. Many people don’t want to work in the larger companies, instead preferring a more informal atmosphere. Petrowell tries to be as flexible as possible, hires sharp people, and is flexible in incentivizing people in ways that big corporations can’t, with certain pay grades and structures. In larger companies, the engineer is not as important as the rest of the operation, whether finance, general management, shared services and operations, because they don’t actually do a great deal. Although Petrowell is primarily an engineering-oriented company, we don’t want robots. Petrowell finds that the engineers we recruit desire challenge and aren’t too scared to fail. Those who like defined career paths and moving up one grade at a time will stay at other companies where there is a role for them. We don’t want to become such a company, and by throwing our technology to the wolves, our people can carry on with sustaining
engineering innovation.

Where do you want to bring Petrowell?

We want the company to be as successful, sustainable, and obviously as profitable as possible while maintaining the culture of continuing to strive to do things a little bit differently. In not being afraid to apply technologies, this means if something displaces what Petrowell has now, we don’t have anchors holding us back from success, in the form of huge past investments, product, or legacy equipment. Petrowell is very fleet of foot, and maintaining this nimbleness will be important.

What is your final message to OGFJ readers?

They’ll see more of us, the Petrowell name will be more obvious, and our products will become more prevalent globally, although some Petrowell products aren’t branded as such, but rather from the large service companies as an “invisible” Petrowell.
The Petrowell that delivered its success stories hasn’t changed radically, and the core competency and future success will remain for the operators and service companies, for whom Petrowell will represent an ongoing resource to tap into. In this respect, Petrowell’s identity will not change too much, because the focus is on developing solutions, projects, and changing technologies, tools, and so forth. Petrowell is here to stay in its current format, and won’t worry about developing into a huge supercompany, because that’s already been done by others. Petrowell will concentrate on being a solutions provider and bringing new innovations, and if we can help an operator change some of the economics on a project, it’s great for both parties, and what we’ve done in the last five years.
Ideally, we want to position ourselves as an engineering innovator for our clients to come in and tell us what they want. Petrowell likes to have all its ideas stimulated by the operator; we don’t rely on “clever” ideas coming from us or the engineers. What we like is the end user saying, “It would be great if…” so we know what people want, and give them just that. Petrowell doesn’t invent and then go shopping around in the market. The clients know what they want; all Petrowell has to do is give it to them.

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