Northern Sky Research

Buying or Leasing End-Users in the Oil and Gas Market?

Apr 13th, 2011 by Brad Grady   More from this Analyst | Profile

In the rush to secure end-users and satisfy investors for upcoming satellite investment and network developments, satellite operators and service providers are buying access to end-users through mergers and acquisitions, or “leasing” access to end-users through partnerships with regional providers.  In fact, NSR’s recently released Oil and Gas via Satellite report indicated that consolidation among niche service providers and partnerships with operators to expand business in this sector are on the rise.

As this market is poised for a doubling of in-service satellite units over the next ten years, operators and service providers will have more end-users running global operations, fighting crew retention issues, and ensuring regulatory requirements are met, all while increasing connectivity in more extreme environments.

The last year saw some significant M&A’s in the maritime satcom business to tackle these issues that will have a lasting effect on the O&G business.  From the Harris-CapRock Communications-Schlumberger hook-up to the more recent purchase of ShipEquip AS by Inmarsat, the O&G space is awash with the effect of consolidation.  Even smaller players such as KVH Industries’ purchase of Virtek SA, whose CommBox can be found on over 700 vessels in the North Sea, or the CETel acquisition of MTN’s SeaMobile Europe, show a trend that is present across the value-chain.  

The Harris acquisition of CapRock and Schlumberger GCS signaled the arrival of the large prime integrators into the O&G space, and the importance of leveraging expertise from other maritime markets to offer complete end-to-end solutions.  As with triple-play offerings in consumer broadband, O&G customers now have more opportunities to select integrated communications packages – handheld radios from Harris, satellite network services from CapRock and Schlumberger, and terrestrial network integration from Schlumberger’s SPINE network.  This further combines contracts from the end-user perspective, and will be a formidable force going forward for other O&G players.

Other M&A’s involve satellite operators such as Inmarsat, which is buying access to end-users in its traditional maritime market through the recent purchase of ShipEquip AS.  As a provider of nearly 20 GBytes per month per ship of traffic, their more than 700 end-users represent the low-hanging fruit that Inmarsat needs to transition to Global Xpress in 2014 and increase its margins in the meantime.  Together with Stratos, which has an established digital microwave backbone in the Gulf of Mexico, Inmarsat now has two feet solidly planted in the VSAT market.  This footing brings Inmarsat more O&G customers and an upgrade path to Global Xpress for high-value customers that are sure to please investors.

NSR also signaled a trend towards more partnerships between regional providers and satellite operators as another strong growth strategy that one could call “leasing subscribers”.   Teaming arrangements such as that of Eutelsat and Speedcast and a future agreement between O3b Networks and Netcom Africa aim to reinforce operator footprints and solutions to an ever growing set of customers in the O&G business.  Eutelsat’s expanded relationship with Speedcast is building on a developing market in Asia for exploration and production whereby Speedcast leverages Eutelsat’s network in Europe.  And in a couple of years, O3b Networks and Netcom Africa will pair to provide O3b connectivity while Netcom Africa brings high-value regional end-users in Nigeria’s oil and gas ships and offshore platforms.

Bottom Line
With consolidation occurring across the O&G value-chain, players must decide how they wish to move: either buy access to end users through an M&A, or “lease” access to end-users through partnerships with service providers. Harris-CapRock Communications, Inmarsat, KVH Industries, and others are buying-up end-users through the purchase of niche companies, while Eutelsat and O3b have decided to “lease” end-users through regional providers. However, both options require offering more global service and support networks if they are to succeed in the O&G space.

Information for this article was extracted from NSR's report Oil & Gas via Satellite