The oil and gas field machinery industry is comprised of companies primarily engaged in:
• Manufacturing oil and gas field machinery and equipment (such as oil and gas field drilling machinery and equipment, oil and gas field production machinery and equipment, and oil and gas field derricks)
• Manufacturing water well drilling machinery.
The following products are classified as oil and gas field machinery:
• Derricks for oil and gas fields;
• Drilling equipment for oil and gas fields;
• Christmas tree assemblies for oil and gas fields;
• Drilling rigs;
• Gas well machinery and equipment;
• Oil and gas field drilling machinery and equipment;
• Rock drill bits;
• Water well drilling machinery;
European oil and gas field machinery manufacturers are considered superior than U.S. manufacturers in platforms, hydraulics, moorings, and subsea components (flexible pipes, flowlines, and control systems). These producers tend to have favorable market shares in their regions: European manufacturers have an advantage in the North Sea region, while the U.S. leads in the Western Hemisphere. A number of small producers exist in Europe, Canada, Russia, Asia, and Australia, with a focus on valves, tubing, rods, drills, bits, and specialized electronics. The U.K. hosts the largest number of these firms, which are concentrated in Scotland.
The world market for upstream oil and gas equipment rises and falls with the price of oil, as oil and gas companies increase and decrease their exploration and production activities accordingly. When the price of oil falls drastically, as it did in 1986 and 1998, the equipment market declines and the oil and gas equipment industry experiences bankruptcies and layoffs. Rising oil prices also mean that more producers will try to rehabilitate old fields to extract as much oil as they can, and to extract oil from unconventional sources such as the oil sands in Canada or deeper water offshore.
These activities all require advanced technology.
There are still a number of non-tariff barriers that exporting companies must contend with. These include:
• Domestic content requirements. Some countries, such as large oil producers Russia and Kazakhstan, have laws requiring that oil and gas producers purchase a certain percentage of their equipment and services from domestic suppliers. Some foreign equipment companies are able to count themselves as domestic suppliers by partnering with local companies and/or establishing manufacturing facilities in the host country. These requirements can be a real problem, however, when the host country’s rules are vague about who qualifies as a domestic supplier.
• Standards and certification. Some countries (again, Russia and Kazakhstan in particular) require that imported oil and gas equipment be certified as acceptable by government bodies or by certain government-sanctioned labs or testing facilities. This can be costly and time-consuming for equipment manufacturers.
• Non-transparent procurement practices. Over the past few years, a number of oil producing countries (such as Venezuela, Bolivia, and Russia, among others) have reacted to rising oil prices by demanding a larger “piece of the pie” from their oil and gas producers- and have even forced companies to renegotiate contracts, take state companies as partners, or even give up their licenses to the government. Unfortunately, in many countries, the more state involvement there is in the energy sector, the less transparent their procurement practices become.
• Sanctions. Thus the world’s fourth-largest oil producer, Iran, is off-limits to U.S. oil and gas equipment suppliers due to U.S. government sanctions.