Energy Service Providers Hedging Other Markets to Weather Oil and Gas Downturn

Photo: Panasonic

[Via Satellite 11-09-2015] Communications service providers with exposure to multiple markets are tapping into other growth opportunities to shore up their businesses while the oil and gas market contracts.

Several players in the energy market underwent consolidation in the past year or two, opening up opportunities in more verticals than oil and gas. Panasonic Avionics recently purchased ITC Global, a major provider of connectivity to remote locations in energy, mining and maritime, folding the company in with a top aeronautical connectivity provider seeing high growth. Emerging Markets Communications, now just EMC, acquired MTN, a provider of connectivity to the maritime industry earlier this year. These companies and others have found ways to endure challenging market conditions in energy by leveraging the strength of their larger corporations as they prepare for continued uncertainty.

“We’ve been through this before,” Joe Spytek, CEO of ITC Global, said Nov. 4 at OilComm in Houston, T.X. “Back in the 2007 to 2008 timeframe when we hit that global financial crisis, some of the commodities at that time that we were servicing dropped precipitously — 94 percent in the case of copper. I think oil actually touched $29 bucks a barrel in 2008 to 2009. That was very decidedly a “V-shaped” post-crises asset bubble that popped. It was very much a quick recovery and I think a lot of people are hoping to see that this time, but I do believe that the general consensus is that’s not going to be the base and we are looking more like a prolonged low price environment for who knows how long.”

Spytek said joining Panasonic Avionics has led to interesting developments, particularly because when prices for oil go down, airline spending goes up, fueling the surge of In-Flight Connectivity (IFC). Panasonic Avionics is in discussions with satellite operators to influence the design of future high throughput payloads, according to Spytek, that would ultimately benefit the whole company.

Hadassa Lutz, president of EMC’s Energy Services Group, said the company remains strong by serving eight different verticals, with none representing more than 30 percent of its business.

“When you are going through a downturn market like we are going through today, our customers and companies like ourselves are looking for ways to reduce cost. The last thing you want is to look into as a service provider, is ways to reduce cost that [negatively] impacts service. Being able to have a diverse portfolio, you are able to sustain any changes in a specific industry,” she said.

EMC is also using this time to double down on investments in new technology. Lutz said the company is spending tens of millions of dollars on Research and Development (R&D) and investing in new markets. She added that this has resulted in more than 20 patents and new ways to optimize the efficiency of satellite capacity.

“We have actually broken the world record here with translating more Mbps per MHz. That has a direct impact on cost savings for our customers,” she added.

Spytek pointed to oil and gas companies’ pursuit of greater efficiency and new regulations, particularly related to safety, that are creating more need for bandwidth. While admitting the level of new activity is low, he said demand for services is there, and that ITC Global is preparing new products in cybersecurity and weather, among other areas, for its existing customer base.

“While it’s not expanding, it’s not shrinking either. You just have to take care of your customers. You have to do everything you can to protect your core, and then look for growth elsewhere,” Spytek said.

Renner Vaughn, senior systems engineer at ABB Wireless, echoed similar points, saying being part of the larger ABB company has benefited them as well.

“Our utilities business has actually done really well and picked up the slack for the oil and gas side of things,” he said.

Vaughn pointed to applications as a strong driver for ABB Wireless in the energy sector. The rise of intelligence devices and more two-way communications — trends not unique to the energy market — are boosting the need for connectivity among oil and gas customers as well. He said R&D also constitutes a major focus for ABB Wireless, as connectivity further enables oil and gas companies to “engineer people off the well-pad.”

“Communications ties it all together,” he said. “Even in this environment we are still seeing a lot of investment upstream because it is making them more efficient.”

Spytek said ITC Global still sees major players in oil and gas investing because of the need to continue replenishing reserves. This drives them to continue looking for more resources, he said. Spytek felt that the challenge going forward in leveraging satellite will be less about increasing efficiency and more about figuring out how to make the most of the increased supply of capacity. He said the industry is already facing a supply glut, which will shape how satellite services are used.

“Satellite operators are struggling with what to do with their legacy payloads now that the HTS payloads are out … I think the key is for everyone to figure out what to do with the capacity,” he said.