Hardware ownership has become a critical part of Schlumberger’s (NYSE: SLB) technology strategy as it expands its digital offerings, but don’t expect the world’s largest oilfield service company to start taking full ownership of rigs, floaters and other equipment.

Schlumberger CEO Paal Kibsgaard sees the E&P industry like an outdated and cluttered computer hard drive. Information is spread out and separated by artificial dividing lines, creating slowdowns and inefficiency.

Schlumberger’s goal is to upgrade hardware and software into “complete technology systems.” In projects such as its “Rig of the Future” the company is developing “streamlined and redefined end-to-end workflows,” Kibsgaard told analysts Oct. 23.

The company wants relationships with jackup providers and potentially floater providers, but its focus now is on jackups.

“We have no intention whatsoever of going back into full ownership of offshore rigs,” he said.

Kibsgaard spoke about Schlumberger’s technology efforts following the release of the company’s third-quarter 2017 earnings report that brought news of a $581 million increase in profit—a 65% improvement from a year ago—and revenue of $7.91 billion, up from $7.02 billion.

Oilfield service companies, which suffered massive profit losses and headcount reductions during the downturn, have been ramping up their offerings with an increasing focus on digital technologies as the industry reaps the benefits of improved efficiency and growth from technology advances in general. The industry’s largest service companies—Schlumberger; Baker Hughes, a GE company; Halliburton and Weatherford—have all expanded their technology offerings.

  • Baker Hughes released IntelliStream upstream enterprise software, which the company said: “provides analytic-driven insights and continuous learning across reservoirs, wells, networks, facilities and people, continues to gain interest in the marketplace.”
  • Halliburton teamed up with Microsoft in a quest to “drive digital transformation across the oil and gas industry,” making DecisionSpace 365 available on Azure for real-time data streaming and deep-learning applications.
  • Weatherford released this month its PressurePro control system, which was described by the company as “a fully integrated rotating control device and choke system for wellbore pressure management on land.”

Schlumberger, which also released new technology, is in pursuit of technology system integration, and Kibsgaard says hardware ownership is a critical element of its strategy.

“Today the broad and complex E&P industry workflows are still predominately enabled by discrete and fragmented products and services with the dividing lines between the various work packages defined by our customers’ contracting framework, which was established decades ago,” Kibsgaard said. “These artificial dividing lines made sense at the time of creation when technology systems were made up of a limited number of isolated hardware building blocks and the value of software and data was still nascent.”

However, “For the complexity of data’s oilfield operations and the advances made in other industries in terms of total system performance it is clear that replacing the industry’s fragmented approach with a new focus on complete technology systems holds a massive performance upside,” he added.

Kibsgaard said Schlumberger sees potential in creating hardware technology with a broader scope, a smaller footprint and fewer interfaces. He added the company believes the next step-change for the industry will come in the form of complete technology systems that integrate software and hardware components—an example being the Rig of the Future. The land drilling system is a cognitive drilling rig that incorporates a software platform driven by data.

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But maximizing the performance of E&P industry workflows will require leveraging the latest technological advances, Kibsgaard added. “We achieve this by making these enabling technologies an integral part of the new hardware and software technologies systems as opposed to attaching them on the outdated and fragmented technologies of yesterday. What we’re doing with DELFI, which was introduced at the SIS Global Forum, during the third quarter is an example of this.”

The DELFI cognitive E&P environment utilizes digital technologies such as security, analytics and machine learning, high-performance computing and the Internet of Things to improve operational efficiency and deliver optimized production. Schlumberger also released DrillPlan digital well construction planning solution that the company said is the first step in the DELFI cognitive E&P environment. DrillPlan enables operators and service companies to have access to all data and science needed in a single, common system.

“We have also deployed an E&P data lake on Google Cloud platform comprising more than 1,000 3-D seismic surveys, 5 million wells, 1 million well logs and 400 million production records from around the world demonstrating a step-change in systems scalability,” Kibsgaard said. “DELFI will ultimately cover all industry workflows; however, the initial focus is on drilling and well construction.”

Technology played an important role in driving revenue growth for Schlumberger for the third quarter with the production group, for instance, seeing a 15% rise in revenue attributed in part to gains in the North American hydraulic fracturing market, more unconventional activity in the Middle East and new several technology deployments.

Third-quarter highlights also included Schlumberger and Borr Drilling signing an agreement earlier this month to offer integrated, performance-based drilling contracts in the offshore jackup market. Schlumberger Oilfield Holdings Ltd. has a 20% ownership in Borr Drilling, which recently agreed to buy nine jackup drilling rigs from Sembcorp Marine subsidiary PPL Shipyard (PPLS) in a $1.3 billion deal.

In an earnings preview, analysts at Barclays noted Kibsgaard’s focus “is to flex technology up or down in their service offerings to align performance with how much SLB will be rewarded for it. This sentiment is clearly echoed in its recent agreement with Borr Drilling.”

The analysts added that Kibsgaard, who presented at a Barclays conference in September, is “confident that he can scale technology in either direction all while delivering incrementals and believes the issue of technology gets ‘over-emphasized.’”

Barclays added, “Kibsgaard noted this strategy aligns with SPM [Schlumberger Production Management], and E&Ps will start paying for technology again once they start experiencing stagnant results.”

Velda Addison can be reached at vaddison@hartenergy.com.