BHGE, Cognite, Framo Talk Selling Performance, Not Equipment

The idea of paying service companies or equipment manufacturers for performance rather than equipment is not entirely new. It has been used in the airline industry, which pays for performance of jet engines rather than buying them, for years. But a major hurdle for oil and gas firms has been giving access to operational data to vendors.

There are versions of this model in the industry. Downhole electric submersible pumps have been run on a bonus/penalty model for a number of years; equipment manufacturers can see how pumps are operating to make sure they don’t fail early. But more models are emerging.

In 2016, Diamond Offshore started to offer a pressure control by-the-hour service. This saw Baker Hughes, a GE Company, (NYSE: BHGE) retain ownership of the pressure control equipment it had produced and work with Diamond to reduce downtime to less than 1%, as a service-based model.

“It requires you to operate differently,” John Kerr, vice president and chief technology officer ofengineering and technology, oilfield equipment, for BHGE, said on the sidelines of the ONS conference and exhibition in Stavanger in late August. “In a [traditional] service model you send equipment out and they rent it. Now, you don’t get paid unless you get uptime. You have to think about spares strategies, predictive modeling and maintenance.”