BEST PRACTICES RESEARCH - Frost & Sullivan · Dover Artificial Lift's Customer Impact and Business Impact ... Based on the findings of this Best Practices research, ... this company

BEST PRACTICES RESEARCH

© Frost & Sullivan 1 “We Accelerate Growth”



Contents

Industry Framework ................................................................................................... 3

Digital Transformation of the Oil and Gas Industry ......................................................... 4

Background and Company Performance ........................................................................ 5

Industry Challenges .............................................................................................. 5

Dover Artificial Lift's Customer Impact and Business Impact ...................................... 5

Conclusion......................................................................................................... 10

Understanding Customer Value Leadership .................................................................. 11

Key Benchmarking Criteria .................................................................................. 11

Best Practice Award Analysis for Dover Artificial Lift ...................................................... 12

Decision Support Scorecard ................................................................................. 12

Customer Impact ............................................................................................... 13

Business Impact ................................................................................................. 13

Decision Support Matrix ...................................................................................... 14

The Intersection between 360-Degree Research and Best Practices Awards ..................... 15

Research Methodology ........................................................................................ 15

About Frost & Sullivan .............................................................................................. 15



Industry Framework

Frost & Sullivan developed an industry framework that outlines the most critical issues

facing the current operations and offers a vision toward its future transformation.

Frost & Sullivan’s 3R Oil and Gas Framework encompasses three major components:

resource, recovery and reliability. The first component refers to the industry gravitation

toward unconventional hydrocarbon resources, which poses sever challenges in terms of

its dull attributes, distant location, dirty composition and dangerous operations.

The second component in the framework refers to hydrocarbon recovery. Despite

advances in resource availability, costly operation costs are reducing well production.

Demand for optimizing well production by extracting more from various wells and reducing

surrounding costs through effective well economics is a core necessity of the industry.

The third component refers to the ability to attain sustainable production levels in order to

meet future energy requirements of about 80 MMBBoe a day.



Digital Transformation of the Oil and Gas Industry- Our Vision

At the core of the oil and gas value chain are the three components mentioned above

which revolve around the fact that there is a hydrocarbon resource; it needs to be

recovered and it needs to be recovered reliably. However, its operational status quo of

fragmented operations, siloed equipment and systems, and high human capital costs, is

becoming increasingly unsustainable given the new hydrocarbon demands. Although

attempts toward the automation and integration of systems and processes are beginning

to occur, current operational practices restrain the momentum toward the adoption of

untried technologies. Therefore, our vision for the industry on how it should approach this

shift toward the digitalization of the oil field revolves around three broad ideas.

The first concept of our vision refers to the ability of changing our interaction with

machines so that instead of humans adapting to machines, machines will increasingly

adapt to humans. As machines become more appealing to our innate senses in terms of

visualization, vocalization and more generally speaking real time feedback, industry

operators will be able to take action that will have a positive impact on the bottom line

and ensure risk management.

The second component of our vision revolves around the concept of the “fog.” This

resembles an intermediate layer where all data is analyzed through predictive analytics,

including pattern recognition, and only the most valuable data sets are escalated to the

next level of action, and the rest remains in the fog. As a result, raw data, which is

collected with high velocity, variety and volume, will reside in the data ocean and only

data with an “intelligence tag” will be processed to reach an action driven level.

The third concept of our vison argues in favor of the continued emergence of independent

data holders that will have key encryptions tagged to them that will allow data to be

resident in other platforms. This will enable independent data miners to analyze data

through advanced patter recognition methods.

As Frost & Sullivan continues to develop the vision of the future and the vision of the

cloud for the oil and gas industry through our panel discussion with industry stakeholders

and end-users, we seek to identify key technology enablers whose value proposition

targets the main industry challenges within our 3R framework of resource, recovery, and

reliability and are in line with our vison of the totally integrated digital oilfield.

Based on the findings of this Best Practices research, Frost & Sullivan is proud to present

the 2015 Customer Value Leadership for the Global Artificial Lift Solutions Market.



Background and Company Performance

Industry Challenges

Frost & Sullivan expects falling crude oil prices to tectonically shift the exploration and

production (E&P) markets in US and across the globe. End-users have cut down their

CAPEX budgets for 2015 and are looking to increase recovery from existing oilfields. While

there are a variety of well intervention techniques available, none are as effective as

artificial lift solutions. The aspect to mitigate the trade-off between recovery and cost is a

testament to the thriving Artificial Lift Solutions market. However as each well is unique in

its recovery methodologies, end-users prefer to partner with a company that has industry

experience, implementation know-how, application expertise across the range of artificial

lift (AL) technologies, customer service capabilities, complete system and solution

offerings and the technical capability to drive customer productivity across various well

types.

Similarly, every well needs a customized artificial lift solution, “fit for purpose” hardware

configuration, and real-time surveillance for control and optimization; the challenge for

solution providers is to give end-users a flexible solution offering that can avoid frequent

failures and wasteful delays during the transitional and production phases. Furthermore,

while there are multiple approaches in the current market, end-user business imperatives

that are focused on return on assets (ROA) have resulted in a pressing need for a solution

that spans the entire lifecycle of the well.

As the world prepares for a new-normal with falling oil prices across the globe, it is critical

for solution providers to form strategic alliances and partnerships to cater to a broader

spectrum of applications. The capability to create a strong artificial lift product portfolio

with suitable well-site controls, process control equipment, and analytic tools will allow for

increased customer retention and acquisition within the oil and gas markets.

Dover Artificial Lift's Customer Impact and Business Impact

Customer Purchase Experience

The AL market has been growing in excess of 10.0% for the past 3-4 years, which is

healthy compared to industry average. The market continues to see intense competition

and consolidation. Some of the important aspects of the AL market include:

The market for AL is split by various types, which primarily includes rod lift,

progressive cavity, gas lift, hydraulic lift, electrical submersible lift.

An estimated 94.0% of the globally placed ~2.5 million oil and gas wells need

some type of artificial lift solutions. ALs is not only used for mature fields, they also

are used for fields relative to its peak production capacity and lack of natural

pressure.



While there are multiple ways to increase well yield, artificial lift is a method to

drive ultimate recovery of the well. There are many types of AL, which varies based

upon field requirements and characteristics.

At this juncture, with falling oil prices, Frost & Sullivan's research reveals that end-users

are strategically looking to minimize financial risk exposure across their portfolio of wells.

This is skewing their purchase behavior to focus more on OPEX spend in wells. However,

the industry challenge is to reduce hydrocarbon lifting costs, increase well yield while

optimizing performance across the well installed base. To attack each of these problems,

solution providers need to have a differentiated portfolio of offerings in order to exceed

customer expectations and drive a healthy aftermarket revenue mix.

The market is awash with solution providers like Halliburton, Baker-Hughes,

Schlumberger, Weatherford, GE (post acquisition of Lufkin), and others. Many of these

companies have similar product portfolio and are striving to acquire more market share in

an ultra-competitive market space. Dover Artificial Lift, a Dover Energy company, literally

built its AL business through several internal product developments and strategic

acquisitions like Harbison-Fischer, Spirit Global Energy Solutions, Accelarated Companies

Limited, etc. The newly branded Dover Artificial Lift includes the following portfolio of

companies:

Alberta Oil Tool: Manufactures sucker rods, coiled rods, butterfly valves, control

products, etc for progressive cavity pumping (PCP) and rod pumping solutions.

Norris Products: The flagship brand for rod pumping is well known for its rods

portfolio in the market. It includes sucker rods, pony rods, rod guides, polished

rods, etc. It is well known amidst its customers for its optimization capability,

quality products and unchallenged customer service.

Pro-Rod: Unique solution within coiled rod markets which is highly cost-efficient

and convenient for end-users to use.

C-Tech: This is the R&D arm of Pro-Rod which develops cutting-edge technology to

develop, sell and service coiled rod technology to the market.

Oil Lift Technology: Acquired in 2011, Oil Lift excels in the market of gear driven

drive systems for well heads. This is especially deployed in AL markets such as PCP

markets and has nearly 20 patents in developing products that excel in solving

industry’s toughest challenge. A case in point is that of the zero-spill stuffing box.

UPCO: Acquired in 2012, this is another brand focused on rod pumping focused on

making API-certified sucker rods.

Harbison-Fischer: Acquired in 2011, Harbison-Fischer is the de-facto standard for

rod pumping across oil patches. This unit alone brings in close to a billion dollar in



revenues to the Dover Energy business unit.

Theta Oilfield Services: Acquired in 2007, this became the start of the software

arm for Dover Energy. Theta delivers best-in-class rod pumping software and

applications that deliver diagnostics, design and rod pumping optimization

solutions. This company is looking to develop similar world-class solutions for other

AL types.

PCS Ferguson: Acquired in 2012, this company focuses on plunger lift, gas lift,

nitrogen generation and some aspects of well automation. The division has

developed some good remote terminal units which continue to help build Dover

Energy’s automation business portfolio.

Spirit Global Energy Solutions: A recent acquisition, in 2013, captures the intent

of Dover AL to strengthen the automation portfolio. The line of products is however

focused currently on rod pumping market.

Accelerated Companies LLC: The newest acquisition of Dover AL manufactures

electrical submersible pumping (ESP) solutions. Especially, ESP is the fastest

growing segment of the AL market and is typically used in early on in the well

intervention process.

Similar to other strategies deployed, Dover Energy has strategically consolidated all these

aforementioned brands to create the branding of Dover Artificial Lift. Frost & Sullivan finds

that this allows the company to better position itself in the AL market with its unrelenting

focus on driving customer value. This strategy is also inline with Dover’s acquisition

culture to acquire, integrate and sustain market performance.

The ability of Dover Artificial Lift to deliver an integrated solution offering (across AL

types, automation products and services) is highly differentiated in a market, where there

is low differentiation between the product offerings. Its customer-oriented approach

coupled with its diverse brands for control products, software, instrumentation, and flow

control allows for a best-in-class solution offering for a multitude of applications, which is

a key differentiator in this space. Other critical attributes such as strong expertise,

repeatability, high quality, and reliability will continue to pave the way for Dover Artificial

Lift to be a preferred vendor of choice for artificial lift solutions.

Best Practices Example: A case in point is that of a leading oil and gas E&P Company

which wanted to automate all its wells. Having an automation portfolio would potentially

help Dover AL to increase its addressable market by at least 10% in conjunction with its

hardware solution offerings.

Customer Ownership Experience

In addition to a diversified product portfolio, the conservative nature of the oil and gas



industry has resulted in end-user requirements stressing the need for a solution offering

addressing the entire lifespan of the well. Right from early intervention to a 40 year life of

well, end-users change intervention technologies as and when required. Hence, end-users

look to partner with solution providers who have a strong vertical and horizontal product

and solution offering across AL types.

Frost & Sullivan notes that Dover Artificial Lift supplies end-users with the latest

technologies to reduce lifecycle costs, maximize revenue, and improve resource

productivity throughout production. Its continuous focus on safety, from an environmental

standpoint as well as from a field operator standpoint, has allowed them to meet federal,

state, and local compliance requirements. To enforce continuous improvement onsite,

Dover Artificial Lift also provides end-users with analytical tools for daily reporting along

with strategic recommendations through modeling to optimize production. Finally, its

added ability to work with third-party devices and provide customer with state-of-the-art

materials, designs, and accessories makes the company’s solution offering difficult to

match.

The AL market is at an interesting stage, wherein end-users are looking to automate wells

and make them work in tandem with existing hardware solutions. As end-customers

grapple with the challenge of decline in skilled workforce, need to reduce well performance

variability and optimize well output, they are opening a market for automation solutions.

This is a non-traditional market for traditional AL solution providers. The requirements to

play in this market include new product sets, solution-based approaches, application

development capabilities and new human resource skill sets. Dover AL’s vision to create

an automation platform strategy is primarily aimed to drive the customer ownership

experience and thereby create an enriching experience for its customers. The acquisitions

of PCS, Spirit, Timberline and Wellmark mark the strong entry of Dover AL into the fastest

growing segment of the AL markets.

Currently, automation contributes to 10% of Dover Energy’s revenues. Frost & Sullivan

anticipates that the platform strategy adopted by Dover AL will grow in excess of 25% to

reach a revenue target of $250 mn by 2015. Beyond Dover AL, Dover Corporate also has

its Quartzdyne business which focuses on highly profitable products such as downhole

pressure transducers. These could also be integrated with Dover AL business to create

permanent downhole monitoring system (PDMS) to measure well performance in real-time

across the life of the well.

Best Practices Example: Dover AL’s sweet spot lies in rod pumping market. Nearly 70% of

its revenues comes from rod pumping market. The company is also looking to expand its

business across other AL types and geographies with its newly acquired brands. The

strong customer base it has captured in rod pumping market reflects the company’s

capability to nurture technology platforms that continues to enrich customer’s value and

experience with its solutions.



Customer Service Experience

For brownfield oil and gas projects, final purchase decisions are usually based on which

solution provider can best service the end-user from a cost, expertise, and capability

standpoint. As end-users transition from a product-based approach to a solution-based

approach, services become paramount to sustained success.

Dover Artificial Lift’s technical expertise and strong product portfolio in the artificial lift

space has allowed the company to seamlessly improve its service offering. Its wide gamut

of well service capabilities—including installation, diagnostics, change management, well

killing, well intervention, and testing—reiterates its focus on providing end users with a

holistic solution offering. Furthermore, Frost & Sullivan is certain that Dover Artificial Lift's

acquisition of C-Tech Design & Manufacturing has added a new dimension to its service

offering, allowing for innovative solutions to perform coil tubing interventions more

efficiently and economically onsite and thereby reducing the cost of downtime and

operational costs while still maintaining optimal productivity.

Best Practices Example: The success of its C-Tech Design & Manufacturing acquisition has

allowed for greater penetration of the company’s service capabilities particularly on the

U.S. West Coast and in the Middle East.

Financial Performance

The volatile oil and gas industry has affected a number of key solution providers due to

global energy prices and economic conditions. While the industry is still witnessing an

influx of greenfield projects, in order to enforce a consistent growth rate year on year,

solution providers should target brownfield requirements of enhancing recovery and

improving production rates.

Dover Artificial Lift continues to witness high adoption at a global level due to a number of

enhanced recovery requirements. The increase in demand for artificial lift products within

the United States, largely the result of an increase in natural gas liquid (NGL) wells and

the shale boom, has resulted in stable domestic growth. Additionally, the impact of

strategic acquisitions globally has allowed the company to penetrate emerging regions

outside North America and Europe, further positioning them as a key provider of artificial

lift solutions. High international sales coupled with consistent domestic adoption have

resulted in the Dover Energy segment witnessing a strong 5.7% increase in revenue

($2.17 billion to $2.29 billion) in 2013. The healthy mix of core product sales to recurring

service revenues is 55:45. Although, Dover Artificial Lift could do more from services – it

needs to build its capability to service various types of AL market requirements.

Aftermarket revenues in Artificial Lift market for Dover AL increased by 5% in 2014 over

2013. There is still room for growth for the company.

Best Practices Example: Dover Energy’s revenue mix is heavily focused on North America.

As the company expands beyond North America, it has seen some strategic wins in



Australia (in Coalbed Methane wells), Oman (in Middle East), China and such others. The

expanding product line, service capability and global solutions delivery ability has enabled

Dover AL to expand its addressable market significantly.

Growth Potential

While end-users continue to adopt artificial lift solutions to improve recovery rates and

optimize upstream activities, amalgamation with suitable well-site controls and surface

production equipment is imperative for solution providers to witness sustainable growth in

the evolving oil and gas industry.

Basing performance on an acquisition strategy, Dover Artificial Lift has proven to the

markets that it has capability to grow at ~4x times the actual rig count in North America.

The ability to surpass industry growth continues to augur well for the company’s long-term

growth vision and prospects. The strong leadership of Dover Energy has proven, beyond a

doubt, about charting the group’s vision to reach new levels of growth, efficiency and

profits. Frost & Sullivan's competitive analysis confirms that Dover Artificial Lift already

enjoys the best possible strategies, like developing a basin-by-basin strategy, to drive

sustainable performance in volatile time-periods such as this. At a juncture, wherein

competitors are selling their non-performing brands, Dover Artificial Lift continues to stand

apart using its disciplined acquisition and management strategy.

Best Practices Example: The growth outlook for the division looks strong, based on its

automation platform strategy. As the drilling and production outlook looks bleak, due to

falling oil prices, Dover AL’s strategy to capitalize on its automation platform strategy is

poised to provide the greatest returns for the company into 2016.

Conclusion

Frost & Sullivan's independent analysis of the oil and gas market clearly shows that Dover

Artificial Lift’s comprehensive product portfolio, coupled with strategic acquisitions in the

areas of artificial lifting, process control equipment, automation, and services, has enabled

the company to provide end-users with a much needed “one stop shop” for their diverse

needs. Its focus on emerging regional hotspots, adjacent upstream applications,

continuous improvement, and new technologies such as analytics will pave the way for

greater customer acquisition in the upstream oil and gas industry. With its strong overall

performance, Dover Artificial Lift has earned Frost & Sullivan’s 2015 Global Customer

Value Leadership Award.



Understanding Customer Value Leadership

Delighting customers is the cornerstone of any successful growth strategy. Ultimately,

growth in any organization depends upon customers purchasing from your company, and

then making the decision to return time and again. To achieve these dual goals (growth

and customer delight), an organization must be best-in-class in three key areas:

understanding demand, nurturing the brand, differentiating from the competition. This

three-fold approach to delivering customer value is explored further below.

Customer Value Leadership is defined and measured by two macro-level categories:

customer impact and business impact. These two sides work together to make customers

feel valued, and confident in their products’ quality and long shelf life. This dual

satisfaction translates into repeat purchases and a high lifetime customer value.

Key Benchmarking Criteria

For the Customer Value Leadership Award, Frost & Sullivan evaluated two key factors—

Customer Impact and Business Impact—according to the criteria identified below.



Customer Impact

Criterion 1: Price/Performance Value

Criterion 2: Customer Purchase Experience

Criterion 3: Customer Ownership Experience

Criterion 4: Customer Service Experience

Criterion 5: Brand Equity

Business Impact

Criterion 1: Financial Performance

Criterion 2: Customer Acquisition

Criterion 3: Operational Efficiency

Criterion 4: Growth Potential

Criterion 5: Human Capital

Best Practice Award Analysis for Dover Artificial Lift

Decision Support Scorecard

To support its evaluation of best practices across multiple business performance

categories, Frost & Sullivan employs a customized Decision Support Scorecard. This tool

allows our research and consulting teams to objectively analyze performance, according to

the key benchmarking criteria listed in the previous section, and to assign ratings on that

basis. The tool follows a 10-point scale that allows for nuances in performance evaluation;

ratings guidelines are illustrated below.

RATINGS GUIDELINES

The Decision Support Scorecard is organized by Customer Impact and Business Impact

(i.e., the overarching categories for all 10 benchmarking criteria; the definitions for each

criteria are provided beneath the scorecard). The research team confirms the veracity of

this weighted scorecard through sensitivity analysis, which confirms that small changes to

the ratings for a specific criterion do not lead to a significant change in the overall relative

rankings of the companies.

The results of this analysis are shown below. To remain unbiased and to protect the

interests of all organizations reviewed, Frost & Sullivan chose to refer to the other key

players in as Competitor 2 and Competitor 3.



DECISION SUPPORT SCORECARD: CUSTOMER VALUE LEADERSHIP AWARD

Measurement of 1–10 (1 = poor; 10 = excellent)

Customer Value Leadership

Customer

Impact

Business

Impact Average Rating

Dover Artificial Lift 9 9.5 9.25

Competitor 2 9 8 8.5

Competitor 3 8 8 8

Customer Impact

Criterion 1: Price/Performance Value

Requirement: Products or services offer the best value for the price, compared to similar

offerings in the market

Criterion 2: Customer Purchase Experience

Requirement: Customers feel like they are buying the most optimal solution that addresses

both their unique needs and their unique constraints

Criterion 3: Customer Ownership Experience

Requirement: Customers are proud to own the company’s product or service, and have a

positive experience throughout the life of the product or service

Criterion 4: Customer Service Experience

Requirement: Customer service is accessible, fast, stress-free, and of high quality

Criterion 5: Brand Equity

Requirement: Customers have a positive view of the brand and exhibit high brand loyalty

Business Impact

Criterion 1: Financial Performance

Requirement: Strong overall financial performance in terms of revenues, revenue growth,

operating margin and other key financial metrics

Criterion 2: Customer Acquisition

Requirement: Customer facing processes support the efficient and consistent acquisition of

new customers, even as it enhances retention of current customers

Criterion 3: Operational Efficiency

Requirement: Staff is able to perform assigned tasks productively, quickly, and to a high

quality standard

Criterion 4: Growth Potential

Requirements: Customer focus strengthens brand, reinforces customer loyalty and enhances

growth potential

Criterion 5: Human Capital

Requirement: Company culture is characterized by a strong commitment to quality and

customers, which in turn enhances employee morale and retention



Decision Support Matrix

Once all companies have been evaluated according to the Decision Support Scorecard,

analysts can then position the candidates on the matrix shown below, enabling them to

visualize which companies are truly breakthrough and which ones are not yet operating at

best-in-class levels.

DECISION SUPPORT MATRIX: CUSTOMER VALUE LEADERSHIP AWARD

High

Low

Low High

Bu

sin

ess I

mp

act

Customer Impact

Dover Artificial

Lift

Competitor 2 Competitor 3



The Intersection between 360-Degree Research and Best

Practices Awards

Research Methodology

Frost & Sullivan’s 360-degree research

methodology represents the analytical

rigor of our research process. It offers a

360-degree-view of industry challenges,

trends, and issues by integrating all 7 of

Frost & Sullivan's research methodologies.

Too often, companies make important

growth decisions based on a narrow

understanding of their environment,

leading to errors of both omission and

commission. Successful growth strategies

are founded on a thorough understanding

of market, technical, economic, financial,

customer, best practices, and demographic

analyses. The integration of these research

disciplines into the 360-degree research

methodology provides an evaluation

platform for benchmarking industry players and for identifying those performing at best-

in-class levels.

About Frost & Sullivan

Frost & Sullivan, the Growth Partnership Company, enables clients to accelerate growth

and achieve best in class positions in growth, innovation and leadership. The company's

Growth Partnership Service provides the CEO and the CEO's Growth Team with disciplined

research and best practice models to drive the generation, evaluation and implementation

of powerful growth strategies. Frost & Sullivan leverages more than 50 years of

experience in partnering with Global 1000 companies, emerging businesses and the

investment community from 40 offices on six continents. To join our Growth Partnership,

please visit http://www.frost.com.

360-DEGREE RESEARCH: SEEING ORDER IN

THE CHAOS

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BEST PRACTICES RESEARCH - Frost & Sullivan · Dover Artificial Lift's Customer Impact and Business Impact ... Based on the findings of this Best Practices research, ... this company

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