Introduction
Superior Energy Services may increase its productivity through a higher employee retention rate and increased automation in monitoring and control. The firm provides services to firms in the oil and gas industry, which engage in the production of oil and gas. Some of its services include drilling pipes and tubular services (Superior Energy Services, 2014a).
It may also provide monitoring and maintenance services for other firms’ plant and equipment. Superior Energy Services relies on its superior services to exceed the efficiency of its clients, who may have internalized similar services. Labor is one of the drivers of a high cost of service. The firm recognizes that a high employee retention rate is essential to its competitiveness (Superior Energy Services, 2014a).
Efficiency and productivity
The firm has automated control and monitoring systems in many areas of its facilities and service delivery. In the Subsea and Technical Solutions segment, it has a competitive advantage, based on the level of integrated technology (Superior Energy Services, 2014). The advantage in the Subsea and Technical Solutions segment has resulted in a reduction of the cost of service in 2012 (Superior Energy Services, 2014a).
The advantage has enabled it to operate in almost every oil and gas rig that is situated in the Gulf of Mexico. Its productivity can be assessed through its cost of service, as a percentage of revenue, and return on assets (ROA). Both indicators can be derived from the firm’s annual report.
Cost of service, as a percentage of revenue, increased in 3 out of 4 segments. The cost of service excluded depreciation allowance. The Onshore Completion and Workover Services segment’s cost increased from 65% to 68% of revenue generated from the segment. The Production Services segment’s cost increased from 62% to 70%.
The Subsea and Technical Solutions segment’s cost of services increased from 67% to 73%, as a percentage of revenue generated from the segment (Superior Energy Services, 2014a). The Drilling Products and Services segment’s cost of service remained constant at 33% in 2012 and 2013.
Between 2012 and 2011, the Drilling Products and Services and the Subsea and Technical Solutions were the only segments that reported a reduction in cost of service, as a percentage of revenue generated by the segments. The Drilling Products and Services segment’s cost of service reduced from 36% to 33% and the Subsea and Technical Solutions declined from 68% to 67% (Superior Energy Services, 2014).
These two segments indicated a higher rate of growth in revenues in 2013 compared with 2012. The other two segments’ cost of service increased (Superior Energy Services, 2014a). A lower return on assets (ROA) indicates that the firm is utilizing assets less efficiently.ROA is obtained when the net income is divided by the total assets.
The firm had a ROA of -1.5% in 2013 and 4.69% in 2012, as derived from the annual report (Superior Energy Services, 2014a). The total assets declined from $7.8 billion in 2012 to $7.4 billion in 2013. Productivity is enhanced when the firm utilizes fewer assets to generate more income. In the case of Superior Energy, there is reduced productivity.
According to the annual report, the firm had excess capacity in 2013 (Superior Energy Services, 2014a). At the beginning of 2014, some of the facilities had been contracted to an almost full capacity, which includes the firm’s hydraulic fracturing fleet. Excess capacity means that capital employed is inefficiently utilized.
In 2013, the firm released capital tied up in a few assets, such as barge and lifting boats. The tied up capital released resulted in lower values than their book value (Superior Energy Services, 2014a). It shows that releasing older assets to acquire new ones is not an opportunity that the firm can use to drive positive income. However, being a service provider, it has to use the latest technology to gain a competitive advantage.
As a service provider, the assets are used across several firms, generating enough income to cover depreciation allowances and amortization. It is more efficient to acquire equipment for hire than when the fixed asset is acquired by a single firm, which uses it internally.
The firm’s Training Center focuses on leadership skills and reduction of work hazards, such as personal injury, and environmental pollution (Superior Energy Services, 2014b). Legal battles that result in compensation may be very costly, reducing gains in efficiency. The firm seeks to reduce such costs through its Superior Core Training, which is aimed at reducing accidents in the workplace (Superior Energy Services, 2014b).
In another training program, the firm seeks to enhance the skills that already exist. However, it does not offer highly technical courses. It can be seen through its Iberia program (Career Training Center, 2015a). It is also visible in the Harvey program (Career Training Center, 2015b). It offers training to its new employees to understand the actual work conditions.
Conclusion
Cost of service, as a percentage of revenue generated by segments, is a good measure of efficiency and productivity. It incorporates the cost of labor and maintenance of fixed assets. The firm can have more workers, who individually earn lower salaries. It can also hire fewer workers, who earn higher salaries. As a result, the cost of labor appears more effective in analyzing productivity than the number of employees.
Relying on the cost of service, as a percentage of revenue, it is clear that efficiency has declined in three segments. In the Drilling Products and Services segment, increased efficiency indicates increased productivity. The firm needs to operate at full capacity to prevent underemployment and lower productivity.
Recommendations
- The firm should try to achieve standards set by the SEP (Superior Energy Performance) Program and ISO 50001 Energy Management Systems. The SEP Program requires firms to improve their cost and energy consumption by at least 5% in 3 years to obtain the bronze standard.
Higher percentages of cost reduction are awarded higher standards. According to the ISO 50001, firms’ energy management systems should incorporate continuous improvement into their operations (Therkelsen et al., 2013). Continuous improvement remains the major alternative when the firm has adopted the latest technology. - A higher employee retention rate is important when reducing work hazards and increasing rate of innovation. Higher employee retention rate and increased automation may result in higher productivity. As more knowledge is accumulated, fewer employees can take care of a facility and its automated system.
- More automation in monitoring and maintenance may reduce maintenance costs and prevent work hazards. If more components of facilities are monitored through an automated system, there will be increased productivity because fewer engineers will be needed to carry out a manual search of variations.
Variations can also be detected earlier, preventing hazards from occurring. The firm can increase investment on innovation. It can modify monitoring and control technologies from the manufacturing industries. The firm has adequate facilities to train employees on emerging technologies.
References
Career Training Center. (2015a). 2015 New Iberia. Web.
Career Training Center. (2015b). 2015 Harvey. Web.
Superior Energy Services. (2014a). 2013 Annual Report. Web.
Superior Energy Services. (2014b). Training. Web.
Therkelsen, P., Sabouni, R., McKane, A., & Scheihing, P. (2013). Assessing the costs and benefits of the Superior Energy Performance Program. Web.