Introduction

Oil & gas companies represent a significant portion of the global economy today given their very large scale of global operations. According to the 2009 Fortune Global rankings, oil & gas companies occupy seven out of the top 10 positions, and account for over 70% of the total revenues in the top-10 list. However, despite their larger scale and broader global reach, oil & gas companies have lagged other verticals such as financial services and telecommunications in their outsourcing and offshoring initiatives.

Although the oil & gas vertical witnessed some strategic, mega outsourcing transactions such as BP’s US$1.1 billion deal with IBM for business process outsourcing (BPO) services in finance & accounting or Shell’s US$1 billion IT infrastructure services deal with EDS, the majority of the activity in the vertical has been limited to smaller, opportunistic engagements with local and regional suppliers.

An analysis of outsourcing transactions announced by oil & gas companies since the beginning of 2005 confirms high year-on-year growth of deals. Further, the oil & gas vertical is one of the very few verticals that has demonstrated consistent year-on-year growth since 2005, and has demonstrated an evolving deal signing behavior. 

In the backdrop of this growth, an understanding of key outsourcing trends in the oil & gas vertical is critical for buyers and suppliers alike. This market update analyzes key trends in the outsourcing and offshoring activity of the oil & gas vertical and examines sourcing preferences across leading oil & gas majors.

Scope

The analysis is focused on:

• Transaction announcement activity
• BPO activity
• IT sourcing profiles

Contents

This research report examines outsourcing & offshoring activity in the oil & gas vertical. It identifies key trends across leading buyers and suppliers and provides an assessment of major transactions activity, BPO activity and as well as key IT sourcing profiles for six buyer firms. This study will assist both buyers and suppliers operating in the oil & gas vertical assess the current landscape and the potential for outsourcing both ITO and BPO services.

Key findings from this report are:
Transactions activity:

• The oil & gas vertical has consistently grown since 2005 with the increasing size and complexity of buyers creating the need for standardization of technologies and processes
• Buyers are working with a mix of large global and smaller tier-2 suppliers for their sourcing requirements

BPO activity:

• The BPO segment is mature with the earliest activity seen for FAO, followed by HRO and more recently by PO
• Compared to other verticals, deals in oil & gas tend to be larger and more complex with a multi-process scope
• Global majors dominate the supplier landscape within BPO

IT sourcing profiles:

• Oil & gas companies typically adopt a hybrid sourcing model comprising captives and third-party suppliers. The level of centralization of sourcing decisions however, varies across the group
• Buyers extensively use both a captives network spread across the world, and third-party suppliers and prefer to enter into smaller project-based work with multiple suppliers