Volume 63, Number 4

PESANews October-November 2009 www.pesa.org

IN THE NEWS
Volunteers Needed
Twenty volunteers are needed
to teach effective leadership
Explorers Award
skills or business ethics at any of Petrobras
the three Houston Petroleum
Academies—the academies are America
an ongoing partnership between
PESA, IPAA, HISD and other receives PESA’s
industry members.
The teaching opportunity highest honor
represents a one time per week,
seven-week commitment. Each
class lasts about 90 minutes.
They were the first to explore
Each volunteer will co-facilitate
the Gulf of Mexico’s lower
with another volunteer, and may
tertiary. They will be the first to
teach all seven courses together
produce it. They will be the first
or alternate teaching dates.
to bring an FPSO into the Gulf
Each volunteer must complete
in a few months.

a Junior Achievement Training

And now, they’re the first
National Oil Company to receive
class, which are scheduled for PESA’s Explorers Award. With
either Dec. 9 or 14—the seven of his senior executive
training class is two hours. A staff attending, Petrobras
curriculum will be provided. America President Jose Orlando
Volunteers may choose to Melo De Azevedo accepted the
Petrobras America President Jose Orlando Melo De Azevedo accepted the
teach either leadership skills or explorers award on behalf of his executive team Nov. 10.
award at a ceremony in Houston
business ethics, and also may
on Nov. 10.
choose at which school they will
The award is given annually Explorers of Houston Committee equipment for the very deep
teach—Milby High School,
to the E&P company that has and Forum Oilfield Technologies water—about 1,000 feet.
Lamar High School, or Westside
demonstrated excellence in President and CEO. “We thought we were hot
High School.
technological innovation and Jones says that the first time stuff working at that depth, and

For specific class times and

leadership in the industry. he heard of Petrobras was 20 then some drawings came across
years ago as a young subsea my desk that were bid requests
dates, or to sign up, call Sarah
Petrobras exemplifies that edict
in the finest way, says Charlie engineer working for Cameron. from Petrobras,” says Jones. “It
Hewitt at (713) 737-5856 or Jones, Chairman of the PESA At the time, he was designing  See Explorers, Page 8
email [email protected].

EVENT CALENDAR Coates: Industry on the brink of an upcycle

Gulf Coast-LA
District Meeting
Bill Coates is as an optimist the downturn, how
for 2010. Schlumberger models supply
Jan. 28, 2010 While Coates, the President of and demand for U.S. gas, and
5:30 p.m. to 7:30 p.m. Schlumberger Oilfield Services, how that translates into rig
Petroleum Club, Lafayette, LA North America, says the activity for 2010 and 2011.

The Human Impact

FYI: Speaker is Doug Suttles, industry is on the brink of a
COO of BP E&P strong multi-year upcycle, 2010
Gulf Coast-Texas
will lay the foundation.

District Meeting
“There are two poles of Service companies with a
thought for next year, one is North American focus had a
Feb. 23, 2010 very bullish and one is miserable year. In the recent
5:30 p.m. to 7:30 p.m. negative—mine is probably third-quarter earning reports, the
Intercontinental Hotel, Houston down the middle,” says Coates. major service companies were
FYI: Speaker is Chuck “Compared to where we are down 40 to 50 percent on a year-
Davidson, CEO of Noble Energy now, I think it’s a positive story.” over-year basis.
His presentation, “A Slightly “That has a real human
For more information on any Optimistic View of 2010,” impact,” says Coates. “If you’re
PESA event, call (713) 932-0168.
 See Coates, Page 5
delves into the human impact of
2 PESA News EDITORIAL

Industry headed for recovery in 2010

If it is possible to feel somewhat optimistic
while you are still in a downturn, I am there.
Of course I would be happier if more
projects were moving forward, fewer rigs
were laid down, oil prices were a little higher
and natural gas prices were a lot higher. But I
think now, more than a year into our current
oil and gas malaise, we are starting to see an
indication that the light at the end of the
tunnel may soon come into view.
Over the past year, it has been a rough ride
for everyone in our industry. We have
experienced swings of more than $100 per
barrel of oil and $9 per mcf of gas and have
all been forced into bunker mode to trim
inefficiencies and costs. It wasn’t fun, but we
did it … and this time we did it right.
As a whole, our industry has proven that
history is an excellent teacher. Rather than
slashing spending and personnel to the bone
as was done in several prior downturns, each
PESA Chairman Robert Workman (National Oilwell Varco) speaks at the 2009 CID Annual Meeting.
company’s leadership team took on the part
of a surgeon with a scalpel, trimming just
enough to keep the business strong, intact, And now, as a new offshore power rises That may be changing.
and poised to succeed after the downturn. from the pre-salt fields of Brazil, we again With the advent of shale plays, peak oil
And that is where we are today—poised to see a huge change in the way we do business concerns, environmental pressure and
succeed in an improving market. With on the horizon. The Brazilian government’s technological advances that allow for gas to
judicious cost cutting and the industry focus is beyond ensuring a ready supply of be an exportable product, we now live in a
working together to solve our collective products and services for oil and gas world where gas is rapidly becoming a
problems in the downturn, I think that while exploration - they are aiming for economic primary energy resource. Much like oil, gas
2010 will start slow, we’re heading for recovery. growth, jobs, and domestic industry has become fungible—LNG can arrive
Adapt. Evolve. Revolutionize.
development. The government is including virtually anywhere in the world to obtain the
significant local content requirements in their best price. As electricity demand continues to
contracts, some as high as 50 percent. grow, new electric generation plants are
Less than a decade ago, NOCs started I think this is the beginning of a revolution being built all over the world, and many of
making their presence known throughout the in the way the service and supply sector these plants are gas-fired.
globe. Many in the industry saw them as an operates. For one, it is a safe bet that other Shale plays are unquestionably reshaping
emerging customer base, and conventional countries that are able to set similar terms our industry. North America has vast gas re-
thinking was that they’d simply be another will do so. What this means is sweeping serves in shale, and we are now proficient at
customer and we would help them adapt to changes for service and supply companies in getting it to the surface. The shale play wells
our way of doing business. everything from our global supply chains to are prolific, with some wells in the
Then we came to the realization that talent management programs. To remain Haynesville producing 16 to 18 mcf per day.
NOCs control the vast majority of the competitive, companies will need to This has two effects. The first is that I
world’s reserves and they were quickly accelerate development of their in-country doubt we will see $13 gas again anytime
coming up to speed in terms of knowledge, manufacturing bases, create relationships soon—but, the good news is that many of the
well expertise, and technology application. with new partners and begin developing local shale plays are profitable at prices as low as
NOCs were clearly not just another customer populations into trained workers. $3. The second is that the U.S. is going to use

The Gas & Oil Industry

and certainly were different than our a lot more gas. Permitting a coal-fired
traditional customers, IOCs. We needed to do electric plant is more difficult these days, and
more than adapt, so the keyword became the price differential between coal and gas is
evolve. Service and supply companies When speaking of our industry, we nearing parity. Natural gas may indeed be the
became more intimately involved with their invariably say oil and gas. Oil always comes fuel of the near future.
NOC customers, with a few companies first because, until recently, money and
beginning joint venture research institutes. growth were to be found primarily in oil.  See Chairman, Page 3

PESA News is published by: PESA Chairman PESA President

Petroleum Equipment Suppliers Robert Workman, Sherry A. Stephens
Association National Oilwell Varco
9225 Katy Freeway, Suite 310 PESA Vice President
PESA Vice Chairman
Houston, Texas 77024 Michael Perini
Bill Coates, Schlumberger
PESA, Petroleum Equipment Suppliers Phone: (713) 932-0168
Association, and the PESA logo are all
Fax: (713) 932-0497 PESA 1st Vice President PESA Director of Communications
registered marks of the Petroleum
Equipment Suppliers Association. © 2009, PESA John Gremp, FMC Technologies, Inc. Chris Evans
 EDITORIAL PESA News 3
Predicted M&A boom of ‘09 never materialized. What happened?
When the global task. Conversations can sometimes go on for International Exposure—Most of the larger
economy collapsed years before value gaps converge, share oilfield service companies have learned from
and commodity prices prices align, and a deal can be struck that is the past, and have positioned themselves to
plummeted, everyone equitable for both parties. survive a sustained downturn in the market.
in the industry was Uncertainty—While the Dow is up 57 They have built cash reserves to sustain
searching for anything percent from its low point in March and oil is themselves through more difficult times; they
that could be consid- trading over $75, many question whether the have diversified their respective product and
ered a silver lining. rally is warranted and sustainable. Is the service offerings so that they can participate
For many industry growth in the Dow driven by improving in all stages of the cycle; and they have
analysts and experts, fundamentals and the genuine belief that the aggressively expanded operations
the prospect of economy is recovering? Or is the Dow internationally where projects are typically
increased mergers and growth merely attributable to the U.S. contractual and funded or sponsored by
Jeremy Thigpen
acquisitions—espe- government’s stimulus programs and the government entities, making them far less
cially amongst some Federal Reserve’s decision to maintain susceptible to temporary changes in
of the larger oilfield service and historically low interest rates? And is the commodity prices. As a result, these
manufacturing companies—was one of the increase in oil prices based on the belief that companies now have the freedom and
few potential bright spots in an otherwise demand will increase, or is it simply a hedge flexibility to “wait and see” how the market
depressing marketplace. Those mergers, against a declining U.S. dollar? Since plays out.
outside of a few cases, haven’t materialized. acquisition valuations are based on a As we’ve seen with the announcements of
So, why haven’t we seen more consolidation projection of future cash flows, these the Baker Hughes and BJ Services merger, as
in the industry this year? uncertainties present a significant challenge well as the Cameron and NATCO
Complexity—Even in the best market to potential buyers and sellers. combination, it’s not impossible to close a
conditions, executing a public transaction is Timing and Expectations—It was not big public-to-public deal in this environment.
tough. There is a general market perception that long ago (July ’09) when most of the However, given the previously mentioned
that deals should be accretive to earnings, publicly traded oilfield service companies challenges, I believe that the vast majority of
and a simple common sense idea that deals were enjoying record stock prices, margins the deal activity that we will see in the
should be accretive to cash flow. Given this, and backlogs. Since most of those companies near-term will consist of larger oilfield
and given the inclusion of stock in most large can still clearly see those higher prices in service and manufacturing companies
public acquisitions, it can be difficult for the their rearview mirrors, some still believe that acquiring for strategic fit—either a natural
stars to align on a public-to-public deal. they deserve valuations commensurate with extension of, or complement to, an existing
Share prices need to be aligned so that both those record prices. As time passes, and product line, or an expansion of
parties’ shareholders benefit from the transac- companies gain additional clarity around the infrastructure and relationships in a target
tion. Given the volatility of the public equity direction of the global economy, those geographic market.
markets, particularly over the last few years, expectations may change. Jeremy Thigpen
this has proven to be an incredibly difficult Strong Balance Sheets/Diversification/ PESA Service Committee Chairman

CHAIRMAN
to have another very cold winter this year. service, be they IOCs, NOCs or anyone else
Continued from Page 2
For oil, improvement lies in the world’s requiring our products and services.
economies. Other than the U.S., most of the Customers have been and always will be a

The 2010 Forecast

global economy is in recovery from primary focus as the service and supply
recession. This bodes well for worldwide sector strives for greater value propositions.
demand, creating a slight increase or in a Companies achieve this by first engaging
It appears the worst of the downturn is worst case scenario, no growth. Demand their customer to better understand their
behind us, and recovery is on the horizon. destruction appears to be over. A microcosm particular business challenges. Much as no
On the gas front, weather will, of course, of the improvement can be seen in India with two oil fields are alike, no two customers are
play a significant role. But, the number of the Tata Nano, a $2,500 car for the country’s alike. Therefore, we must continually
rigs the industry has laid down in the past emerging middle class - the car has a 200,000 innovate in not only our products and
year will also have a profound impact on the person waiting list. services, but the way in which we provide
recovery. Long-term weather forecasts Closer to home, the Federal Reserve says those solutions to our customers. In the end, a
predict a colder than average winter for the that the worst is over and we should see successful company will leverage their
Midwest and South. And, the Northeast’s some improvement in our economy by 3Q technological achievements with trained,
weather patterns are too unpredictable to be 2010. Anecdotally, U.S. oil demand professional and customer focused personnel.
more than a guess. On average, we expect a destruction may not be permanent. A recent Finally, we as an industry must remember
fairly cold winter, which means we could study of those who downsized or purchased that we’re solving the world’s energy needs
easily make a big dent in gas storage. small cars and subcompacts last year for fear as a team. It’s essential that vendors and
We have too many rigs laid down to of permanently high fuel prices found that customers jointly determine goals, implement
sustain the supply and refill storage at current many regret the decision and would upgrade performance metrics, and follow a continuous
to a larger car if given the chance. improvement process to be measured by all

The More Things Change …

prices, particularly assuming that industrial
demand is expected to creep up in 2010 as stakeholders to ensure the highest levels of
the U.S. economy improves. For the industry, safety, efficiency and effectiveness.
it could likely mean more drilling and a few With that, we’ll be poised to perform even
more rigs by fall 2010 and an overall Of all the upheaval that our industry has better in the coming upturn than we did in the
improved gas price from current levels. faced in the recent past, one key principal last.
LNG shouldn’t play much of a role in the will remain as it has for the past 100 years— —Robert Workman
North American market as Europe is expected providing our customers with world-class PESA Chairman
4 PESA News EDITORIAL

Derricks & Diamonds Tournament

Oil and gas industry unites
to battle pediatric cancer
Giving back to the Texas Children’s Hospital.
community and helping those “The growing success of
in need has never been easier Derricks & Diamonds is a
or more fun. testament to the integrity of
The Sixth Annual Derricks our industry to reinvest in the
& Diamonds Charity Softball communities in which we do
Tournament will be held May business,” says Pete Miller,
1 and 2 at Big League Dreams CEO of National Oilwell
Sports Complex in League Varco. “It offers the unique
City. opportunity to witness what is
Derricks & Diamonds is a possible when we unite to
one-of-a-kind event benefiting serve a greater cause.”
Texas Children’s Hospital Texas Children’s Hospital,
(TCH) Charity Care Center the tournament’s primary
and Hematology & Oncology beneficiary, is one of the
Department. The tournament’s largest freestanding pediatric
history lies in a unique hospitals in the United States
partnership between two of our and consistently ranks among
industry’s leading companies, the nation’s top 5 pediatric
National Oilwell Varco and cancer institutions, according
Schlumberger. The goal is to the U.S. News and World
simple: unite the industry Report. Derricks & Diamonds
around an event focused on is committed to assisting TCH
fighting pediatric cancer and in their efforts to provide every
giving back to the Houston child treatment, regardless of
community. their ability to pay.
Since its inception in 2005, The tournament goes beyond
Derricks & Diamonds has an ordinary softball event and
raised over $500,000 for Texas provides a unique atmosphere.
Children’s Hospital and its The tournament exudes a spirit
secondary beneficiaries of inspiration which is
Snowdrop and Plex embodied by each team’s bat
Foundations. In just five years, boy or girl. As former and
the tournament has grown current patients of TCH, they
The tournament exudes a spirit of inspiration which is embodied by each
team’s bat boy or girl. As former and current patients of TCH, they
exponentially and become one represent the fundamental
represent the fundamental purpose behind the tournament.
of the highest ranked purpose behind the
community events benefiting tournament. The format is a
co-ed round robin slow-pitch “Our employees have a firm
softball tournament where each commitment to the communities
team consists of employees where they live and work and
from donating companies. we have been pleased with the
The goal of Derricks & success of Derricks and
Diamonds is to unite the oil Diamonds,” says Andrew
and gas industry around an Gould, CEO of Schlumberger.
event that all levels of employ- “With more of the service
ees and their families can industry involved and working
participate in and be proud of. together, we can make it an
We invite you to join this even greater success in the
encouraging journey by future.”
assisting us in our efforts of To donate or find out how
fighting pediatric cancer and you can get involved with
participating in the 2010 Derricks & Diamonds, visit us at
Derricks & Diamonds Charity www.DerricksandDiamonds.org
Softball Tournament. or contact us at
Participation from your [email protected].
company is a crucial ingredient Michael Noviello
The tournament complex has six fields designed to replicate Yankee
in our continued efforts and National Oilwell Varco
Stadium, Wrigley Field, Fenway Park, Ebbets Field, Crosley Field, and,
increasing support of TCH and Derricks & Diamonds
shown above, Sportsman’s Park. its patients. Marketing Committee Head
 NEWS PESA News 5
indication on supply and demand saying that
we were approaching an untenable situation.
In the last two months, the consumption-
production ratio looks like it has bottomed
and it has been a reliable indicator of
changes in the market.”
Another mode is a line in the rig index,
specifically small private companies because
they tend to have contrarian behavior at
turning points of the market—when costs
are high they do less, and when costs are low
they jump back in.
“The small privates underworked versus
the average in late 2006, because fourth
quarter 2006 was the pricing peak for the
service side,” he says. “The index to small
privates shows increasing activity, which
indicates to me that something is changing in
a positive way.”
One predictor that could go either way is
the gas profitability index. The company
takes the price of gas, subtracted by the cost
of doing business as an operator.
“Profitability has not yet returned, so that
tells me we might have a little ways to go,”

COATES
“We’re going to be in one of those funny he says. “Based on operator profitability it
looks like $5.80 is a tipping point where the
Continued from Page 1
situations where we just got through this
terrible downturn and morale is spotty, but economics of a 10 percent rate of return
we need to hire right this year,” he says. “I become reasonable and you expect rig count
really think we’re at the beginning of the to grow. So you can take your gas price
a service company in North America, you’re forecast and tell if that’s bullish or cautious.”
spending between 20 and 40 percent of your next 3-to-4-year upcycle and if we under-
invest in 2010, we’re going to get trapped in Coates says the company drives a lot of its
total revenue on compensation. So when assumptions based on how they think supply
your business declines, it has an immediate a cycle of rushing and doing poor hiring,
which increases costs for everyone.” is going to evolve. When Schlumberger

Good Stories
impact on the size of your workforce.” looks at future supply, the primary mindset is
The U.S. land force has been reduced by that the U.S.onshore gas market is the most
30 to 50 percent since last year. Hardest hit efficient in the world. Therefore, outside
by the reduction are the younger, front-line influences like LNG do not set the price,
managers who were hired earlier in the The North American service and supply
sector lives and dies by the U.S. rig count. rather the U.S. onshore gas will contract or
decade, says Coates. expand quickly and predictably to balance
“It’s been a 1986-type of event for the From 1999 to 2001, a short upturn added
about 6.6 rigs a week. Then, in the long supply and demand.
onshore business this year,” he says. “For “Our model for supply, which also
Schlumberger, the average seniority of the upturn that lasted from 2002 to 2008, the
industry added rigs at a rate of 3.6 per week. includes demand, is that demand will equal
workforce declined significantly from 2002 70 Bcf by 2012,” he says. “There’s a lot of
to 2008 as we engaged in new hiring—the Within the past three to four months, the
rig count has started to rise again. discussion around LNG, but it’s a small
average was 2.5 years for 2006-2007.” piece of the puzzle—our current models
Those workers, who knew nothing but “We’re adding rigs at a point of 9.3 per
week, or if you look at the macro rig count have about 3 Bcf/day coming in next year
getting more and more business, are sud- and I think that might be a little high.
denly faced with the worst decline that the we’re up about 30 percent from the bottom
in May,” says Coates. “I would caution that Canada and the Gulf will continue to
industry has had in decades. decline, and we expect the U.S. land to do
“At least with our own management if you look at every post-decline build, you
get a little phase where there’s aggressive rig what it needs to do to meet demand.”
population, trying to keep the morale and the Another predictor is rig efficiency, which
focus of the young managers has been a building, then it flattens out a little, and then
we’re on the march.” is the average production per well versus
major issue for us the past six months,” says average decline. Currently, Coates says that
Coates. “As an industry, if we don’t make When it comes to forecasting rig count,
Schlumberger uses a number of indices and the average decline does not quite match
them feel better about themselves and our production. This will not create a decline in
industry, it’s going to be bad for us.” proprietary modeling programs—many
show a positive outlook for 2010. rig count but does put a damper on the
Coates recommends that senior managers significant increase that might be expected.
communicate with young managers to assure The first predictive indicator is compiled
from data from the Energy Information In the end, Schlumberger is expecting a
them that 2010 will not be 2009 revisited. positive year in terms of rig count.
“Communicating with your young line Administration to create a consumption to
production ratio. Going back to March 2008, “Our view this year is based on average
managers is the single-most important task weather, an economic assumption slightly
we have over the next few months,” he says. rig count was still going up but the supply
versus demand indicator was going in the under consensus at 1.8 percent GDP growth,
“If they’re not ready, it’s going to be difficult and 3 Bcf per day of LNG,” he says. Add all
to become as efficient and safe as we can be wrong direction.
“Did we believe it at the time and did we that up with our assumptions, and we have a
as we start to grow with the coming upcycle.” 1,053 rig count for U.S. onshore gas, which
He says that the hiring cycle for 2010 is make our plans knowing this? Not really,
everybody was busy and things seemed to be is a 25 percent increase above our 800 this
going to be the most important hiring year of year. I think that’s a positive story to tell.”
the next upcycle. going well,” says Coates. “There was an
6 PESA News NEWS

Supply Chain Seminar ‘09

Shell: Cost an issue
now, but oil and gas
has a sound future
Count Shell among the optimists in oil and
gas … at least for the next 40 to 50 years.
Delivering a forecast that ranged from the
near term to extreme long term, Dean
Malouta, Shell E&P America’s Technology
Manager, says he sees the world needing a
consistent and extensive supply of oil and
gas well through the middle of the century.
Taking into account that long view, he
says that though the industry is clearly in the
midst of a downturn, Shell’s outlook for their
business has not changed materially.
“Our overall strategy is more upstream
and a profitable downstream—the
commodity part of our business is always
Presenters for the 2009 Supply Chain Seminar were from left to right: Paul Lord (AMR Research); Richard
tight,” he says. “The growth is in upstream.”
Re-prioritizing Upstream
Stoneburner (Petrohawk Energy Corporation); Dean Malouta (Shell); Supply Chain Committee Chairman
Burk Ellison (National Oilwell Varco); and Michael Hoover (Columbia Energy and Natural Resources Fund.)

Upstream is a business that needs constant

reinvention. Malouta illustrated the need for
exploration with Shell’s portfolio.
$100 oil will make a comeback
“As you look from 2000 to 2008, our 2000 As oil crashed to $32 in December 2008 many are left wondering about the price of
portfolio was coming in at 3.8 million barrels on the heels of record highs, many wondered oil on a normalized basis. For Hoover, it’s a
a day and that portion steadily declined to if $100-plus oil was ever to be repeated. matter of balance.
about 2.2 million barrels by 2008,” he says. Not so, says Michael Hoover, Senior “A mid-cycle price should be $70 to $75,”
“We’ve had to replace those with assets from Equity Analyst for Columbia Energy and he says. “It works for OPEC to meet their
Nigeria, other growth, and acquisitions.” Natural Resources Fund. In fact, he says obligations to their populace and translates to
Malouta says that Shell has six upstream revisiting $100 oil is virtually guaranteed. $2.65 a gallon for us.”
priorities—safety overarches all of them— To build his case for $100 oil, Hoover says As for oil broaching the $100 point again,
that changed in order of priority depending
one must look at the root cause for a peak of Hoover maintains it’s a matter of spare
on the times. $145 followed by a crash to $32. capacity and possible inflation.
“I can tell you that cost structure has “In 2005, worldwide demand caught up “Spare capacity got down to about
moved steadily up the list as costs continue with supply at 84 million barrels per day, and 1 million barrels per day and now is about
to rise—it’s no third,” he explains. “We have we had 1 million barrels of spare capacity, all 7.2 million barrels,” he explains. “Oil has
a new CEO who used to be our CFO, so while oil installations became terrorist tar- become an asset class for investors as a
everyone will be looking at cost.” gets,” he says. “So oil prices moved up be- hedge against the dollar and inflation—there
He presented a chart that showed the rising cause demand moved up, particularly in is a fear that the government’s stimulus is
costs in the oilfield versus Brent Crude— India and China—China surpassed Japan as going to come back to haunt us in the form
essentially overall industry costs have risen the world’s second largest consumer of oil.” of inflation. We think that around 2012, spare
by 250 percent from 2003 to 2008 and cost Meanwhile, Goldman Sachs forecasted capacity will get back to 2 million barrels a
actually overtook Brent in mid 2006. that oil would go as high as $200, based on day and we’ll get back to $100 oil prices.”
“It’s starting to come down, but there’s a America’s appetite for oil, thinking $6 to $7 While spare capacity will shrink, Hoover
steeper decline curve on price versus cost,” gas would be the demand destruction point. doesn’t believe that the world has reached
he says. “In the mid 2000s we had offshore “Goldman didn’t realize that at $4 gas, peak oil—but it is getting tighter.
rigs in the $200,000 to $300,000 per day you start to get into recession, and combined “Eighty percent of the conventional oil is
range, and it went up to $657,000 per day. with the credit mess, led to the worst reces- controlled by NOCs and most NOCs are not
Getting these on time and on budget is sion since the Great Depression,” he explains. producing at optimal production,” he says.
critical to going back to the shareholder and “All of those people who bought oil on “For example, the Cantarell field in Mexico
asking for more money in the future.” margin had to cover those contracts. And as is in steep decline and it’s not because of the
The company looks for balance in its oil started to fall, they had to cover more asset, but because of lack of investment and
portfolio, which ranges from assets with big contracts, selling out sending prices to $32.” the people above ground. It’s the same in
initial production and rapid decline to long- With a price differential of more than $110 Algeria, Nigeria, and several others.”
term assets like oil sands and the Western U.S.
 See Shell, Page 7  See Investing, Page 12
in only six months, and then slowly creeping
up to the $70 range over the past 12 months,
 NEWS PESA News 7
SHELL
Petrohawk ‘bet the company’ on Continued from Page 6

Haynesville Shales; gas prices, “Technology is a key piece of this, and we

invest more than our competitors because of

drilling should improve in 2010 the class of plays we’ve elected to get into—
we’re in ultra deep water, tight gas, shale gas,
and a number of other challenging plays,” he
The Shale Plays
says. “The good news is that my technology
Petrohawk is one of a handful of budget has continued to climb because our
companies that couldn’t exist just a few leadership sees the results of the work we do
years ago—an E&P company that For year ending 2008, Petrohawk had 1.42 internally and with the service companies as
specializes in shale gas. Tcf of proved reserves with about 56 percent contributing to the bottom line.”
The decision is paying off, says Richard proved developed, about 94 percent of Shell’s growth engine is in the Americas.
Stoneburner, President and COO of which is natural gas. The company has 26.5 Malouta says that while some might be
Petrohawk Energy Corporation. The Tcf of risked resource potential at 8,000 net surprised by their focus on the Americas, the
company posted a 71 percent year-over-year drilling locations, primarily in the reason is in the numbers.
production growth from 2008 to 2009, and is Fayetteville, Haynesville, and Eagle Ford “Though our global production is about
poised for another 30-40 percent annual shales. 3.2 million barrels a day, our Americas
growth next year. Stoneburner says the company also is produces 20 percent of that, but it’s 30
“We made a conscious decision to go after releasing non-core assets to maintain high percent of our earnings,” he says. “We will
shale, though we still have a few liquidity. continue to invest in the rest of the world, but
conventional assets in areas like Elm “If we have assets that aren’t doing our growth is here.”
Grove,” says Stoneburner. “But we bet the anything for us in the long term, we will Shell is expanding its deepwater and arctic
company on the Haynesville play—we have divest them,” he says. “It keeps our liquidity frontiers, and has made tight gas and oil
about 15 Tcf risked resource potential, so it’s high and enables us to keep drilling. We sands acquisitions in Canada. Its Aera heavy
a huge investment with a huge upside.” have divested our Permian Basin assets and oil field has 1 billion barrels of oil in place.
Stoneburner delivered an overview of have about $1.2 billion in liquidity, not The Americas does have its challenges, he
Petrohawk rounded out with a natural gas counting the Permian sale.” says. “In Alaska, a couple of years ago we in-
forecast. Petrohawk’s drilling budget is $1 billion vested over $2 billion in leases and we have
and is risked at about 65 percent potential. not drilled any wells yet—this is a real issue
The bulk of the budget—$720 million—is for us. A lot of this has to do with our legisla-
spent in the Haynesville shale. tive and legal system. I’d like to issue a call
The company dominates when it comes to for us to better work together and interface
results in the Haynesville, says Stoneburner. with our government officials.”
Moving Forward
Petrohawk holds 325,000 net acres under
lease with the average leasehold cost about
$5,000 per acre—inexpensive considering
some $20,000 to $30,000 lease rates during Malouta says that Shell’s stable outlook on
the 2008 land rush. In the second half of the future is encapsulated in their former
2009, the estimated well cost was $8.5 to president’s three hard truths.
$9.5 million with an average initial “One is that from now through the mid
production of 18.1 Mmcf per day. part of the century, the population will
Stoneburner noted that the tally included all increase and so will demand for energy,” he
47 wells completed to date, with the says. “Two is that the easy oil has already
exception of two wells with mechanical been found, and third is that the public will
issues and three with restricted rates. demand greener and cleaner solutions to
In the Eagle Ford shale, which energy consistently through time.”
Stoneburner says is similar in nature to While public enthusiasm is high for alter-
Haynesville, the company has 210,000 net native energies, the reality is that it cannot
acres under lease on 1,700 net risked have an appreciable effect on energy demand
locations. The primary difference is that the until at least 2050.
Eagle Ford has shallower pressure. “Five years ago, our alternative energy
Petrohawk’s average leasehold cost in the usage was one tenth of one percent of all our
Eagle Ford is $400 per acre with an average energy usage, and now it’s up to about 2 per-
well cost of $4.5 million to $5 million. The cent,” he says. “Some people think we’ll be
average initial production for 11 wells to at 30 to 40 percent alternative by 2050, but I
date is 8.9 Mmcf per day with a gas to oil don’t see it. No one solution will work, so we
ratio of 6:1 and 10.5 Mmcf per day with a need to think about alternatives that will
gas to oil ratio of 15:1. make a real difference, not hype.”
Since the drilling pace is not dictated by Malouta concluded with the statement that
short primary terms since the leases contain Shell is bullish in E&P for the next 40 to 50
continuous drilling clauses, Petrohawk has years.
been working on tests of stimulation theory “We’re on a bit of a rollercoaster in the
in the Eagle Ford. near-term, but there’s no alternative solution
Richard Stoneburner, President and COO of
 See Petrohawk, Page 12
to oil and gas being the primary source of
Petrohawk Energy Corporation energy for the foreseeable future.”
8 PESA News NEWS

Explorers Award goes to Petrobras

EXPLORERS
Continued from Page 1 “ It’s amazing to
think about the
work that they have
had the designs of their subsea done to get us to the
Christmas trees and flowline
systems and I remember thinking point where we
as an engineer: This stuff is have approval—the
phenomenal—I was impressed first approval—for
with their designs and technology an FPSO to operate
and how they were really working in the Gulf.
in deep water, about 1,800 to
2,000 foot-deep completions.” —Charlie Jones
”
Then as now, Petrobras is at the
forefront of technology. award, adding that the company
“Under Jose Orlando’s has enjoyed long and fruitful
leadership, Petrobras has made partnerships with its suppliers.
tremendous investments in the “Petrobras always has an open
Gulf of Mexico,” says Jones. Charlie Jones, Chairman of the PESA Explorers of Houston Committee. door for its suppliers,” he says.
“They have spent their time, “For us, they deserve the same
money, and knowledge and have always Chinook and Cascade fields. special treatment given to our investors,
shared their ideas freely—they believe in “It’s amazing when you think about the customers and employees. Without our
moving the technology forward for the work that they have done to get us to the suppliers, it would be impossible to achieve
betterment of producing the energy resource.” point where we have approval—the first our corporate goals.”
Last month, Azevedo flew to Singapore to approval—for an FPSO to operate in the He added that Petrobras is the largest
christen the new FPSO that will arrive in the Gulf,” says Jones. Brazilian investor in the U.S. and the Gulf of
Gulf of Mexico in the first quarter of 2010. Azevedo says that he and his executive Mexico is of strategic importance for the
The ship will be used to develop the team were truly honored to accept the company.

From left to right: Fabrizio Franzio Dinelli, Petrobras America’s Procurement Manager; Ricardo Antonio Abreu Ianda, Petrobras America’s Corporate
Department Manager; Gustavo Adolfo Amaral, Petrobras America’s Senior Vice President, Upstream; Robert Workman, PESA Chairman and National
Oilwell Varco’s President of Distribution Services; Charlie Jones, PESA Explorers of Houston Committee Chairman and Forum Oilfield Technologies’
President and CEO; Jose Orlando Melo De Azevedo, Petrobras America’s President; Otavio Pessoa Ladvocat Cintra, Petrobras America’s Senior Vice
President, Downstream; Rui Antonio Alves da Fonseca, Petrobras America’s HSE Department Manager; and Michael Ditchfield, Petrobras America’s
Planning Department Manager.
 NEWS PESA News 9
PESA Chairman Robert
Workman (National Oilwell
“We were the first to discover
Varco) gives the Explorers
and now the first to develop the
Compass to Petrobras
lower tertiary ultra deep water
America President Jose
reservoir, which is the most
exciting new frontier in the Gulf of Orlando Melo De Azevedo.
Mexico,” says Azevedo. “As was Each of the eight attending
said, I just came from Singapore, Petrobras America executives
where we named the new FPSO received an Explorers
‘Pioneer’ because it will be the first Compass.
vessel of its kind in the Gulf.”
At the moment, Petrobras has 24
percent of the total fleet of FPSOs,
and the second company has only
13 percent—this track record was
instrumental in receiving approval
for the vessels in the Gulf of
Mexico.
“To approve the project with the
MMS and other agencies was an
ongoing, daily process,” he says.
ABOUT THE EXPLORERS AWARD
“Now, it’s amazing how the MMS
and Coast Guard are excited to
NAME: Explorers of Houston
work with us to open this frontier
Award for Leadership and
for the American oil industry.”
Innovation.
Finally, Azevedo says that the
pre-salt discoveries in Brazil will
bring further opportunities to HISTORY: The Explorers
increase the company’s Award has been PESA’s
partnerships with its suppliers. pinnacle form of recognition
“Our CEO is constantly asking since 1999. Each
suppliers to come to Brazil and November, the Explorers
partner with us so we can do this of Houston Committee
correctly,” he says. Our goal is 4 honors an exploration and
million barrels per day by 2020 and production company that
we are aware that we cannot do this has demonstrated
alone. We have great partnerships excellence in technological
with all of you and would like for innovation and leadership
those relationships to continue to in the industry.
OBELISK: At two feet tall
prosper.”
More than 100 people attended the and mounted on a lighted
reception honoring Petrobras America. base, the Explorers Award
Obelisk is an impressive
Above is Mike Benjamin (Schlumberger)
sight. The piece weighs in
and Walter James (Sunbelt Steel).
at 20 pounds and is
To the left is Rui Antonio Alves da made of optical crystal.
Fonseca (Petrobras America), Douglas
COMPASSES: Given to
Polk (Vallourec & Mannesmann USA),
and Roger Lindgren (V&M Star).
each of the recipient
company’s executive
Below is Steve Jacobs (RMI) at center team and symbolize
and Gary Halverson (Cameron) at charting a new path.
right.
10 PESA News NEWS

Top: Jim Geary (Hess Corporation) led Oil 101’s introduction to geology and
seismic. He discussed the theory behind fossil fuel formation and the tech-
niques involved in finding their formations.

Above: Steve Jacobs (RMI-a Division of Decision Strategies, Inc.) gave two
presentations. His first discussed the history of the industry from ancient
Chinese methods through modern technology turning points. His second
discussed new and emerging technologies most likely to make a major
impact in the industry.

Bottom: David Reid (National Oilwell Varco) discussed the machinery and
technique involved in drilling a basic land well as well as equipment needs
for offshore wells.
Oil 101
NEWS PESA News 11

The Emerging Leaders Committee sponsored the

third session of the highly anticipated Oil 101. The
course featured experts from member companies
outlaying the drilling process from geology to end-
of-life reservoir issues. The next session of Oil 101
will be held in winter 2010.
This session was the first to include breakout
sessions, which were broken into three 20-minute
sections. Participants selected the topic of their
choice—there were ten—each of which was led by a
subject expert/moderator. Discussion topics
included career progression, rigs, drilling, refining,
well servicing and more.
Speakers for this event were:

Layout of the Industry

Ed Hemphill (GE Drilling)
History of the Industry
Steve Jacobs (RMI, a division of Decision Strategies)
Economics of the Oilfield
Section cancelled due to speaker illness
Introduction to Geology and Seismic
James Geary (Hess Corporation)
Rig Systems and Drilling the Well
David Reid (National Oilwell Varco)
Breakout Session Leaders
Installation of Subsea Hardware—Mike Ellis (Oceaneering)
Well Servicing—Pat Bond (Weatherford)
Economics, Finance, and M&A—Craig Jones (Cameron)
Challenges of Subsea—Ed Hemphill (GE Drilling)
Completions—Ricki Jannise (Halliburton)
Moving from Contributor to Leader—Debbie Logan (Halliburton)
Career Progression—Mahesh Puducheri(Halliburton)
Working in the Subsea Environment—Charles Royce (Oceaneering)
Oil and Gas Equipment & Manufacturing—David Reid (NOV)
Refining—Julian Migliavacca (Mustang Engineering)
Completions and Flow Equipment
Ricki Jannise (Halliburton)
Well Servicing and Well End-Of-Life
Pat Bond (Weatherford International)
Challenges of Subsea Production
Charlie Jones (Forum Oilfield Technologies, Inc.)
Refining & Transportation
Julian Migliavacca (Mustang Engineering) Julian Migliavacca (Mustang Engineering)

Pat Bond (Weatherford) Ricki Jannise (Halliburton)

12 PESA News NEWS

U.S. Oil and Gas Field PESA News

First Class
Petroleum Equipment Suppliers Association
Equipment Exports US Postage Paid
9225 Katy Freeway, Suite 310
Top 15 Destinations for Q3 2009 Houston, TX
Houston, TX 77024
(in U.S. $1,000) Permit No. 04805
J UL AUG SEPT
Singapore 64,542 92,653 71,015
Brazil 80,550 68,480 56,399
Korea 36,604 56,481 22,653
Angola 30,918 34,321 35,187
India 15,369 36,413 48,169
U.A.E. 34,200 39,869 22,421
China 29,223 49,328 16,733
Mexico 27,778 31,294 36,064
U.K. 31,150 32,731 31,071
Saudi Arabia 28,228 33,533 21,029
Nigeria 16,116 41,171 13,708
Iraq 13,115 1,205 33,600
Colombia 13,908 12,253 16,247
Norway 12,352 13,026 13,706
Eq. Guinea 6,792 5,945 25,195

Subtotal: 440,844 548,702 463,196

All Other: 338,502 280,580 212,162
Total: 779,347 829,282 675,358
Source: U.S. International Trade Commission

INVESTING PETROHAWK
Continued from Page 6 Continued from Page 7

On Energy Investing The company completed

two wells with 18 stage
Hoover says that one of the questions he’s fracs, using more frac fluid.
most often asked is why create an energy The result is strong initial
investment fund? The thinking goes that, “If production rates with
I own a diversified portfolio, I’m going to shallower pressure and
get energy as a side dish.” production declines. The
He counters that energy is diversified in Dora Martin 1850 #1H has
two respects. One, it tends to run counter to an initial production of 8.8
Mmcf per day and an
National Oilwell Varco’s Bud Landrum asks a question following
the S&P 500 because recessions are brought
production of 8.1 Mmcf per Richard Stoneburner’s presentation.
about by high energy prices, so an energy average first-30-days
portfolio will do well when the market is
down and energy is up. day. The Henderson-Cenizo 877 #1H has an The study assumed that demand will
“It also tends to outperform the S&P 500 initial production of 13.2 Mmcf per day increase 1 Bcf per day over 2009 levels
because in certain years you get big with an average first-30-days production of with a 10 percent renewable standard and 2
percentage gains like commodity price 10.4 Mmcf per day. These rates are 35 to 75 percent GDP growth. It also assumes that
returns,” he says. “The trick is to find small percent higher than the average of the first supply will drop 5 Bcf per day from year
oil and gas firms that can double or triple seven wells in the Eagle Ford. end 2008 to year end 2009, which

Forecast
production and therefore double or triple the Stoneburner says the rig count has virtually
stock price.” assured this will occur.
He further explained that investors should He says that the wild cards in the analysis
look at energy holdings on anticipated While he admits that a case can be made are a lack of good understanding of shale
market movement, and move their for both a Bull and Bear market next year, performance, the possibility of rig count
investments accordingly. Stoneburner says his background as a geol- skyrocketing beyond 1,500, and
“If you think oil prices will fall and want ogist makes him an optimist. assumptions in demand growth and
to be conservative, you’d be in utilities and “It’s not going to be like this for much renewable standards.
in the major oil companies, because they longer,” he says. “There is credible evidence that the
have dividends and buy-back,” he says. “If In his forecast, Stoneburner cited current downturn in commodity prices and
you thought oil would rise, you’d go for extensively from a study conducted by resultant drilling will ease during 2010,” he
E&P companies and the oil service sector. investment bank Tudor, Pickering, and Holt. says. “Demand growth appears to be on the
We manage our portfolio with six energy The general themes of the report were that crest of an upswing, with the unknown
buckets as they move up and appear natural gas will average $7.50 in 2010 and being how strong, or weak, it will be while
overvalued, we trim one bucket and add to $6.50 for the next 5 years with rig counts supply is clearly declining and most believe
the other.” stabilizing at 1,500. This level of drilling it will continue to do so throughout much, if
will deliver 1 Bcf per day growth over a year. not all, of 2010.”