Volume 67, Number 1

PESANews
Spring 2013 www.pesa.org

In ThE nEWS
PESA Elects Officers at Annual Meeting
Chairman Charles Jones Forum Energy Technologies Vice Chairman Paul Coppinger, Weir Oil & Gas 1st Vice President Gary Halverson, Cameron Immediate Past Chairman Chris Cragg Oil States International, Inc. Secretary & Treasurer Dave Warren, Energy Alloys Gulf Coast District-Texas Joe Winkler Mid-Continent District Johan Pfeiffer, FMC T echnologies, Inc. Explorers of Houston Robert Workman National Oilwell Varco Membership Charles Currie, Schlumberger Emerging Leaders Liaison Galen Cobb, Halliburton Energy Educators Pat Bond, Light Tower Rentals

Annual Meeting 2013

The industrys New Normal requires new strategies
Editors Note:This essay was compiled from Bill Whites Keynote address. The 20th century standard of living depends on energy. Yet, people in our industry have never experienced a time that other industries would consider normalweve cycled between boom and bust without much in between. But now, were in something that may look like normal for our industry, a new equilibrium for oil and gas. This is, of course, due to the shale revolution. Never before has the U.S. seen this significant of an increase in oil production. Its unprecedented that its happening in what was considered the worlds most mature hydrocarbon province. It wasnt principally because of some great breakthrough in geoscience; it was based on what was happening in the field, good old trial and error, and a

Bill White, Chairman of Lazard Houston

good element of petroleum engineering.

The new normal

The industrys equilibrium will cause it to be much more segmented than ever before. The oil and gas industry is now really five specialized industry subsets. First is the North

American high-volume shale resource developmentits incredible how much of the public service companys profits essentially come out of three basins. Next is deepwater E&P. Most of the Earths crust is under the ocean, so its there to explore but its not cheap n See Bill White, Page 3

SA PE

Sp held

i ec

th ge its Pa e e S

a ird Was 14-1

e ingto R l sh 9.

rt ly-In. o p nF

2 PESANews

Editorial

As our meeting calendar slows, remember the IPAA / PESA energy academies
Thank you very much to Charlie Jones and members of his 2013 Annual Meeting Program Committee which included Galen Cobb (Halliburton), Steve Jacobs (Decision Strategies), Bob Potter (FMC Technologies), Jim Renfroe, and Dave Warren (Energy Alloys). We just experienced an outstanding meeting in San Diego at The Grand Del Mar, and we are grateful for the time and effort that went into the program planning. As we look forward to summer, while our scheduled meetings may slow down, there is a lot happening with the IPAA / PESA academies. Our thanks go out to the PESA member companies who have volunteered to host one or more of our academy students for a three-week externship. We believe that its a plus for the companies and lifechanging for the students. Parents talk about their students getting up early and looking forward to days of learning about the oil and gas industry. This program is definitely a win/win situation. I will soon be sending a listing of our new and continuing committee chairmen. These chairmen will be planning association activities for the fall months. Please think about getting involved in your trade association and plan to participate as a committee volunteer. Thank you and have a safe and enjoyable summer. Sherry Stephens Blanks PESAPresident

PESAs tenets represent all of oil and gas

Jobs. Technology. Stability. Those are only three words, but taken together they can help us tell the PESA story. Last year, PESA Chairman Chris Cragg (Oil States International, Inc.) sat down with me as PESAs Vice Chairman and Paul Coppinger (Weir Oil & Gas) as PESAs First Vice President to shape the Associations identity in the coming years. We wanted to determine what image PESA projects, whether our message is concise and easy to relate, and if we had the correct image. Though PESA is a national trade association with nearly 200 member companies, we found those questions could easily relate to personal relationships. Whether in social settings, business meetings, or speaking with our elected leaders, one of the most difficult questions Im asked is What do you do? If I ramble on about the technical specifications for a small piece of a subsea installation, Im going to lose the interest of the person to whom Im talking. But if I say that I build the tools that produce subsea oil and gas, which in turn help keep energy prices down, they listen. Jobs, Technology, and Stability is not only the answer, it sums up who we are and where we want to bethere is no other industry in the country that can hire more people, develop and manufacture more new technologies, and have such a tremendous impact on the national and world economies. As Chairman, I plan to continue our message. Our annual meeting this year also focused on PESAs three tenets as they relate to the entire industry. We heard from nine speakers, each addressing at least one of PESAs three tenets. Randall Luthi from NOIA addressed Jobs: Oil and gas is
PESA News is published by: Petroleum Equipment Suppliers Association 1240 Blalock, Suite 110 Houston, Texas 77055 Phone: (713) 932-0168 Fax: (713) 932-0497 2013, PESA

Charles Jones (Forum Energy Technologies), PESA Chairman

one of the largest industries in the country, employing well over 1 million people and paying them well above the national average. He says that by fully developing our offshore resources, the industry could sustain 1.2 million new jobs over the next 30 years. Halliburtons Greg Powers and his co-presenters discussed Technology: Particularly in the service and supply sector, technology is our bread and butterwithout our best advancements, Americas shale boom and deepwater production cannot happen. He talked about a few of the displacing technologies that will soon saturate the industry, including fiber optic communications technology and polymeric barriers for wells. Marathons Gretchen Watkins discussed Stability: Our industry has dramatically reversed the decades-long decline in energy production to positively affect the single most important factor to economic growthaffordable and abundant energy. In 2006, unconventional resource plays accounted for zero percent of the worlds global oil production. In the fourth quarter of 2012, U.S. liquids-rich resource plays
PESA Chairman Charles Jones, Forum Energy Technologies PESA Vice Chairman Paul Coppinger, Weir Oil & Gas PESA 1st Vice President Gary Halverson, Cameron

accounted for 21 percent of global oil production, and by 2017 it could be higher than 36 percent. But our message of Jobs, Technology, and Stability must be taken to Washington, where decisions are made that can drastically alter the future of our industry. We must educate our political leadership. As such, twenty-seven member company executives spent two days in Washington telling the PESA story of jobs, technology, and stability during the Associations third Fly-In. The group met with 22 members of Congress and/or their staffers, along with 10 industry groups, Washington-based customer representatives, Administration representatives, and members of the U.S. Department of State. Please read on in the following pages to learn the opinions of our panel of speakers at the Annual Meeting, as well as what our member company executives learned in Washington I look forward to serving as PESAs Chairman for the coming year, and hope to see you at our upcoming events. Charles Jones Forum Energy Technologies PESAChairman
PESA President Sherry Stephens Blanks PESA Vice President Michael Perini PESA Director of Communications Chris Evans

PESA, Petroleum Equipment Suppliers Association, and the PESA logo are all registered marks of the Petroleum Equipment Suppliers Association.

annual MEEting - day 1

BIll WhITE
Continued from Page 1

PESANews

there are a lot of bottlenecks, and new discoveries are made regularly, which may tax the service capacity in the same way they have in the resource plays. Third is conventional developments, both onshore and offshore. Despite the increasing focus on the more profitable deepwater resource plays, there will always be opportunity for conventionalbut it will be interesting to see how many truly stick to the vertical wellbore exposure in a few years. Fourth is enhanced recovery from the worlds super giant oil fields. These are important to world oil supply and there will be a lot invested there. And finally, theres maintaining the low-production wells. There will be a lot more stripper wells in the U.S. in five years than there are today anyone producing goods and services that are keeping those wells online will be in good shape. The new normal means that we cant always count on a rising tide of capital expenditures. I think people have been seduced by the relative stability of world petroleum pricing over the last 36 months in this commodity, the important formula to know is that if you have new production that exceeds the sum of depletion and demand growth that year, youll see a price drop. The U.S. had 1.3 million barrels of incremental production in 36 months from a couple of basinsthats 1.5 percent of the Earths oil production from 430 rigs. Im not predicting that bad things are going to happen, but when two basins alone produce

over 1 million barrels a day, Rocky Mountain production is coming online, and there are so many deepwater discoveries that people dont know what to do, there is the possibility of some softness. In the new normal, were not pulled up or brought down by cyclical trends. Were in the business of retaining margins and increasing market share. Efficiency, in terms of per-unit cost whether youre a service company or manufacturer, is going to be critical in expanding market share. Align with your customersa win-win situation with your customers and their cost structures will help you gain and keep market share. Technologies will be a premium, but only those technologies that improve the quality of service or cost to your customer. Technologies that are interesting but lack true functionality will not be good, and theres a lot of technology that fits that category right now. Finally, the retention of trained and skilled employees will be critical because they are the source of our production gains. Because of the boom and bust nature of the business, some of the long term retention policies have favored the white collar workers. In our wireline company, there were workers that were outside that were far more valuable than the professional staff, yet the salaried people had retention plans, but not the blue collar guys. Thats backwards. We need to reexamine that because theyre critically important.

Strategy in the new normal

In a no-growth capex market, a product or service without a significant advantage in

a geographic sub-market is in a no-mans land. If youre one of seven providers of an undifferentiated product, be prepared for hard times. If your only differentiation is personal relationships, remember that people move on, and youre in no-mans land. When you see whos done well in our industry, youll find its good companies with good products like NOV and the top drive, or Schlumberger and open-hole wireline. Those who have enduring pricing power have done it by continually investing in the business and keeping ahead of the competitionI know a CEO who took his eye off the ball for only 36 months, and his market share dwindled irreparably. Growth is not a strategy. Growth is an outcome of an operational strategy that has high returns on investment. Think of the E&P firms that grew over the past five years just because the analysts told them to growthose CEOs have now been fired. Were in a remarkable time. I gave a State of the City address seven years ago in which I said to forget the cap and trade and the federal regulatory schemes. Lets focus on what we need to do to substitute natural gas for coal in power generation. Last year, the greenhouse gas emission plummeted below 2000 levels, which was the aggressive goal set for 2020 by the cap and trade legislation signed in Copenhagen. This happened because of the oil and gas industry. The availability of cheap natural gas led to a substitution for coal. So when you go home and talk about your industry to your neighbors, put on a big green badge. The shale revolution has led to the most remarkable environmental turnaround in the history of the U.S. in one year, and youre part of it.

USTDA offers export assistance to PESA member companies

The U.S. Trade and Development Agency (USTDA) helps companies create U.S. jobs through the export of Americanmade goods and services for priority development projects in emerging economies. USTDA links U.S. businesses to export opportunities by funding project planning activities, pilot projects, and reverse trade missions while creating sustainable infrastructure and economic growth in partner countries. Since USTDAs creation in 1992, the Agency has supported nearly $6.7 billion in sales of U.S. equipment and services related to the oil and gas sector. USTDA helps bridge infrastructure gaps with U.S. expertise, technology, and investment. The Agencys objectives are to help build the infrastructure for trade, match U.S. technological expertise with overseas infrastructure needs, and create lasting business partnerships between the U.S. and its partner countries. The Agency advances these objectives through its two signature programs: the Project Development Program and the International Business Partnership Program. The Project Development Program is comprised of three major sections: Feasibility Studies: Links foreign project sponsors with U.S. businesses at the critical early stage when technology options and project requirements are being defined. These studies provide the comprehensive analysis required for major infrastructure investments to achieve financing and implementation. Pilot Projects: Demonstrate the effectiveness of commercially proven U.S. solutions and provide the analysis, evaluation and empirical data needed for potential foreign projects to secure funding. Technical Assistance: Supports legal and regulatory reform related to commercial activities and infrastructure development, the establishment of industry standards, and other market-opening activities for U.S. goods and services. The International Business Partnership Program also comprises three major sections: Reverse Trade Missions: Brings foreign buyers to the U.S. in order to observe American products and services and establish or enhance relationships with U.S. businesses. Workshops/Conferences: Connects U.S. firms with foreign project sponsors. These sector or region-specific events are designed to showcase U.S. goods, services, and technology to foreign buyers. Training Grants: These support U.S. bids in major procurements overseas. The next USTDA event is the U.S.-China Shale Gas Training Program Workshop #2: Environment, Health and Safety held from July 24-25 in Beijing, China. For more on USTDA, call (703) 875-4357 or visit www.ustda.gov.

4 PESANews

annual MEEting - day 1

Stability in our energy future

Four panelists discuss the national implications of increased oil & gas production

Stability, Jobs

Left to right: Mark Houser (EnerVest, Ltd.), Patrick Connelly (SCF Partners), Gretchen Watkins (Marathon Oil Company), Randall Luthi (NOIA), and PESA Chairman and panel moderator Charles Jones (Forum Energy Technologies).

Shales resources are a triumph and challenge

The shale revolution is one of the great triumphs in American oil and gas, one thats spurring an economic success for the U.S. thats just beginning to unfold. Thanks in large part to the work being done in the Eagle Ford, Bakken, and other unconventional fields, natural gas production has soared in recent years while in 2012, U.S. oil production increased by 779,000 barrels per day, more than any other year in history. But the positive impact of this growth is felt well beyond oil supplies. Energy development has given our industry the ability to create tens of thousands of new jobs, says Gretchen Watkins, Marathon Oil Companys Vice President for North America Production Operations. A North Dakota State University study credits oil and gas with a direct economic impact of $30.4 billion in 2011 alone. At the same time, the industry created 60,000 new jobs in a state with a total population of about 700,000 people. The uptick in using the nations newfound resources is also curbing greenhouse gas emissions. In the first four months of last year, the U.S. hit the lowest point in 20 years of greenhouse gas emissions according to a study by the EIA. Among the reasons: use of natural gas in power generation.

Bakken & Eagle Ford

Marathon has invested more than $3 billion in North Dakota since entering the state in 2006. The company holds about 400,000 acres in the Bakken Shale, and in 2012 alone, Marathons production increased by 70 percent. Using state-of-the-art Flex Rigs, we continue to deliver best-in-class drilling performance, says Watkins. Weve reduced our cycle time and well costs while providing safer and more energy efficient operations. Importantly, weve been able to transfer the lessons learned there to the Eagle Ford in South Texas and Oklahoma resource basins as well. n See Watkins, Page 7

Gretchen Watkins, Marathon Oil Company

annual MEEting - day 1

PESANews

Low-productivity wells are EnerVests bread and butter

Not all producers seek out the elephant fields. Some find success in operating thousands of low-productivity wells. EnerVest operates 21,000 wells in 14 states, and has 4.6 Tcf in reserves with production of about 554 Tcf per day. If you do the math on our production, it will tell you we operate a lot of crappy little wellsthats what we do, and weve been doing this for 20 years, says Mark Houser, Executive Vice President and COO of EnerVest. Our private equity business has a 30 percent realized return on investment, and our Master Limited Partnership (MLP) has annualized returns averaging 26 percent. Since 1992, the company has made more than $6.8 billion in acquisitions and sold about $2 billion in assets with over 1,000 wells drilled. Were a serial acquirer and have over $3 billion in capital available for acquisitions, he says. We believe that if you operate crappy little wells, you should operate a lot of them in the places where you arewe dont try to be the dominate player in a basin, but a dominate player. It helps our scale. EnerVest is a top-25 producer nationwide. They are the top producer in the Austin Chalk and Ohio conventional, but about 60 percent of their reserves are in the Barnett, where theyre the number six producer. Well spend about $541 million this year, with the bulk in the Barnett, Austin n See houser, Page 7

Randall Luthi, NOIA

Gridlock may have helped the industry

Editors Note:This essay was compiled from Randall Luthis presentation. What Congress doesor doesnt docan have a great effect on the energy industry. In Washington, D.C. it appears that not much can get done, and that has led to some exceptionally low Congressional approval ratingsthey went from a high of 39 percent in March of 2009 to 14 percent this year. The Senate and House could not be more philosophically different, and since bills have to be passed by both parties, its easy to see why so little legislation is passed. But that has helped the industry in some waysthink about the bills that could have passed over the past few years compared to what did pass, it could be much worse. Weve all heard the claims out of Washington that oil production is up and that the current federal policies are working. Id say theyre half right, especially as far as whos responsible. Overall production is indeed upwere producing about 87 million barrels of oil per day, up from 5 million barrels in 2008. Federal onshore has been stable since 2007, while federal offshore has gone down weve had a 25 percent reduction in offshore production. I would say that oil production has increased despite the federal government. Its increased because of the oil and gas industry. As oil and gas goes forward, so have the jobsits been one of the most remarkable things of the past 2.5 years. As every other industry was suffering, oil and gas was one of very few industries to add more jobs to the economy. The industrys total jobs have risen by 6.5 percent since February 2012 and by a stunning 23 percent since 2010. Offshore, weve become very efficient at producing from the Gulf of Mexico, but there is huge potential in Americas shorelines. We think there are over 116 billion barrels of oil and 650 Tcf of natural gas to be discovered, but we really dont know. We havent had the opportunity to explore 85 percent of the outer continental shelf. Weve been looking for offshore oil and gas in the same 15 percent of the Gulf for the last 40 years. Studies looked at what could happen if we were to open Americas offshore potential and found that they could sustain 1.2 million new jobs over the next 30 years and add $1.3 trillion to the economy. The five-year plan, which is developed by the federal government, sets a sale schedule of offshore leases. The current five-year plan, which is for 2012 to 2017, didnt open new areas. It doesnt open offshore Virginia, which has bipartisan support; it doesnt open offshore South Carolina and North Carolina, which their governors have requested. Last year the House passed a revised fiveyear plan. It provided for 29 lease sales as opposed to 12, it opened up areas in Virginia, South Carolina, and California. The House has done its job as far as were concerned, but the Senate killed it. Public support for offshore exploration waned considerably following the Macondo accident. But as fuel prices have risen, so has the support for more production. In August 2012, the API released this poll indicating very strong support for offshore exploration with 73 percent of voters supporting more offshore oil & gas drilling. A recent Huffington Post/You-Gov study found that 58 percent of Americans favor more offshore drilling86 percent of Republicans were in favor, 58 percent of Independents, and 41 percent of Democrats. Fifty percent of respondents believe that offshore technology is safe and that spills are rare accidents. Three years after Macondo, I believe thats a great credit to the offshore industry.

Mark Houser, EnerVest, Ltd.

6 PESANews
Editors Note:This essay was compiled from Patrick Connellys presentation. In any economypast, present, or futurethere are core inputs: raw materials, labor, energy, and rule of law. The U.S. has enjoyed advantages in these areas for decades, but now were drastically increasing the energy attractiveness of the U.S. economy and it may have huge impacts at the macroeconomic level. We now have assurance of supply. The 1973 oil embargo gave an economic and psychological shock to the country. Many of the laws that we have, as well as how we think about energy security today are effects of that singular event. Today, we dont face this prospect. Technologies including hydraulic fracturing, horizontal drilling, deepwater drilling, and SAG-D techniques have not only given us assurance of supply, theyre giving the U.S. a structural cost advantage on an economy wide scale. Its a powerful combination if you add lower energy costs to our rule of law, which is something that we dont appreciate much, but its what allows innovation to happen and protects intellectual and property rights.

annual MEEting - day 1

New production gives U.S. flexibility in global relations

Patrick Connelly, SCF Partners

entthe entire $350 billion could go away and stimulate economic activity, which means we could begin exporting other items as well because of our structural energy cost advantage.

Putting Our Fiscal houses in Order

The low cost of energy is having an efficient and effective stimulative effect on the national economy. Its allowing the country to put our fiscal houses in order. There are two different fiscal housesthe internal house, which is the U.S. governments debt and deficits; and the external house, which is the U.S. balance of payments. Both houses are suffering unsustainable debt and deficits today. An energy secure America will increase federal coffers directly and could reduce some of our massive foreign debtfor example China owns $1.16 trillion of our debt, and Japan $910 billion. Theres a huge impact that goes unappreciated on the revenue side. Our industry is the most taxed in the U.S. economy. The top three tax paying companies in the U.S. are energy companies, and they produce more tax revenue than the next 7 of the top 10 combined. Payments to landowners stimulate more economic activity, which grows the tax base, which creates more jobs and creates further tax revenue. Domestic energy is also having an immediate effect on the countrys balance of payments. In 2011, petroleum products were by far the single largest contributor to our trade deficitabout $350 billion. Were already chipping away at this deficit, but imagine if the U.S. were energy independ-

Geopolitical implications
An energy secure America will create winners and losers over the next 20 years. The U.S. has always been a trading nation. We have gone to war several times, in large measure, to protect the free flow of goods, ideas, and capitalthese include the War of 1812, World War I, and perhaps the first Gulf War. Our policy since World War II, either stated policy or implicit, has been to control what think tanks call the global common areassea lanes, airspace, and space. Our objective as a country has been to ensure that we have enough control over those areas so that goods and ideas can freely move throughout the world. An energy secure America could affect that policy. Reducing our reliance on foreign energy partners in troubled parts of the world will provide more flexibility for our political leaders. They will be more free to make decisions that better reflect our longterm values and have a flexible hand in dealing with countries that control other energy resources. The geopolitical landscape will be completely reshaped in ways that we dont fully appreciate yet. For example, Saudi Arabia has exported energy to the U.S. for decades and weve been a good customer given our role in the world orderweve protected the sea lanes that ensured that they could trade, and we could trade with

them. Our reliance on them is shrinking the Far East is by far their largest customer now at 54 percent while were 15 percent. If you think in business terms, reliable partnerships are more valued, and cost premiums are given to those seen as a risk. We may be heading into turbulent times for traditional oil exporters as they secure reliable partnerships other than the U.S. On the other hand, Chinas economy is rapidly growing just as ours has in the past 100 years. But theyve outstripped their ability to produce energy supply and theyre massive net importers. It means that Chinas interests are going to change, and the way they interact with the world may change as well. China recently launched their first aircraft carrier. Its no secret that they aspire to create a blue-water navy. We dont need to view this as a nefarious move but as a natural move for a country that trades and imports so much of their energy, and so much of their internal social stability depends on that energy to fuel jobs in their homeland. Much of Asia has relied on the U.S. to provide the free flow of commerce, but that may not always be the case. There may be other countries whose interests mirror ours over the past 50 years, and want to perform a similar role to the one that weve played in international trade. As a country, we may have to figure out how to accommodate that. Fortunately, because of what our industry has produced, our political leaders will have more flexibility in meeting those challenges than they would have if we were still fighting over scarce resources in places that may not share our values.

annual MEEting - day 1

WATkInS
Continued from Page 4

PESANews

Much of the industrys resources are concentrated on the Eagle Ford shale, and Watkins says the play has emerged into the most important unconventional play in the U.S. and probably the world. There arent many places where a company can invest money and see almost immediate return in reserves, production growth, and enterprise growthits happening in the Eagle Ford, where we hold 230,000 acres in the core of the play, she says. Since entering the play in late 2011, we have dramatically ramped up our operations and over the next five years we plan to spend about $1.8 billion annually, which represents about one-third of our total corporate expenditures. By 2017, we expect to produce in excess of 120,000 barrels a day from the play. In both plays, Marathon is using fewer rigs while expanding operations. In the Bakken, the companys first well in 2006 took 70 days. Recently, a well similar in size and scale was completed in 12 days. In the Eagle Ford, theyre working to use less water in fracturing operations by using a food-based polymer gel. It not only significantly reduces the amount of water that we use, but it also has

the added benefit of making the fracture more efficient, says Watkins. Over the last few years, simply by changing some of our processes, weve reduced the amount of water we use per well by 45 percentand of the water we do use, more than 85 percent is unsuitable for human consumption or use in agriculture.

Challenges Ahead
As recently as 2006, unconventional resource plays accounted for zero percent of the worlds global oil production. In the fourth quarter of 2012, U.S. liquids-rich resource plays accounted for 21 percent of total global oil production, and by 2017 it could be higher than 36 percent, says Watkins. If were going to realize the full potential and benefits of these vast new resources, wethe operators and suppliers alike must make an unwavering commitment to safe and responsible operations, she says. We must be stellar corporate neighbors and never lose sight of the fact that we are guests in the communities in which we operate, and that well be judged by our individual and collective behaviors. Im encouraged by the progress that weve made but I think theres still much to be done. While the resources have been found, there are still significant challenges to developing

the nations energy supply. Among them are water usage, workforce safety and training, and traffic and road safety. At the risk of oversimplification, it all comes down to one word: technology not only in accessing these vast resources, but also in developing them responsibly and with less impact on the environment, says Watkins. The service sector has taken on a great part of that roleyou help build some of the biggest and heaviest man-made structures in the world, while scientists also work to create new materials such as selfsuspending proppant that can greatly improve the efficiency and effectiveness of a hydraulic fracturing job. Yet the availability of reliable suppliers those that can provide personnel and materials to execute a job safely, on time, and on budgetis one of the biggest challenges faced by an oil and gas operator, says Watkins. At Marathon, we continue to strive for top quartile growth, and frankly, were going to target those suppliers who can help us reach that goal, she says. Were looking for suppliers who can help us drill more wells safely, more cost effectively, while improving recovery. We also expect our suppliers to be good stewards of the environment and play a role in managing the relationship that we have with communities in which we operate. typically operate at the bottom; publics and some private equity operate in the middle; and then private equity and MLPs operate at the top, says Houser. If you see where the Utica is versus the position of MLPs, you can see why were looking to monetize some of our positions. MLPs have been on a similar growth trajectory to the acquisition market. From 2008 to 2012, the total production from MLPs increased from 520 Mcf to 1,352 Mcf with market caps rising from $3.5 to $16 billion. The general business model is buying assets, drilling enough to keep production flat, and grow through acquisitions theres little organic growth. Conventionals have made up $15.8 billion in transactions for MLPs, while unconventionals have been $5.7 billion, he says. The first broad-based entry of MLPs to shales came in 2010 and more will comewe can expect increasing divestiture activity in the shales as E&Ps monetize production streams to fund drilling programs.

Continued from Page 5

hOuSER

Chalk, and Permian, says Houser. Theres still a lot of vertical and re-entry wells to be done, so dont forget about our part of the businesstheres still a lot of work to be done like continuing to enhance frac treatments, re-fracking wells, micro seismic, and more.

Two Extremes
Two of EnerVests largest holdings are nearly polar opposites in terms of production and maturity. The first is the companys Barnett position, which was compiled by acquiring Encanas position plus a couple of smaller positions for a total investment of $2.2 billion. In total, they have 115,000 acres and produce 234 Mcf per day with plans to drill 70 wells. One might hear that the Barnett is wearing out, but it isntits maturing, says

Houser. We see ourselves as further down the food chain. As shales mature and become less cash-flow negative, we start buying in. We have a good position, and most of the wells we drill this year will be in the oil and liquids window. When we go into a play, we go big. The other extreme to the companys portfolio is their Ohio position. Through five separate transactions since 2003, EnerVest became the largest producer and operator in Ohio with 85 Mcf per day from 8,000 wells. They hold 1.2 million gross acres in the Utica, and about half are operated independently, and about half are in partnerships with Chesapeake and Total. To put our production in contrast, I think Chesapeake produces 100 Mcf per day from 10 wells in the Uticawe have completely different views, he says. We are a mature asset buyer, and the Utica is an immature asset, so we are in the process of marketing and selling some of our acreage.

Acquisitions & MlPs

The acquisition market has spiked with the advent of shale plays. For years, the asset market saw about $5 to $10 billion in transactions each year, but in 2004, it began to grow. Today, just in upstream acquisitions, the market is $50 to $60 billion. The huge growth in acquisitions has changed the game for development and money moving around, says Houser. EnerVest created a document to illustrate their ideal resource play as well as plot their competitorsthe X axis represents the risk profile and the Y axis is field maturity. For example, the Wolfbone and Utica are at the bottom of the chart because theyre low in maturity and higher risk; the middle of the chart is the Eagle Ford condensate and Bakken that carry some risk; and at the top are plays like the Barnett and Fayetteville that have been de-risked. The large public companies

8 PESANews

annual MEEting - day 2

Innovation: the lifeblood of oil & gas

Four panelists discuss technologys impact and commercialization strategies

Technology
Steve Jacobs, Decision Strategies, Inc.

From left to right: Greg Powers (Halliburton), Tom Bates (Lime Rock Partners), Panel moderator and panelist Steve Jacobs (Decision Strategies, Inc.), Bob Schwartz (RHS Consulting), and PESA Chairman Charles Jones (Forum Energy Technologies).

Too many technologies are doomed to failure

Editors Note:This essay was compiled from Steve Jacobs presentation. I spend a lot of time assessing technology in the oilfield, trying to determine ways in which we can accelerate the acceptance of emerging technologies. I equate a new technology with a plane on a runway trying to gain enough speed to fly, which is market acceptance, before the end of the runway, which is when you pull the plug on a failed technology. Many times, we get calls from technology providers that want to understand why the value proposition wasnt there for their failed technology. If you think from a marketing standpoint, you introduce a new technology to a plethora of oil companies and they all have their own adoption process. You can even plot some companies on new technology acceptance. On the conservative side is ExxonMobiltheir philosophy is to wait until the technology is fully mature. At the other end, you have companies like Statoil, Total, and some other operators that are very focused on new technology development. McKinsey & Company performed a study for Shell about 10 years ago, but frankly it hasnt changed. The basic problem is that to get to the 50 percent penetration rate, youre looking at 2 to 25 years in the oilfield. For example, MWD was introduced on a commercial basis in 1978, but the development process started in 1965. If you compare technology acceptance in the oilfield to other industries, consumer products can reach the commercial penetration rate of 50 percent in 7 to 8 years, medicine about 13, telecom about 16, and the E&P industry is nearly 30. Technology is the intellectual currency of oilfield service companies and manufacturers. We seem to be incredibly capable of developing amazing technology, but sometimes were not very good at choosing which technologies to develop. In doing countless numbers of studies to identify value propositions and determine why n See Jacobs, Page 11

annual MEEting - day 2

PESANews

Major leaps in oilfield technology are unfolding now

Editors Note:This essay was compiled from Greg Powers presentation. Much as calculators displaced the slide rule, and the computer displaced the calculator, big changes are coming in oil and gas drilling. With unconventional wells, you drill a hole and nothing happensuntil you hydraulically fracture it. Not long ago, a well that produced nothing was just that nothing. Today, its the future of our industry. There are more dislocations coming for oil and gas, some of which are well under way, others that may be just starting in a lab.

Bob Schwartz, RHS Consulting

Technology is not a solution in itself

Editors Note:This essay was compiled from Bob Schwartzs presentation. The oil and gas industry has been accused, rightfully so in some instances, of being slow to adopt new technology. When the bets are huge, conservatism usually sets in. But I think that will change. As we work in more hostile environments with deeper water and higher pressures and temperatures, it will call for quantum changes in the type of equipment we use and how quickly we adopt it. As we push the limits of technology development and commercialization times, I think well see increased pressure on maintaining a skilled and trained workforce. Were all familiar with the critical shortage of manpower looming in the industry, and many companies have taken steps to ensure their retirees will return to work, even on a limited basisthere should be, and will be, lots of opportunities for those folks. In an era when technology is the lifeblood of the industry, the R&D budgets of many companies have been reduced. This will lead to more joint venture technology development processes than weve ever seen before. Joint ventures bring together companies with individual pieces of a technology to make the increasingly complex whole work. and think about how that problem might suggest a possible technology solution. The next step is to perform market intelligence if there is a business case and a potential technology solution, find out if there is a market for it. Weve all been involved with technology projects that we thought were great, only to discover that our customers told us there was no market. Its important to understand the intellectual property implications of your developments. Within Energy Ventures, one of the first things we always discussed with a technology developer is whether this technology can be protected under intellectual property laws. And, if it can be protected, are you willing to spend the money and effort to defend it? You never know whether you really have a patent until youre forced to defend it. Next, find out what alternate technology solutions are in the market. I was with a company last week that works in the alternative energy area, and I went through this list with them. The CEO told me, I wish we had taken this step before we got as far down the road as we did. We found competing technologies that are probably as good as or better than what we do. Then you select the best solution thats suited to the technology strategy of the company, the market, and intellectual property situation. The final steps are the service and sectors bread and butter develop a prototype, prove the prototype, and finalize the designthis one is sometimes hard to do because R&D and engineering departments want to continue to endlessly refine a product. Next, think about the alternate commercializations that exist based on strategic criteria such as technical, financial, time to market, and so on. And finally, we develop a go-to-market strategy and plan, and then deploy the new product.

Fiber Optics
One of the dislocations well under way is the material science for building communications devices. The material of choice virtually throughout our business today is copper. It cant persist, as it cant stand a high enough temperaturesome of the deepwater and high-temperature wells are at the point where copper starts to melt. Copper also does not offer nearly enough bandwidth for the future of the oilfield. Were generating terabytes of data each day where we used to generate megabytes. Copper will become our dinosaur, and it will be replaced by fiber optics. Fibers vibrate with soundthey move a couple of molecules of width, which causes the fiber to stretch, and when it stretches the path link of the laser traveling through the fiber, it takes a little bit longer. We can sense that. n See Powers, Page 11

Commercializing Ideas
When we work with companies that are trying to commercialize their technologies, we bring about a 12-step process that acts as a rough guide from one end of the process to the other. The first thing we stress is that technology itself is not the starting point letting technology serve as the starting point so often becomes trying to force square pegs into round holes. Start at the business problem or opportunity

Greg Powers, Halliburton

10 PESANews
Editors Note:This essay was compiled from Tom Bates presentation. I dont care about technology in and of itself; I care about turning technology into an economic advantage. Oil and gas technology has given our country an economic advantage. In 2012, the energy industry, via horizontal drilling and hydraulic fracturing, delivered a $250 billion economic benefit to the American economy while reducing our import bill by $80 billion. Those same technologies allowed access to an enormous resource base, one that could yield as much as a 150 year supply of natural gas and provide an energy secure future for generations. And between 2008 and 2012, the industry created 1.7 million new jobs, and the average job in our industry pays 75 percent more than the average wage across the country. This is all possible because we applied two relatively mature technologies to shale formationsthats good old fashioned American ingenuity, and it completely transformed the way we think about our business. The source rock became our reservoir and now all over the country there are opportunities to explore for oil and gas. Not all technology makes headlines. Theres lots of good new technical innovation behind the scenes whether its fast moving AC rigs, rigs that walk from one location to another, or using dual-fuel capability to reduce the operating cost of a rig by $2,500 to $3,000 per day. But at the end of the day, big fracs get big results production in the U.S. has leapt from 50 Bcf per day in 2005 to 65 Bcf per day in 2012. Thats a massive increase in production without a corresponding increase in demand, so prices went downthat was bad for our customers, but its really good for the American economy.

annual MEEting - day 2

Technology provided U.S. with $250 billion dividend

Tom Bates, Lime Rock Partners

Technologys Dividend
Electric power generation consumes about 40 percent of all energy in the U.S. Historically, coal was the fuel of choice with about 50 percent market share of all electric power until 2010. Among the items that prepared the country to take advantage of low gas prices is that the power industry built a bunch of combined cycle plants between 2000 and 2005they all went bankrupt as a result because they couldnt run them on $8 natural gas. That left us with 527 gigawatts of combined cycle plant capacity of which only 87 gigawatts was used in 2010. So when gas prices went down, literally you could turn a switch and compete with coal. Dispatch into the electricity grid is almost

always done on the basis of marginal fuel cost. The coal powered power plant inventory has a $35 fuel cost. If you have a modern combined cycle power plant running on gas at a 7,000 btu heat rate on $2 gas, you can run at a $14 fuel costits the price of gas times heat rate. Thats why natural gas took so much market share from coal, and its why we burned 4.3 Bcf per day more natural gas in the electric power generation sector in 2012 than in 2011. Our economy has reaped massive rewards from the low price of clean-burning gas. In 2008, the average price of gas was $8 and the average price of wholesale electric around the country was $68 per megawatt hour. By 2012, the average price of gas was $2.50 and the average price of wholesale electric around the country was $28 per megawatt hour. We used 4.3 billion megawatt hours in the U.S. in 2011the benefit to the U.S. economy is $40 per megawatt hour times 4.3 billion megawatt hours, or $172 billion. If you add the additional benefit that has accrued because heating bills are lower and chemical feedstocks are lower, its another $90 billion. Were well over $250 billion in economic benefit that our technology has created for the American consumer.

lnG & Oil

I think LNG will become globally fungible, and thats important for the volatility of the U.S. gas marketthe country could use the import and export of LNG as a pricing safety valve. Currently,

LNG represents about 10 percent of the worlds 300 Bcf per day natural gas market. Most of that is tied up in long-term contracts going to the Far East. When LNG gets to be about 20 percent of the total worldwide market, the trifurcation of the market goes awaywe wont have $20 in the Far East, $14 in Europe, and $4 in the U.S. That will be good for our business. Conventional wisdom was that we were running out of oil, but so was everyone else. We also hadnt found as much oil as weve consumed in any year since 1984. The good news is that unconventional wisdom won the day. The same technologies that caused the gas market to change dramatically have caused us to be able to increase oil production for the first time in the U.S. in a long time. We bottomed at 5 million barrels of production per day in 2008, and are now at 7 million barrels. Because that 2 million barrel increase was essentially offset by declines elsewhere in the international oil market, we havent increased global production capacity and prices are unaffected. The benefit we have is not reducing prices on a global basis, but reducing our import bill. Between 2010 and 2012, we reduced our import bill by $80 billion annually and in 2013 it will be more than $100 billion in incremental savings to the U.S. economy and our trade balance. With increased domestic supplies, energy security is likely and energy independence is possible, at least on a net BTU basis, if we export coal and LNG.

annual MEEting - day 2

JACOBS
Continued from Page 8

PESANews

11

some technologies make it and some dont, I think the issue can be boiled down to three specific areas. Immediacy and magnitude. A technologys benefit is the engine that drives operator acceptance. If an operator is going to use your technology, how large is the benefit and when will it be received? Early systems reliability. In our haste to get products to the market, the petroleum industry often introduces technologies too earlythe final research and development phases are done on the rig, and thats not always good. Comparative cost. What is the cost differential to the operator between your new technology and what theyre using?

Again using MWD as an example, it had a very high benefit immediately as you could avoid long correction runs, but reliability was terrible for a decade. The optimum is that youd like to introduce a technology with a high benefit, thats very reliable, and at a lower comparative cost.

Failure Modes
There are guaranteed failure modes in developing technologies. The first is that, as an industry, we introduce a lot of poor or niche technologies. Ive seen technologies on which people have spent tens of millions of dollars that should not have seen the light of day. Niche markets by definition are small, and remember if you have 20 percent of a niche market, you dont have much. Another failure mode is commercializing a technology before its ready. We have

incredible engineering capabilities, but we need to learn to develop reliability before it hits the field. Needless to say, if you introduce a technology thats only slightly better than whats on the market at an astronomical price, that is a very reliable failure mode. I think technology providers as a group need to become better listeners. When we talk to operators around the world, very frequently they say, technology providers dont understand the hidden costs that we go through to try to modify, ultimately adopt, and train people to use a new technology. Granted, were sometimes filtered in what we hear from operators and clients and that gets in the way of our product development efforts. Years ago, I asked an executive from ExxonMobil what he would want in an MWD system. He said, Dont ask me that. Ask what Im willing to pay for. Ill give you a different answer.

POWERS

Continued from Page 9

We can measure pressure, temperature, and acoustic signal, and measure it every meter for 50 kilometers in real time. Weve installed fiber optics to a working well in Louisiana and recorded the well plug, and perforation, and fracthe well speaks to us. One of the things that we were able to learnin real timeis that the plug leaked and one zone took almost all of the frac fluid. We can learn from it and fix the problem.

cementno matter how much cement you put in, they still leak. Weve started using polymeric material in squeeze jobs where cement wont go because of the particle sizes. Essentially, weve been plugging well cracks that would have normally caused abandonment.

Food Fracs
The industry is also delving into green chemistry. Guar, a legume, is a common thickener thats widely used in food production. When guar is broken, it leaves a residue that includes lipids and proteins, not just the pure polysaccharide part that thickens the fluid. Using natural guar in hydraulic fracturing has proven problematic, as the bean residue can causes pores to plug in the well. But weve learned to use synthetic versions of guar. We make a refined natural product, which upon breaking has no residue because theres no cell walls in it, no lipids, and no proteins. It does cost a little bit more, but weve done thousands of frac stages with this material and the data is overwhelming that production goes up, easily offsetting the cost of the material. Its an interesting dislocation in that all-natural materials are not always the best thing to use. For the public, this will be an important topichydraulic fracturing really gets the publics attention and often in a negative way. We need to drive

Steve Cabral (Lone Star Fasteners) and Tom Zay (Boyden) listen to the technology panel.

Well Barriers
Permanent barriers for all oil and gas wells have always been cement. While cement isnt likely to be completely displaced its cheap and a good materialthere are other options. We can use a synthetic organic polymeric barrier instead of cement. Theres tremendous advantage to using organic material in downhole environmentsits a good secondary annual barrier because its very sticky, has very long residence time, doesnt degrade, crack, or break. And most importantly, it works where cement fails. Wells that develop microcracks between the casing and the formation are typically abandoned because microcracks cant be overcome with

the dialog and set sites higher than industry regulations. In fact, the synthetic guar frac fluid meets the CFR-21, the register that mandates food ingredients. I believe we can drive better performance than the current systems, and as we attain scale in using materials like these, well be able to lower the operators costs.

Drill by laser?
As we try to get set for the future, some of the things that we thought immutable will change. We have to challenge ourselves to think past the notions that have driven the industry and take a look abroad to see what we can use from other industries. Think about drillingits pounding and adding mechanical energy until covalent bonds in

the rock break. Its worked for 4,000 to 5,000 years practically without change. But drilling will change, because there are other ways to add energy. In our labs, we were able to drill through a block of sandstone with a laser. Were adding energy to the rock, but not mechanical energyits the dissipation of electro-magnetic energy. The question, of course, is whether we can figure out how to get it in the field. At the moment, this is a laboratory creation because were dissipating tens of kilowatts of energy thats a lot of energy to push downhole, especially down a fiber optic cable. Nonetheless, these are the technologies we may need to address the industrys long-term problems and to become more efficient producers of our resources.

12 PESANews

annual MEEting - golf & tEnnis

Thank you to our sports tournament sponsors:

Golf Tournament
Overlooking the Pacific Ocean, the storied Torrey Pines Golf Course served as the backdrop for the 2013 Annual Meeting Golf Tournament.

First Place

Third Place (Score: 115)

Russ Lass (Hart Energy), Lloyd French (TIW), Brad Farnsworth (Spencer Stuart), and Dan Newman (Norris Production Solutions).

Golf Champs
First Place (Score: 113)
Second Place Tony McClain (Gardner Denver), Larry Kerr (Gardner Denver), Galen Cobb (Halliburton), and Danny Cervantes (University of Texas).

Longest Drive (Mens)

Gordon Mishler (Southwest Oilfield Products)

Longest Drive (Womens)

Ann Vankouwenberg (Wife of Ray, Holland 1916)

Second Place (Score: 113)

Joe Fendley (Forged Products, Inc.), George Ochoa (Aries Freight Systems), Gordon Mishler (Southwest Oilfield Products), and Gary Halverson (Cameron). Third Place

Closest-to-the-pin (Mens)
George Ochoa (Aries Freight Systems)

Closest-to-the-pin (Womens)
Eartha Jean Johnson (LegalWATCH)

Left: Bret West (Wells Fargo) swings at a volley in the opening rounds of the 2013 tennis tournament. Below: The final match pitted Kevin McEvoy (Oceaneering) and Lynne Wisler (wife of Tom, Cameron) vs. Bill Spurgeon (Dover Energy) and Danielle Mendes (wife of Neil, Greene, Tweed & Co.). Spurgeon and Mendes won the tournament.

Tennis Tournament

annual MEEting - friday night

PESANews

13

Friday night
This years Friday-night celebration continued the precedent of shunning tuxes in favor of a casual atmosphere. Among the couples attending were, from left to right: Santosh Mathilakath and Rupal Gokhale (National Oilwell Varco); Charles and Cheryl Jones (Forum Energy Technologies); Bob and Suzanne Potter (FMC Technologies, Inc.); Brian and Sarah Swagerty (FMC Technologies, Inc.); and Paul and Belinda Coppinger (Weir Oil & Gas). Magician Justin Willman was the entertainmenthere Galen Cobb (Halliburton) thinks soda will pour on his head during an interactive trick.

Thank you to our Annual Meeting sponsors

14 PESANews

Washington fly-in

Telling the Oil & Gas Story

Executives spread PESAs message of Jobs, Technology, Stability
They heard it from U.S. Representatives, Senators, Congressional Staffers, and from PESAs sister associations: the single most important action one can take in the political process is to take your story to Washington, D.C. Twenty-seven member company executives and PESA staff spent two days in Washington telling the PESA story of jobs, technology, and stability during the Associations third Fly-In. The group met with 22 members of Congress and/or their staffers, along with 10 industry groups, Washington-based customer representatives, Administration representatives, and members of the U.S. Department of State. Sen. David Vitter (LA), Ranking Member on the Senate Committee on the Environment and Public Works, says the story that PESA should repeat over and over is jobs. Communicate the jobs impact of what you dothats the big story, thats what the average American cares about, and because of that, its what the average member of Congress cares about, says Vitter. Because of the newly discovered energy resources we have in this country, were sitting on a game changer for our economy. Randall Luthi, President of NOIA, says that Washington representatives hear from professional association staff often, and its helpful to have the executives who provide jobs to workers and revenues tell the oil and gas story. Tell them about the work you do, because its not well understood; tell them how many people you employ; tell them why its important to keep permitting moving forward; tell them why its important to open new areas for exploration, says Luthi. Your companies represent a supply chain that goes way beyond any resource play or sectorlet them know it. Maryam Brown, Senior Energy Aide to Rep. John Boehner, says that nothing is more transparent than the number of jobs that the industry supports, and the message is working. Facts are on the industrys side, but facts wont win alone, says Brown. If you have no better evidence that youre getting traction, the President is now telling the American people that he supports American oil and gas and an all of the above energy policyyoure educating about the jobs youre creating and the economic benefit of what youre doing. Its trickling down. In addition to jobs, the most often discussed topics were the sequestration, Keystone pipeline, access on public lands

Sen. David Vitter (LA), Ranking Member on the Senate Committee on the Environment and Public Works, says that communicating the jobs provided by PESA member companies is essential.

and offshore, exports of oil and gas, taxation, and the national debt.

u.S. Debt
For many U.S. Representatives and Senators, the national debt has spiraled out of control and must be reined in. In 2008, the U.S. deficit hit an all-time high of $455 billion. In the past five years, the country had consecutive years of deficit in excess of $1 trillion. The problem is that, as a country, we spend $3.6 trillion, and we bring in $2.4 trillionthe result is a deficit of $1.2 trillion annually. That doesnt work in business, it doesnt work in your family, and its not working for our country, says Rep. Steve Pearce (NM). Weve sustained some of it by borrowingChina is the second-largest economy at $6 trillion, but you cant borrow one out of six, so were just printing the rest and calling it quantitative easing. Freshman Rep. Steve Daines (MT) says its daunting to look at the challenges in Washington, stemming from the fact that there are very few potential solutions that have trillion-dollar value. One of those very few trillion-dollar levers that we can throw is energy, says Daines. Expanding energy production in our country is a huge economic driver in n See Fly-In, next Page

Rep. Steve Daines (MT) believes that increased domestic energy production and exports are one of the few solutions to the nations debt and trade balance.

Washington fly-in
Fly-In
Continued from Previous Page

PESANews

15

terms of jobs. It adjusts our debt crisis, not by raising taxes, but by expanding the tax base, growing the economy, and generating revenue through leases. Many Congressmen have taken notice of the energy boom and are pushing to increase production, as it just makes sense. Pearce says that one discovery 60 miles south of his home in New Mexico is the equivalent of 90 years of production in the state. Rep. Gene Green (TX), a member of the Natural Gas Caucus, says that his goal for this Congress is to work to maintain and continue the progress the industry has made not only in his district, but nationwide. Throughout my life, we had feast and famine in the energy business, and this is the best Ive seen, says Green. We have growth everywherenot in just one segment. Dan Utech, Deputy Director for Energy and Climate Change at the White House Domestic Policy Council, says that the Administration knows the value of energy production and would like to work closely with the industry. He noted that in the Presidents State of the Union address, the President gave a significant amount of time to energy issues, reflecting the importance that the administration attaches to energy as a driver for growth and prosperity. In the speech, he reiterated an all of the above approach, says Utech. The country had the largest annual oil increase since 1859, imports have been falling, and natural gas production is at an all-time high. This is entirely due to the shale boom that has

Pat Bond (Light Tower Rentals) asked, Whats not to like about the jobs, the revenue, and the feedstock for chemicals and manufacturing? The number-one thing you hear in all the polls is the economy. So why would you strangle the one thing that absolutely helps the economy?

Dan Utech, Deputy Director for Energy and Climate Change at the White House Domestic Policy Council, says that the Administration knows the value of energy production and would like to work closely with the industry.

astonishing benefits for the country. The President has noted that shale gas alone can provide 600,000 new direct and indirect jobs in the next decade, and the increased abundance of natural gas has also helped contribute to the administrations objective on clean air standards. However, there is disagreement between the Administrations actions and words, according to several Members. Rep. Tom Reed (NY) and Rep. G.T. Thompson (PA)Co-Chairs of the Natural Gas Caucussay that the caucus looks at the entire industry, both upstream and downstream, and described the Presidents energy policy as none of the above. Meanwhile, Sen. Vitter says that the Administration has an almost religious objection to oil and gas. Pat Bond (Light Tower Rentals) asked the Senator about the perceived discrepancy. The thing we struggle with is whats not to like about the jobs, the revenue, and the feedstock for chemicals and manufacturing? The number-one thing you hear in all the polls is the economy. So why would you strangle the one thing that absolutely helps the economywe dont understand it, says Bond. Galen Cobb (Halliburton) used a manufacturing metaphor that was described throughout the Fly-In. In nearly all Congressional districts, a company opening a factory with a $2 to $6 million value would attract that districts Congressman for at least a ribbon cutting. Everyone loves manufacturing in their district because it brings jobs. We manufacture wells and theyre $2 million apiece and above. When we drill, its a manufacturing

operation, and it creates jobs that cant go overseas, says Cobb.

Access & Permitting

Rep. Doc Hastings (WA), Chairman of the House Natural Resources Committee, and his colleagues have jurisdiction over most public lands in the West as well as the outer continental shelf. He says that its in n See Fly-In, Page 16

Galen Cobb (Halliburton) and others used a metaphor to describe oil drilling as similar to building a multi-million-dollar manufacturing operation.

16 PESANews

Washington fly-in
than other areas. In offshore, the 5-year Outer Continental Shelf leasing plan has made available new leases to the industry, says the Administrations Dan Utech. In accordance with the 5-year plan, the administration has made available tens of millions of acres for oil and gas production. Earlier this month, the administration announced another sale for 38 million acres in the central Gulf, says Utech. Last March, the President signed an Executive Order that launched a government-wide initiative to cut review and permit decision times. But NOIAs Luthi says that the 5-year plan has not opened one-square foot of new area in the OCSthe industry is effectively searching in the same areas that it has for the past 30 years. Congress could authorize additional sales. Last year the House passed a revised five-year plan. It provided for 29 lease sales as opposed to 12, it opened up areas in Virginia, South Carolina, and California. The House has done its job as far as were concerned, but it languished in the Senate, says Luthi. He added that if Americas offshore potential were to be made a priority, producing those resources could sustain 1.2 million new jobs over the next 30 years and add $1.3 trillion to the economy. However, in Rep. Reeds district in the upstate New York portion of the Marcellus, theyre still waiting to get the door open the state is still under a fracturing ban. Meanwhile, Johan Pfeiffer (FMC Techn See Fly-In, next Page

Rep. Doc Hastings (WA), Chairman of the House Natural Resources Committee, says he wants to expedite the process for approving permits on federal lands and waters.

Fly-In

Continued from Page 15

every Americans interest to have productive public lands, which can provide a reduced reliance on foreign energy and fuel jobs for the economy. That was the focus of our Committee in the last Congress, and frankly, it will be the same in this Congress, says Hastings. We want to look at all of our public lands and expedite the process of permittingwe

Brandon Kirkham, Director of Federal Government Affairs for Marathon Oil Corporation, says the federal permitting system is onerous and permits that can be had in some areas in 10 days, take 6 months in the federal system.

passed that bill in the last Congress but it went nowhere in the Senate. The bottom line is that weve reached a point in this country where the slow down on energy development is happening more and more on public lands, and principally on federal lands. Tim Stewart, Vice President of USOGA, is critical of the federal permitting and leasing process. He says that if the energy sector of the federal government was a business, the onshore federal lands portfolio would be the most underperforming asset of all time. He says that a BLM permit can take as much as 298 days compared to 30 days with a state agency. To give you an idea of how big and how productive the asset is even under the most burdensome regulatory environment weve ever seen, in 2012 in five key producing western states, the onshore asset on federal lands produced a total economic benefit of $51 billion, says Stewart. Its not unusual to find projects delayed for 3, 5, or 7 years. In two projects in Utah and Wyoming, there were 64,000 jobs waiting with $4.3 billion in wages and $15 billion in economic activity waiting for the process. Brandon Kirkham, Director of Federal Government Affairs for Marathon Oil Corporation agrees that the federal permitting system is onerous. He says that permits that can be had in some areas in 10 days, take 6 months in the federal system. We love the Bakken, but our most productive area is on an Indian reservation, which opens us not only to tribal politics, which we can handle, but it also opens us to the federal morass that is much harder to manage, he says. One reason why we dont like drilling on federal lands is that its much harder, longer, and more costly

Randall Luthi, President of NOIA, says that if the U.S. offshore potential were to be produced, those resources could sustain 1.2 million new jobs over the next 30 years and add $1.3 trillion to the economy.

Washington fly-in

PESANews

17

tax credit issue will cause one-third fewer wells to be drilled, and it could cause 200 to 300 people working on our machine floor in Fort Worth building frac equipment to lose their jobs. Rep. Reed (NY), who sits on the Ways and Means Committee for Tax Reform, says that the key to the taxation issue is education. I find that when I talk to other Members, I often hear things like we have to get those subsidies away from the oil and gas people. I ask what they mean. One Member thought that the government wrote the industry a check each year. So we start from square one, and talk about business expenses, depreciation, amortization schedules, and all those things and then the light bulb goes oneducation is key, and its ongoing.

Regulation
Rep. Tom Reed (NY) and Rep. G.T. Thompson (PA)Co-Chairs of the Natural Gas Caucussay that oil and gas supports must appeal to the consumers interests. Reeds personal home utility bills were reduced to $100 per month from $500 by converting to natural gas from heating oil.

Fly-In

Continued from Previous Page

nologies, Inc.), says that he approved a $5 million investment just south of Reeds District in Muncy, PA. Pfeiffer says hes confident in the future of natural gas, but a huge domestic market is underutilized. My parents live close to the Marcellus and it blows my mind that theyre still heating their home with heating oil from the Middle East at $100 a barrel, he says. We should do something and let those in and near the Marcellus take advantage of the resourcesthere could be huge savings on their utility bills. Rep. Reed and Rep. Thomson agreed that the savings are indeed huge, about 80 percent cheaper. I discuss that all the time in townhall meetings and tell them to look at their utility bills. I live in Corning, New York, and we just put in a pipeline to bring in gas from the Marcellus. My personal heating oil bill was $400-$500 per month, and now its $100 a month with natural gas. We have to tie the issue to peoples personal interests.

member companiesless drilling means less supply chain. Youre ideally situated to talk about this to Members that are not necessarily disposed to talk about oil and gasyou employ a lot of people in jobs that are not automatically associated with oil and gas. Paul Coppinger (Weir Oil & Gas) spoke to several Members regarding the impact of taxation on manufacturing and service companies. The people who support this may think that theyre hurting Big Oil, but theyre really taking very good jobs away from people with a high school education. The

Sen. Vitter (LA) believes that the U.S. can be energy independent, that energy can improve the trade balance, energy can be a major export, and it can be a major creator of jobs. But, he says there are those in Washington who want to change those possibilities by regulating energy out of existence. I consider it my job as the ranking member of the Environment and Public Works Committee to push back on that and ensure we dont go down that path, says Vitter. Its a full time job since the past electionthere are lots of bad ideas for overregulation across the board, especially on hydraulic fracturing, which is the goose that laid the golden egg. n See Fly-In, Page 18

Taxation
Matt Kellogg, Manager of Government Relations for IPAA, says the most crucial item facing its members is the potential repeal of the expensing of intangible drilling costs. For our member companies, who drill about 95 percent of the wells in the U.S., taking away the ability to expense intangibles would be a 30 percent hit on capital budgets, which will equate to between 30 and 33 percent fewer wells drilled every year, says Kellogg. That directly impacts PESA

Paul Coppinger (Weir Oil & Gas) says that the proposed tax cuts which will cause a reduction in drilling by one-third, will cause hard-working, middle class workers like those in Weirs factory in Fort Worth to lose their jobsBig Oil, the intended target, will be marginally affected.

18 PESANews

Washington fly-in

Rep. Steve Pearce (NM) believes that elements of the Administration would like to end the oil and gas industry.

Fly-In

Continued from Page 17

Vitter and many other Congressmen agree there is little chance of energy regulation passing due to the legislative deadlock between the House, Senate, and White House. Were still going to try and see if there are areas where we can make progress with the Administration in terms of access and increased production. But there is a grave danger that the Administration will redouble their efforts to regulate by administrative fiat, which is doing things beyond their true authority, he says. USOGAs Tim Stewart says that the most common tactic of late is use of the Endangered Species Act. Between 1994 and 2006, the number of species petitioned to be listed was about 200. Since 2006, its 1,200 ranging from dozens of species of coral offshore, to birds, fish, and mammals on land. The Fish and Wildlife Service needs to decide on how to move forward on 775 species to be listed over the next few years, says Stewart. They were forced to reach a settlement in which they literally said to the Center for Biological Diversity, stop suing us and well figure out how to deal with this. Rep. Pearce (NM), a former oil and gas small business owner, says that many in the

industry may be complacent about the effect the Endangered Species Act could have. You might say the country wouldnt kill an industry thats so good for the country, but Id beg to differa good example is the spotted owl, which caused the timber industry to give up 80 to 90 percent of its sales. We used to have 123 logging mills in New Mexico and theyre all gone, he says. If you still arent convinced, look at the San Joaquin Valley in California. We used to get 80 percent of our vegetables from that valley, and because of a two-inch Delta Smeltwhich, incidentally, we could have bred in New Mexicothey killed 23,000 jobs. So, now we have a string of farm bankruptcies and import more vegetables from Mexico and other countries for a problem that could have been solved another way. The same people that were after those, are after you. Jan Karl Karlsen, Vice President for Government Affairs for Statoil, says that the company has a good dialog with the U.S. government, but they want to make sure that all parties understand their challenges. Onshore, our challenges are pending regulations ranging from EPA water management, methane emissions, and the challenges we have above ground in general, says Karlsen. We as a company think its completely legitimate to regulate these items, and were very much willing to

join the conversation. But we think there is a case for state and regional regulations because of the varying working conditions rather than a one size fits all approach. n See Fly-In, next Page

Jan Karl Karlsen, Vice President for Government Affairs for Statoil, says that while regulations are appropriate and necessary, state and regional regulations are more effective.

nEWs
The Macondo disaster has brought about huge changes in the offshore drilling industry, many of which are still unfolding three years later. The Bureau of Safety and Environmental Enforcement (BSEE) has announced major new initiatives in response to Macondo. The rules are complicated, comprehensive and, for the first time, the BSEE has clarified that the rules apply to service companies as well as operators. PESAs 2013 Legal Seminar brought together three subject matter experts to discuss the changes for operators, service companies and manufacturers, and legal implications for all who work in the Gulf of Mexico. API had what was known as a recommended practice, which said things like you might want to think about or should do this. RP 53 was re-written to a standard, which says things like you shall do this. They became mandatory requirements and are now enforced by the government as well. While the task forces findings have led to major changes in the Gulf including new BOP standards, well construction standards, and the availability of a massive spill-response system, the major item unfolding today are Safety & Environmental Management Systems (SEMS). n See Macondo, Page 20

PESANews

19

Macondo disasters changes to industry still unfolding

Change is Coming
Immediately after Macondo, a joint industry task force was formed with a focus on safe drilling operations. The group focused on four areas: offshore equipment, offshore procedures, subsea well control and containment, and oil spill preparedness and response. All of the discussions wrapped around what we needed to do differently, because it was clear that we needed something different, says Gary Devlin, Camerons Vice President of Quality and Customer Experience. On the equipment front, the

Gary Devlin (Cameron)

Upton says that energy exportsbe it coal, oil, or natural gasis a huge issue, and reaching out to your Congressman is the most important thing one can do. We have the votes in the House, and it makes sense for the country. See your Member and reach out to those who support your industry. Stay in touch and make sure that they stay activea Members job is to respond to their constituents.

keystone Pipeline
Rep. Upton says that the Keystone pipeline is an easy answer for simple supply and demand. Im a big supporter of the Keystone pipelineone refinery in my home state has undergone $3 billion in upgrades to refine oil sands, and a large refinery in Gary, Indiana, has done the samethose investments are in jeopardy. The President said, and I quote, Ill do whatever it takes to create jobs. Well, this new refinery in Michigan is the largest construction project, perhaps ever, in the state. With 150 members of Congress signing, Rep. Daines asked the President to approve the Keystone pipeline. The Keystone will run north to south through Montana, and in my state, its a 70/30 issue in favor of the pipeline. They want the jobs that it will bringenergy production means economic growth. Tom Moyers (Cameron) says that the pipeline, and others like it, are huge opportunities for American businesses and workers. For a company like Cameron that manufactures all manner of valves, the Keystone represents hundreds of millions of dollars, most of it made here in the U.S.

Rep. Fred Upton says that oil and gas exports and the Keystone pipeline simply make sense.

Fly-In

Continued from Previous Page

Exports
Rep. Fred Upton (MI), Chairman of the House Energy and Commerce Committee, says that oil and gas exports are a good opportunity for the country. Exports are in our best interest, he says. After Fukushima, how can we tell Japan that because of the sanctions we placed on Iran, they cant import from there and we cant export to them either? How are they supposed to survive? The DOE

even helped with our argument when they said that the price would likely rise by about only 50 cents. It just makes sense. The Administrations Utech says that as part of the effort to make informed decisions related to LNG exports, the Department of Energy commissioned a study to better understand how exports would affect public interests. The study was released for public review and comment, and the DOE will conduct its own review of the study as well prior to making any determinations. Following the comment period, the Department will act on pending export applications, but I dont have a specific timeframe as yet.

20 PESANews
MACOnDO
Continued from Page 19

nEWs
says. If there is an unsafe situation, or the contractor feels that its unsafe to continue work, we demand that the contractor bring it up. This is not lip serviceits a genuine care for the individual.

These new regulations require offshore operators to maintain comprehensive safety and environmental programs to strengthen drilling safety and reduce the risk of human error. As part of the new Workplace Safety Rule, all operators will be required to develop, implement and maintain a SEMS plan. Many major operators are implementing their SEMS systems supply chain-wide, which means the requirements will reach many service companies and manufacturers as well. These are requirements for our clients, and if you havent seen them already, theyll be on your doorstep soon, says Devlin. I have no idea what the regulatory requirements will be, but I do know that a lot of our major clients are coming to Cameron to see how we run our SEMS system.

legal Implications
During the Offshore Technology Conference in May 2011, Director of BSEE James Watson announced that the regulatory agency had jurisdiction over service and supply companies. Until this extension of jurisdiction is rescinded by the courts or corrected by proper rule making, every service company and supplier to the OCS has to consider themselves subject to BSEEs jurisdiction, says Robert Thibault of Perkins Coie, LLP. There are no blanket exceptions for equipment suppliers. Thibault says that since there are no statutes, standards, or definitions, there are currently no limits to liability. Among the most potentially damaging is Joint and Several liability under 30 CFR 250.146(c): The person actually performing the activity to which the regulations requirement applies is jointly and severally responsible for complying with the lessee and operator. The person actually performing the activity is the hoop, and the problem that the service and supply sector has is that this is only a bootstrap onto all of the existing regulations that are out there for lessees, says Thibault. Joint and Several liability is not just you being directly liable for your own mistakes, but you can be fully liable for someone elses mistake if theyre working with you, and that someone is the lessee and operator. He says that all companies working in the Gulf should consider the potential business impacts of liability in an offshore accident. He recommends reviewing regulatory compliance programs, review insurance agreements for lack of or limits on coverage, and review service contractsunder the Macondo decision, the courts ruled that indemnity agreements do not cover penalties for an accident.

Karl Van Scyoc, Anadarko Petroleum

An Operators View
Karl Van Scyoc, Anadarko Petroleums Senior Staff Facility Engineer, says that the SEMS rule hasnt changed everything, but it has substantially raised the bar and supplier expectations have increased. We dissected what this means in our relationship with suppliers, says Van Scyoc. There are key themes to what the rules are asking us to do such as verification, testing, inspection, maintenancethese words are telling us that we need to think about the interaction that we have with suppliers. Anadarkos leadership took a detailed look at their supply chain, particularly with interaction issues. Our supply chain is a relational thing. We sought out key suppliers and developed relationships at all levels of the organization. It was revealing for us to learn how many interfaces need to be managed, he says. Its a win-win. It improves lead time, and gives us a leg up on quality, deliverability, and repeated success. SEMS rules have led Anadarko to alter its supplier selection. In the past, suppliers were often reviewed in terms of

their safety, environmental performance, and contractual terms. But under SEMS, were required to look a little bit closer, says Van Scyoc. We need to see how you actually conduct your activities as a service supplier, such as looking at your training, certifications, qualifications, and capabilities. And this is done not only for the organization, but for individuals within the organization. Among the functional changes brought about by the SEMS rule are supplier transparency in terms of equipment origin and more thorough design reviews; maintain an auditable history of key pieces of equipment; and an increase in the interest of the fine print in contracts. But among the most prominent are critical equipment lists and improved communication. We had to compile a critical equipment list. For each of

those items, we, in conjunction with our suppliers, have come up with assurance plans that are commensurate with the criticalities associated with it, so we can demonstrate that equipment is compliant with design, fabrication requirements, procurement requirements, and proper installation. The one critical function that underpins everything in the operator / supplier relationship is communication, says Van Scyoc. Part of the SEMS rule requires that major contractors and suppliers work with the operator to bridge critical documents between management systems. While that meets regulatory requirements, Anadarko has made an emphasis on bridging people. We train our contractors and enforce a culture of open communicationwe work very hard to remove the barriers that are traditionally there between a contractor and customer, he

Robert Thibault, Perkins Coie, LLP

nEWs

PESANews

21

Shell rolls out new process safety program

I have to admit that, as a wells guy, we in the Shell community used to think of process safety as a refiners thing. But of course we had our wake-up call on April 20, 2010. Process safety catastrophic events are not very likely, but high consequence says Gordon Graham, Vice President Wells HSE for Shell International. Speaking at the 2013 Gulf Coast Louisiana District Meeting, Graham says that process safety is close to everyones heart at Shell, especially in the post-Macondo world. Wells process safety is about keeping the hydrocarbons in the pipe, the well, or reservoir, he says. Its important because major accidents can harm people, destroy the environment, damage assets, and negatively impact reputation. Shell is rolling out its new process safety program, Think Process Safety, within the company and among contractorsGraham says the company needed a step-change in process safety. He quoted Executive Vice President for Wells Peter Sharp as among the reasons why: Doing the right thing when it comes to process safety is not the default everywhere all the time we dont yet exhibit all the characteristics, and I think we need to do so to ensure that we are reliably at zero. The company has talked about Goal Zero for quite some time, but largely in terms of personal safety. Were changing that to just no harm. From a wells perspective, were aiming for no barrier events and no leaks. We think process safety will get us there, says Graham. The program will help to prevent the incidents and unsafe conditions that could lead to major events. It will drive the actions we need to maintain control of our wells, says Graham. Were targeting this at every level, from senior leaders to front line workers, contractors included. The guidance is day-to-day, practical, direct, and over time, will be embedded in everyones way of working. Think Process Safety covers the ten elements that Shell leadership sees as critical elements of process safety. 1. Barriers. We have a policy of two barriers in the well at any time, and we need people to understand what the barriers are, and who is looking after them. 2. Lost barrier. Immediately stop, report it, and fix itdont continue on one barrier. 3. Subsurface uncertainties. There are always uncertainties in our business, but we have to better understand them and their potential scale by working closely

with our subsurface colleagues. 4. Well control equipment. Know it, maintain it, make sure its certified and tested. 5. Trained people. Do we have the right competency of people, is it recorded, is the right person doing the job? 6. Standards and procedures. We have spent a lot of time in the postMacondo world updating our standards and procedureswhen I was a drilling engineer, we had a casing and tubing design guide. Now its a manual so that the mandatory requirements are clear, and were in the process of releasing our pressure control manual. 7. Risk assessment. This is an area of weakness. We have a tendency in our business to do the risk assessment to say weve done that and move on to the job rather than constantly asking what we need, whats missing, and what do we need to do better. 8. Walk the line. We want to have our supervisor and our contractor supervisor the key senior guyswalking the line and verifying that each part of the well is made as intended. 9. Emergency response. Test your emergency responses on a regular basis and have regular drills. Know your hard shut-in procedures, and who has authority to do what. 10. Report and learn. Were trying to instill more openness in reporting, taking the stigma away from having an incident, and trying to learn from mistakes. For example, if were in the completions phase and were down to one barrier, were reporting that into our system and learning from it. Previously, we would

Gary Halverson (Cameron) serves as PESAs Gulf Coast Louisiana Chairman, and Gordon Graham (Shell International) flew in from The Hague, Netherlands, for the meeting.

have missed it, and we wouldnt have learned. Contractors can help Shell support Think Process Safety. Get wells process safety on your corporate agenda and think about it in your business, says Graham. The events were talking about here are the low probability and high consequence events. Theyre easy to ignore because youre not seeing it all the time. Be pre-occupied with failure and constantly ask yourself what could go wrong.

22 PESANews
Energy independence is no longer a pipe dreamits real and ongoing. The countrys oil imports have been drastically reduced in the past five years, says Richard Muncrief, Senior Vice President for Operations and Resource Development, Continental Resources, Inc. In 2007, the U.S. imported 58.2 percent of its oil; in the fourth quarter of 2012, it was 36.2 percent. The game changer has been North Americas resource plays, Muncrief told PESA members at the 2013 MidContinent District Meeting. They stretch from the Eagle Ford in South Texas to the Northwest Territories in Canada to the huge Marcellus resource in the East. Its technology driven with large, continuous reservoirs that will require decades to develop. The good news, he says, is that theres not a lot of geologic risk, but there will be execution risk in how efficiently the industry develops the resources. The numbers to develop these resources are staggering annual capex for unconventional upstream in 2012 was $87 billion. By 2020, it will grow to $173 billion, and by 2035 it will grow to $353 billion. The total for 2012 to 2035 is estimated at $5.1 trillion, and thats just capital spent on the wells, and does not include manufacturing equipment. Tight oil production is set to grow rapidly. By the end of the decade, the U.S. should double crude oil production from tight rocks from 2.1 million to 4.4 million barrels per day. By 2035, tight crude oil and condensate is expected to account for 63 percent of U.S. production, says Muncrief. And the job numbers are staggeringthe greatest contribution will be from 2012 to 2020 with the addition of nearly 1.3 million jobs.

nEWs

Energy independence is achievable for the U.S.

Bakken Success
Continental Resources is the number-one producer in the

Rockies and Williston Basin. The company is on a substantial growth trajectoryleadership set out to organically triple the size of the company in 5 yearsthey did it in 3.5 years. Much of their success has come from the Bakken formation. Muncrief says that the petroleum industry has revitalized the entire state. In 2005, the industry employed just over 5,000 people and had a total economic impact of $4.4 billion. In 2011, there were 41,000 jobs and an economic impact of $30.4 billion. Keep in mind that 2011 was a good year, but 2012 was even better, he says. Whats interesting about this study, is that for every dollar the petroleum industry spends in the state, it has generated another $1.60 in additional business activity. Muncrief says the Bakken is a massive oil field of unprecedented magnitudethe play is 15,000 square miles and 87 percent has proven productive. Technically recoverable reserves are 24 billion Boe assuming only a 3.5 percent recovery and 83 percent of that is oil. Its important to understand that the Bakken is still in early

Left to right: Mid-Continent District Chairman Johan Pfeiffer (FMC Technologies, Inc.), U.S. Rep. Tom Reed (NY), and Richard Muncrief (Continental Resources, Inc.)

stages of development even with 200 rigs operating in the last two years, he says. Even with approximately 5,000 wells drilled, there is still less than 1 well per 1,280 spacing unit on average. We estimate that full development will involve 4-to-8 wells per zone per unit. Continental currently has 22 rigs running in the Bakken and has potentially 4,000 net

locations to be drilled. They are the number-one leaseholder with a net unrisked potential of 1.5 billion Boe. There is a tremendous amount of work to do, we have some 10 to 15 years of drilling to go but production will continue for 100 years, he says. We have a little over 1.1 million acres and 98 percent of n See Continental, Page 24

nEWs

PESANews

23

Tournament Champs (118)

Jon Graham (Apache), Shawn Able (Halliburton), Blake Jared (Apache), and Bill Henn (Halliburton).

Explorers Golf 2013

Weather was virtually perfect for PESAs Explorers of Houston Annual Golf Tournament, held March 7 at Redstone Golf Club. The event was chaired and organized by Committee Chairman Robert Workman (National Oilwell Varco). Above: Terry Lechinger (Stress Engineering Services, Inc.) connects with a drive. Right: Shawn Able (Halliburton) uses a long iron for his second shot on a long par 5. Bottom Right: Tony McLain (Gardner Denver) watches his drive on a par 5.

Second Place (121) Matt Oglesby (National Oilwell Varco), Bill Losa (Cameron), Greg Cain (National Oilwell Varco) and Matt Cordell (Edgen Murray).

Below: Robert Workman (National Oilwell Varco) drives on a par 4 hole.

Third Place (123) Sean Salois (J & W Services), Doug Goswick (Oxy USA), Don Robinson (Halliburton), and Fred Kellerman (Consultant). longest Drive Trent Fontenot (Plains Exploration & Production) Straightest Drive Chuck Chauviere (GE Oil & Gas) Closest-to-the-Pin Bob Collins (FMC Technologies, Inc.) Closest-to-the-Pin in Two Shawn Salois (J & W Services)

24 PESANews
U.S. Oil and Gas Field Equipment Exports
(in U.S. $1,000) JAN FEB Mexico 68,785 118,351 China 24,922 28,458 Singapore 21,248 29,748 Russia 46,189 20,450 Korea 45,593 23,505 Brazil 20,010 30,778 Colombia 11,415 18,662 Angola 29,738 19,533 Nigeria 18,111 7,219 U.A.E. 21,672 11,801 Venezuela 17,272 13,425 Saudi Arabia 13,242 16,232 Iraq 7,814 11,052 Spain 240 185 Panama 8,550 2,935 Subtotal All Other Total

nEWs
PESA News Petroleum Equipment Suppliers Association 1240 Blalock, Suite 110 Houston, TX 77055 First Class US Postage Paid Houston, TX Permit No. 04805

Top 15 Destinations for Q1 2013

MAR 104,444 60,104 45,116 28,886 43,832 25,810 43,924 21,231 39,199 20,921 21,570 21,060 27,207 43,652 29,256

Source: U.S. International Trade Commission

354,801 352,335 576,211 284,608 691,992 217,546 639,409 1,044,327 793,756

COnTInEnTAl

Continued from Page 22

that is held by production weve de-risked it and are now able to go in and start determining where we want to go. Rig count in the play is down by 15 percent, yet production is still growing, a story that Muncrief attributes solely to industry efficiency. We have 22 rigs running, and if you go back only 18 months, wed need 30 rigs to do what those 22 do today, he says. Were pushing the limits of technology as wellwe set a western hemisphere land record for total measured depth in a horizontal well at 27,000 feet. We went down 2 miles, turned and made a 3-mile lateral. Muncrief says that Continental takes pride in trying to be the low cost operator. We dont want to be the cheap company, we want to do it right, he says. We set a target for reducing the average cost of each well from $9.2 million to $8.2 millionwe want to shave $1 million off the cost of each well. Thats not just beating vendors down,

Before Muncriefs presentation, U.S. Rep. Tom Reed addressed the group regarding the potential of Americas energy reserves.

but we think its around efficiencies within our systems. They have decreased the stimulation costs per stage by 27 percent since the fourth quarter of 2011. In addition, pad drilling is helping to maximize recovery and reduce

costsContinentals first six-well pad saw a 36 percent improvement over six single well pads, or a savings of $1.5 million per well. A huge problem in recent years, Muncrief says that evacuation of oil assets are no longer a central issue thanks to

rail systems and upcoming pipelines. When you take production from 100,000 to 800,000 barrels per day, it creates a problem, he says. Rail has saved the day, and refiners are stepping up and building their own rail facilities. There are almost 1 million barrels per day of committed pipe and about the same amount of rail or committed rail, plus 1.3 million per day of pipe projects working their way through concept. The key challenge now is choosing the most economic transportation mode from month to month. Following the early success of Continentals previous fiveyear plan, the companys leadership is doubling down on its next five-year planthey aim to once more triple the size of the company via the drill bit. Were starting with a 30 to 35 percent production growth in 2013, and we have a deep inventory including the Niobrara in Colorado and of course the Bakken, he says. Given our larger size today, its ambitious but completely doable because of the premier assets on which it is based.