Reading Time: 28 minutesMark shares harrowing oil and gas service company war stories from Hurricane Katrina, deepwater drilling is NOT dying, and cyber security takes center stage.
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#041: Oil And Gas Service Company War Stories
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India in Talks to Build $4.5B Subsea Pipeline to Transport Gas from Iran
China Fuel Shipments Surge to Record as Oil Imports Rebound
Devon Energy, EnLink Midstream Team Up for $4 Billion Acquisition from Private Companies
Devon’s $2.5 Billion Shale Grab Prompts Downgrade Warnings
Oil and gas security and service market to grow
Why Deepwater Drilling Could Be Dying
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#041: Oil and Gas Service Company War Stories
Transcripts Courtesy Of
James: I’m James Hahn II.
Mark: And I’m Mark LaCour.
James: You’re listening to this week in Oil and Gas brought to you by Red Wing, episode 41. Welcome in, Mr. LaCour.
Mark: Great to be here, James. We’re in December. The holidays are coming. Red Wing is sponsoring our podcast. It just does not get much better than this.
James: Yeah. Except I already dropped the ball, because this is the show for busy oil pros who want to quickly keep their finger on the pulse of the industry.
I’m James Hahn II from triberocket.com. We are a sales-driven marketing firm. I like what I said last week. It’s in my sidebar on the blog. We’re not marketers. We’re a sales team that’s damn good at marketing. What about you, Mark?
Mark: Mark with modalpoint.com. We are an oil- and gas-focused market research company. If you have a product or service that you’re trying to sell in the oil and gas industry, we will tell you where you fit and why people will buy it.
James: How are you doing this week?
Mark: I’m doing awesome this week. It’s just a great week. We’re in December. It’s winter in Houston, which means it’s below 75 degrees. We got an awesome sponsor at our podcast.
James: You would like it when it’s below 75 degrees, but you ride on four wheels, not two.
Mark: Yeah. But I’ll tell you what. You know you’re from Houston when it gets below 90 and you put the windows down and open the sunroof.
James: I saw quite a few people riding around this week in their drop tops with the tops down.
Mark: It’s below 90. They thereby open their convertibles and sunroofs.
James: Right. I heard that you had a conversation with Red Wing yesterday.
Mark: Yeah. We’re figuring out what’s the best way to help our audience with Red Wing. If people don’t know who Red Wing is – most people in the oil and gas industry know them as Red Wing Shoes. Everybody in the industry owns a pair of their boots. I own a pair of their steel-toed boots. But there’s so much more than boots.
They do a lot of personal protective clothing. We’re looking at doing some stuff for our audience. People, stay tuned. Not only do we have some really cool Red Wing giveaways, but we’re looking to bring some good, helpful content to our audience courtesy of Red Wing.
We’re also looking at doing some events wherever Red Wing’s exhibiting oil and gas events. We’ll do some invitation-only stuff for our audience. We’re talking about maybe doing a very specific, very special invitation-only cocktail event for our audience for Red Wing in the future. Folks, stay tuned.
James: Awesome. Let’s get into the stories, because there is a lot going on. It’s just nice to not have to talk about what everyone else is talking about these days. Oh, man. It’s too much.
Let’s talk some oil. India in talks to build $4.5 billion sub-sea pipeline to transport gas from Iran.
Mark: This is a project that got put on hold a while back and is being revisited. Basically, if you listen to the show, you know we’ve talked about this. India’s consumption of crude oil and natural gas is growing like crazy. In the very near future, it’s actually passed up China.
This is just a perfect example of how India’s doing some midstream capex projects to be able to import gas from Iran to feed its need. The nice thing about this is that it’s going to help the people in Iran, because they’re going to have to make money from doing this.
It’s going to help all the people that actually construct this pipeline. This is not a six-month project. It’ll be a multi-year project. It’s actually helped the people of India.
India’s air pollution is extremely bad, because they have a lot of coal-fired electrical plants. It reuses gas not only for electrical generation but for other things like cooking and stuff which will lower their emissions.
All in all, it’s just another example of how gas and midstream is ruling the immediate future and the far future as well.
James: You mentioned it was put on hold. I’m glad you brought that point up, because the conspiracy theorists among us might say “Well, didn’t someone just shoot down, and wasn’t India involved and Russia and so forth?”
Mark: There’s no way it’s going to be a conspiracy theory. It was put on hold because of the sanctions. Why would you spend the money if you were India to transport natural gas from Iran when Iran was not allowed to transport natural gas? It just didn’t make business sense.
Now that the sanctions look like they could be lifted, they can move forward with the project.
James: All right. China fuel shipments surge to record as oil imports rebound.
Mark: Yeah. We’ve talked about this before in the past, too. China is importing a lot of crude. What they’re doing is they’re going to refine it. They’re building refineries like crazy so they can export the refined products. Jet fuel, diesel, gasoline, ethanol, methanol – all the petrochemicals.
This is China trying to get ahead of the boom and export business that we talked about for our 2016 predictions.
James: They talked about the economy is recovering slower than expected. How is the economy in the – what’s going on over there?
Mark: People get this mixed up all the time. The Chinese economy grows year over year. It has been for a long time. That growth, if you think of a bell curve, was at the very beginning of the bell curve up until just recently where the growth was over double-digit growth.
Now, it’s at the top of the bell curve. The growth is still happening, but it’s happening much slower. Their growth is still much faster than US or European economic growth. This is one of those metrics that we use when we forecast when we think the price of crude’s going down as we’re watching that slowdown in growth, but the growth is still there, which means they’re increasing their consumption, which eventually will eat up the oversupply that’s in the market which will cause prices to go back up.
James: In China, a recession isn’t going backwards, it’s slowing down?
Mark: It’s not a recession. They’re not going backwards. It just the growth metric is slowing. The Chinese government does a really, really good job. Of course, their economy is the government. They have control over everything. But they do a really good job of putting money and effort where it’s needed to keep the economy moving forward.
James: It says “biggest quota”. What are some of these quotas that they have to make that they’re talking about?
Mark: In China, there’s something called teapots. I’m not sure where they got that name from, but a teapot is what you and I would call the independent. Not a super major, not a knock, but an independent.
These teapot quotas have been raised which allows them to export more. The reason the quotas have been raised for these independents or teapots is that China sees the need to capture more of its export market globally. They’re trying to get their products on the market before anybody else.
James: I’m not going to sing that song. I’m not going to do it. I’m just not going to do it.
All right. I put these two back-to-back here. Maybe you saw what I was going for here, but Devon Energy, EnLink Midstream team up for $4 billon acquisition from private companies. What is going on here?
Mark: This is great that you put these two back-to-back, because it dovetails so well.
Basically, Devon Energy is using its superior position in the market – they have less debt, more cash – to buy somebody that is in a less good position in the market. Basically, this plays in Oklahoma. It’s a very good, strong reservoirs out there that EnLink just doesn’t have the money right now – the slow crude price environment – to capitalize on.
Devon’s buying them so that when the price returns, they’re sitting on some great acreage that nobody else has.
James: It’s a part of river basin?
Mark: Yeah. That’s just north of Texas in Oklahoma.
James: I’m looking it here. World-class development plays largest and best position. Four hundred and thirty thousand net surface acres. This is stuff they’re all going to drill in 2016?
Mark: I don’t think they’ll drill in 2016. This is Devon building its reservoirs of prime acreage. They may do some drilling there depending on when the price rebounds, but as soon as the price hits $60 a barrel, Devon’s going to be blowing and going in this reservoir, and they’re making serious money.
James: One of the earliest terms I learned in this industry was “stock pump”. Buying acreage to pump a stock.
Mark: This is actually the opposite which will lead us into the next story.
James: Okay. Let’s talk about the next story, then. Devon’s $2.5 billion shale grab prompts downgrade warning.
Mark: Yeah. When you’re a public company and you spend money and your debt goes up, the quality or the value of your stock goes down. It just makes sense, right?
This is Devon knowing ahead of time that its credit is going to be downgraded and its stock value is going to downgrade because they spent cash on this play that is not productive right now. Today, it’s like, what, $37 a barrel for sweet crude?
They knew ahead of time this is going to affect their shareholder value. They knew ahead of time this is going to affect their credit rating, but this did it anyway. This is a very strategic move by Devon Energy.
James: Why would they do it anyway? I know you just said why they would, but why would they do that?
Mark: Let me talk about modalpoint, give you a real-world example. There’s some competitors of mine, some smaller competitors of mine that just started up out there. They’re probably worth maybe a million dollars. You do three towns’ earnings. Maybe at most they’re worth $3 million.
I could go to my bank right now and borrow $3 million to buy one of our competitors. Now, if somebody wanted to buy modalpoint, I’m now worth less, because I have this $3 million worth of debt. But what I’m doing is making a strategic move knowing that if I buy one of my competitors, I will increase my business. Does that make sense?
James: That makes a lot of sense. How does OPEC fall into this?
Mark: OPEC doesn’t follow this. We can’t export our crude. It’s that simple.
James: But that doesn’t stop Bloomberg from talking about it.
Mark: Yeah. I am firmly convinced that Bloomberg is playing the buzz that it creates every time it talks about $20 a barrel just to drive traffic back to their site or back to their analyst. I’m not saying it won’t hit $20 a barrel. I’m also not saying that aliens won’t land and give us the keys to time travel.
James: Oh, man. I had a follow-up on their pipeline assets, but now you just threw me off. We’re going through these stories so fast, we’ve got to balance it out between this and also our new show which is launching today.
Mark: Yeah. Our new show is about careers in oil and gas. We’re trying to balance the show. If you’re looking for a new gig in oil and gas or you’ve never had a job in oil and gas and you want one, we’re trying to help you get that. At the same time, if you have an existing career in oil and gas and you want to make the best of it, we’ll try to help you with that as well.
Folks, subscribe to our new show when it comes out. It’s going to be really good.
James: Yeah. These are very straightforward, which is the Oil and Gas Careers Podcast, the show for anyone looking for a career in the oil bidness. It’s always a good time to be in the oil bidness, because it’s always going to be growing in one of the four segments. We talk about that all the time.
Mark: Yeah. One of the segments is always hot. In my 20-some-odd years of being in this industry, I have never, never seen where one of the segments is just not blowing and going.
James: Let’s talk about that. I want to take a side bar here, because you and I had a conversation the other day about how you got into the industry and had a very different experience than everyone else. I think that might be something to talk about, because myself and most of the people listening, we came up in one segment and only had a one-segment worldview. How did you come to where you are now?
Mark: This was a very long time ago. I was traveling the world building cell sites. I met a woman, and I wanted to settle down, quit traveling so much. I had connections with the phone company in the East. It was called Bell South at the time.
I reached out to one of their VPs, and I said “Hey, I need a job where I’m not traveling as much.”
He goes “Mark, I have the perfect job for you, but I just need to tell you upfront, it’s had declining revenue for 27 straight years.”
I just wanted the job, so I took it. It was the oil and gas book of business. Because it was a phone company, everybody used them. Don’t just think voice. It was static connectivity at that time. People may not know this, but you can’t run a pipeline or refiner without data connectivity back to headquarters.
I was in the premiere part of the US. I was in the Gulf Coast where everybody operated. Long story short, I did really good work for my clients, for all my oil and gas clients, but because I had everything, I was exposed to Upstream. This doesn’t happen anymore, but I had people like, “Hey, you want to see what a rig looks like? Come with me. Get the heliport on Friday. We’ll fly out there.”
I got exposed to Midstream. I did a lot of work at the pipeline companies. Got exposed to Downstream, did a bunch of work for the refineries. I spent a lot of time in refineries.
I have a TWIC card, which means I’ve been cleared by Department of Defense to be able to go in sensitive areas like pipelines and refineries. That’s part of National Defense.
And service companies. I spent a lot of time in service companies. Halliburton loved me. Did a lot of good work for them. I got a chance to see mud plants and thru tubing services and coiled tubing services in person.
That was my entry into the oil and gas industry. The nice thing that I’m so blessed to have had is I got exposed to all four segments equally. I got to see and be able to piece together, this is what Upstream does, but they can’t do it without people doing the work. That’s what the service companies do. They come do the work in Upstream. Then they’ve got to move it. That’s what the pipeline guys do. They deliver it to a refinery. Oh, they turn it to plastics and fuel.
I got to see the entire industry from one end to the beginning in the very beginning. That’s helped me a lot in my career.
James: Me, too. Give us a war story.
Mark: Do we have time for war stories?
James: We have time for a war story.
Mark: One of my favorite – and I’m not calling it a “war story”; it shows the heart that’s still in this industry – when Hurricane Katrina happened, I was not in Bell South territory. I was not in Louisiana. I was here in Texas. I was the only rep that they could reach out to. Quite honestly, nothing against the Sprint, AT&T, and NCI guys back at the time, but because we built our infrastructure in Hurricane Alley, it was all underground.
We had the only infrastructure that was up and still working. Everybody else’s infrastructure was down. I was the only person that anybody could get ahold of to try to get connectivity. What people don’t understand is even Bell South who had over 100-year history in Hurricane Alley in Louisiana had never prepared for the wrath of Katrina.
I ended up doing stuff with handshakes. No contracts, nothing. Stuff that broke FCC rules and company policy. But I got connectivity. I literally pulled people out of retirement to start doing microwave shots from our CO on Pointer Street, which was lit. We had power and all that sorts of stuff.
We actually had a service base on the third floor, because our engineers, 90 years ago, when they built that building, knew that if New Orleans ever flooded, we’d have to have base on the third floor to ferry in supplies.
I got a bunch of guys get a spool fiber, went out to the Chevron refinery in Pascagoula, Mississippi, basically plugged it into them and drove with the truck and spooled it on land till we found our next CO.
Anyway, we got a bunch of connectivity going. It was crazy, crazy work. We got those refineries up and running again so that the Gulf Coast could have fuel. There was no fuel at the Gulf Coast.
What was really cool about that when it’s all said and done a year later, every one of my clients, every single one of them, the Exxons and the Halliburtons and the Schlumbergers and the BPs and the Chevrons paid every one of those bills. No questions asked. It was just great. It shows you the heart of this industry.
A little side note: When all that was over, I got called back into our corporate office in Atlanta. I got called into the CEO’s office. He had this old dot matrix. I don’t know if you remember dot matrix. Remember those green and white striped printouts, and it had holes in the side?
James: Yes.
Mark: He had this dot matrix sheet, and it went to the floor. He had a red pen. He was reading it, and it goes “Broke company policy. Broke company policy. Broke FCC rule. Broke company policy.”
When I first walked in, I thought I was going to get in trouble, and then as he went, it was like, I’m going to get fired. Then he kept going, and it was like, I’m going to go to jail.
When it was all said and done, he put it down, and he looked at me straight on. He goes “Mark, I am happy to have you on my team. If you would have done this at any time other than this type of natural disaster, you’d be out of here. But you did the right thing.”
I love that.
James: Yes. War stories from Mark LaCour. We’re going to get some more of those on this show.
All right. Yeah. We did have time for that. I started with this segue over to market growth, because oil and gas security in service market to grow. This is looking forward to 2020, so what’s going on?
Mark: Yes. We talked about this in our forecast, too. The oil and gas industry has become more digital. There’s more points of entry for the bad guys.
Cyber security up until just recently was something only the CIO and his CSO worried about. Nobody in Chevron in the business have worried about cyber security. I’m not going to have specific incidences, but the last couple years, there have been some major state-sponsored cyber security issues in oil and gas.
When I say “state-sponsored”, used to be some kids in upper Iowa who were bored and tried to hack into Chevron. Now, it’s some of the smartest people in the world working for some foreign governments looking for probably financial data. They’re good. They’re really good. They’re being propped up by the state. They have the top resources, the top computers, top internet access, the top money to try to break into this.
It’s happened. There’s been some instances in the industry. No, the business is worried about cyber security. You go talk to an operations manager at Saudi Aramco or Petrobras at Exxon, and he knows what cyber security is, and he’s worried about it.
That was one of our predictions that we did for 2016, that technology such as cyber security is going to be a major business driver. This is just an article showing how not only has that become a major business driver, but the amount of money and resources that the businesses want to spend to protect itself is going through the roof.
You went from a market that was almost nonexistent ten years ago – now, there’s some serious money to make in cyber security in oil and gas.
James: North America accounts for the largest market share of 35.29% of the overall oil and gas security market in 2015. This is just going to keep on growing.
Interestingly enough, you just mentioned in terms of the guy that would know about that – you just gave a sales tip to anyone who sells cyber security to oil and gas.
Mark: Yeah. Don’t go talk to IT. Go talk to business. Talk about the impact. Let me give you a real case scenario.
Pipeline, which are growing in this country, used to be analogue. What I mean by that is you handle remote valves with the connection was at dedicated data circuit, an analog circuit that went from that valve back to headquarters. The only way you could hack that is literally drive out to the pipeline, find those wires, and tap into it. That’s hard.
What’s happened now is that same pipeline – that new pipeline has a bunch of digital entry points. That valve is still there, but it now has a digital interface. That digital interface connects to either intranet – so private network – or it actually connects to the public internet with an encrypted tunnel. Both of those can be hack from outside without even physically being there.
Think about how many thousands of valves and pumps and lift stations are on a single pipeline. Think about the thousands of pipelines that are being built in the US. All of a sudden, the entry points for the bad guys have grown immensely.
If you’re IT security, if you sell IT security of any type, don’t go talk to IT. Go talk to the business. Go talk to the operation manager at Kinder Morgan who his bonus will be affected if somebody hacks a pipeline and shuts down flow. He gets it.
James: Yeah. He’s the one that’s personally affected by that problem, not the IT people.
Mark: Yeah. You’ll still have to interface with IT, but it’s a different conversation. Instead of them controlling the conversation of the sale, they’re there to support you, quite frankly, because once the business buys into it – the only person that has the budget, by the way – in oil and gas, IT has no budget. They’re given just enough budget to keep the lights on. If they want to buy something new, they have to go to the business and explain why they need the money. They’re horrible at explaining to the business why they need the money.
As opposed to the business who has millions of dollars of flexible funds that could buy anything it needs that will help the business.
James: You major competitors are going to be it says Semantic Corporation, Honeywell, Microsoft, Siemens, and UTC?
Mark: That’s the big companies that are in this place, but there’s several hundred much smaller companies that have very specific products out there. There’s even some government companies like Lockheed Martin. I had an incident a couple years ago that I’m not going to tell you the details where a major knock got hacked and they could not figure out how. Lockheed Martin had to come in with some artificial intelligence, and they figured it out.
James: Artificial intelligence to solve the – okay. That sounds interesting. You said you don’t want to give the details, so we’ll move on. I understand.
Mark: Nondisclosure.
James: I understand. Why deep water drilling could be dying. Clickbait headline. Let’s go.
Mark: I love this article. The title is a bit inflammatory. Common sense will tell you that deep water should be pushed back, because it’s one of the most expensive – I think it’s right behind the oil sands as far as expensive oil to get out of the ground.
If you actually read this article, it talks about these players that are getting out of deep water. These players, quite frankly, suck at deep water. It has not been a cool business.
I mean, ConocoPhillips and Apache and Devon Energy? Those aren’t deep water players. They recently got into it, and now they’re exiting, because it’s not their core business. When you want to talk deep water, you need to talk about Statoil or Shell or Exxon or Chevron. Those are deep water players.
The bigger players are not pulling out of deep water. They’re pushing projects out. Chevron’s actually doing some stuff in the Gulf of Mexico which I think is pretty cool. They’re actually buying deep water leases right now, because they know that they’re devalued.
The title of this article is somewhat correct, but if you read the context, the players, independents that we’re talking about, are not deep water players. They’re land players who got into deep water. Of course they’re going to be the first ones that pull out.
James: No pun intended, Ohio.
Let’s talk about that, though. How is it that three really good performers on land can get out there in deep water and just not bring it home?
Mark: It’s not that core composite. Let me switch it around. Other than Exxon, who bought XTO, the big deep water players who tried on land have also exited. Shell, Chevron – they’re not good in the frack fields because it’s not their core competency. They’re deep water players. Or I shouldn’t say deep water. They’re offshore players, and deep water’s one of their core composites.
Apache, Devon Energy, ConocoPhillips – these aren’t offshore players, much less deep water. What they did, they stuck their finger in it when it was $100 a barrel. They can’t run it as efficiently. They don’t have the depth of deep water engineers, subsea engineers that the other guys have. It’s just not cost-effective for them.
It’d be like me taking modalpoint and go try to do market research in the medical field. I don’t know jack about medical. I couldn’t do that. It’s the same thing with them.
James: Let’s pick apart this graph a little bit, because there’s a pretty interesting graph on here. By the way, all of the stories that we talk about on the show and then if you want to look at this graph as well – everything is linked at triberocket.com/tw41 on this one.
Winning portfolio, increasing flexibility and returns, decreasing cost of supply – can you break this down for us a little bit?
Mark: Yeah. It’s basically showing the different types place I think of oil sands, conventional reservoir on land, convention reservoir offshore, deep water, ultra deep water. When you look at those different methods of getting oil out of the ground, this graph is talking about which has the most flexible growth, which ones has the lowest cost of getting oil out the ground, and which one has the most stable cash flow over the life of that well.
You look at that. The oil sands and deep water are on the far left of the graph, which means they have a higher cost of supply, less flexible growth, and not as competitive a cost.
Look to the right of the graph, and North American Unconventionals which are the Shell plays, and then the Conventionals both on land and on water are kind of in the middle. This is something we’ve talked about before. You have the expensive oil to get out of the ground. Oil sand is the most expensive. You have the cheapest oil to get out of the ground which is conventional reservoirs on land. Everything else falls in the middle somewhere.
James: Interestingly enough for me, oil sands is in the same quadrant, if you will, as LNG.
Mark: That’s because LNG plants aren’t built yet. All those plants get spooled up. You’re going to see LNG for pennies being able to provide that supply.
James: It’s because the refineries aren’t there?
Mark: It’s because LNG plants aren’t there. There’s one big one lit in Australia. We have, last time I looked, I think 16 either under construction or permitted here in the US with probably about eight more to go. Once those things get spooled up, the price is going to drop dramatically.
James: Got it. Would it move up into the right, or where would it be?
Mark: Yeah. It would move up to the right. It’s actually going to be probably parallel to the conventional reservoir drilling on land. It’s going to be that cheap.
James: Wow. All right. Folks, again, if you wanted to see that – and by the way, this is a ConocoPhillips slide. Thank you, ConocoPhillips, for your slide. It’s a triberocket.com/tw41.
Marathon abandons 270 million ultra deep water projects. Is Marathon another one of these players?
Mark: Yeah. Marathon’s not a deep water player. Oil’s $100 a barrel. They knew they couldn’t make at it. Let me explain something to you. A lot of people don’t understand this.
When you’re talking deep water, if somebody buys that lease – wherever it is in the world – that’s the operator. That’s the BP or the Chevron of whatever. But they don’t own a single drill rig anywhere.
Now, they have to lease a drill rig. They’ll lease a drill rig from somebody like Transocean or Noble. That deep water modern drill rig is a million dollars a day its day rate.
James: Wow.
Mark: Yeah. You just paid $1-2 billion for lease. “Billion” with a B. Now, you have to go rent a rig for a million dollars a day. You have a million dollars a day going out the door. You haven’t even done anything yet.
Now, you have to crew that rig. You don’t crew it with people from BP. There’s one BP guy on that rig. He’s called the company man. The rest are workers from the service company. The Schlumbergers, the Halliburtons, the Bakers, the Weatherfords. That’s 600,000 a day.
You’ve got one and a half billion out the door for the lease, and you’ve got 1.6 million a day going out, and you haven’t even drilled yet. That world takes a lot of capital, a lot of very strategic project management. Exxon is the king of that of all the people out there. Nothing against my friends at Chevron and Petrobras and Statoil, but Exxon is just a deep water prodigy management monster.
Then you have to hope that you make money. Only about 70% of the deep water plays are profitable.
Imagine spending that type of money and having to go back to your manager and go “Hey, you know that $7 billion we spent out the Gulf of Mexico? We lost it.”
When you look at smaller companies out there – and there’s one exception, which is a log out there. I love those guys. Those guys are magical. They’re a small, independent, deep water operator. After we explain what happened, the cost of deep water, the words “small” and “independent” should never go along with “deep water”, because it doesn’t fit, but they manage to pull it off. Other than log, these independents just don’t have the depth of knowledge or the capital to be successful in deep water at sub $40 a barrel.
James: It’s interesting to me that they’d bring out – it says “Marathon’s dry hole puts a chill on interest” – one dry hole.
Mark: Yeah. I just told you 70% of the wells out there aren’t commercially viable, which means for every ten wells you drill, you’re going to have three dry holes. They’re misusing the word “dry hole”. This was not a dry hole. They hit oil and gas. It just wasn’t economically viable.
James: Got it. Thanks for breaking that down. Schlumberger-Cameron deal versus Halliburton-Baker Hughes merger part one. This is just a battle royale. What’s going on?
Mark: Doug Nathman wrote this article. Hats off, Doug. It’s a very well written article. But what most people don’t understand, those two mergers were completely different they’re not even in the same universe.
Halliburton bought Baker Hughes because they basically bought their competitor. They wanted their competitor’s market share. Schlumberger bought Cameron to add to their portfolio. Schlumberger is not a subsea manufacturer. They’re a subsea service company. It just makes sense when you add the manufacturing capacity to their business.
Of the two, the Schlumberger-Cameron one, they did a very good job keeping it secret from me. Not that these companies reach out to me and ask for my advice, but I didn’t see it coming. I could kick myself in the butt, because I should have saw it coming, because a couple years ago, they formed a joint venture with Cameron called OneSubsea.
What they were really doing is testing the market viability of this. I should have realized that, and I didn’t. They kept this very hush-hush as opposed to Halliburton-Baker Hughes. I’ve been hearing about this for years.
It’s a very well written article He talks about the differences in the two mergers. They’re just two totally different beasts. You can’t compare them, because the business drivers are just radically different.
James: But he was directly comparing them, so I want to dig into this a little bit here. In this series, we aim to compare…and show why we think Schlumberger will continue to be the market leader. They’re pretty much putting Schlumberger up against Halliburton.
Mark: Yeah, but what they’re missing here is when you look at gross sales, of course Schlumberger’s going to be the leader, because now, Schlumberger is in the service market and in the subsea manufacturing market.
Halliburton when they acquire Baker Hughes is still just going to be in the service market. They’re not going to be in the subsea manufacturing market. Of course it’s going to be bigger.
It would be like if modalpoint decided to get into the legal market. Well, of course I want to be bigger, because now I have two different verticals I’m selling into. He’s comparing these two deals which you really can’t.
Of course you can compare them from a shareholder values investment point of view, and his conclusions, I think, are spot-on, but as far as comparing the business, it’s not even the same universe.
James: Got it. But that’s so interesting to look at it from that angle. You say his conclusions are spot-on, but from the business driver side of things, is there anything from the more strategic side of things that could impact the way that you would decide to put your money into one of these companies?
Mark: It depends whether you’re a long-term investor or short-term investor. The Halliburton-Baker Hughes thing is getting mired down in Department of Justice stuff. Short-term wise, it probably is not a good place to put your money.
The Schlumberger-Cameron thing, because they’re two different businesses, look like it’s going to go through relatively quickly. Short-term wise, it’s probably a better place to put your money.
Long-term wise, we talked about one of our predictions in 2016 is we’ll be in a hydro carbonate-abundant world. Schlumberger’s purchase of Cameron means that Schlumberger is putting some money into deep water. All the trees and blowout preventers, all that stuff that Cameron makes, to put money in in the future, that’s going to be needed. Is deep water going to be commercially viable for the next 50 years with the advent of the existing well stimulation technologies like fracking? Even for me, I don’t think I’m going to call that one yet. It’s too early to tell.
James: Yeah. Disclaimer: Mark LaCour is not a stock analyst. If you lose money, it’s not his fault or mine. Definitely not mine.
All right. Let’s round off with this one. Midland reporter telegram refineries due for an upgrade with touchscreens and HD monitors among the offerings.
Mark: Because refining’s doing so well, they’re upgrading their technology so they can be more efficient. This is just an article. Honeywell’s real big on this. Honeywell actually has a customer excellence center here in Houston where they showcase all of this. I was so lucky to be able to arrange a tour for my API young professionals.
James: Is that picture where you were? Because that looks awesome.
Mark: Yeah. That is actually where we were. That picture is where my young professionals were. It was so lucky. They were able to get a private tour, and Honeywell talked them through this. This is what the future’s going to look like.
This is going to allow operators instead of looking at analogue gauges and dials and having to figure stuff out, they’re going to be able to look into real-time data driven graphical displays. Literally, they’ll be able to see the flow of products to and from.
Their displays will let them know if there’s a problem somewhere and what their possible solutions are. This is refining in a 2.0 where technology just helps make refining so much more efficient and easy for the refiners and the operators. The operation refiners.
The cool thing about this – if you think about this long-term, you could conceivable, in the future, be controlling a refinery in Pascagoula, Mississippi while you’re sitting in Des Moines, Iowa.
How cool is that? Without the refineries be shortage of labor. Well, now, it’s going to open up the world to them to be able to find labor anywhere that you have internet connectivity.
James: Yeah. We talk a lot about resistance to change. One of the quotes that jumps out here, “Plant operators are very resistant to change. Change is seen as a negative.” We can unpack that. But to follow up on that, within 15 minutes, they’re converts.
Mark: Yeah. That’s the thing about this industry. A lot of the time, with our technical clients, we do something called a proof of concept. Whenever you bring something new to this industry, especially technology, there’s an automatic resistance to change, not because they’re old-fashioned, but because they’re risk adverse. If you make a mistake in this industry, people die.
One of the ways we get around it is we actually do something called a proof of concept where our clients work hand-in-hand with their prospects team to implement on a very small scale their technology.
What happens, if you do this well, then the clients, the prospects’ own people – the refinery’s own people – see the benefit of the technology, and they’re won over. Then guess who sells it to the rest of the company? Their own people.
That’s what they’re talking about here. Honeywell’s doing a good job with doing proof of concepts. Within 15 minutes, they get it, and you want to buy it.
James: That’s awesome. Thus concludes our regular stuff. Now, I texted you my Onion of the Week yesterday. I don’t know if you enjoyed it nearly as much as I did.
Mark: Oh, you know I enjoyed it as much as you did.
James: John Roberts Delivers Finishing Blow to Stephen Brier to Defend Title of Chief Justice.
Mark: I’m going to laugh at you not laughing. All right.
James: There are no events. Let’s talk about that, because there are no events.
Mark: Yeah. The oil and gas industry historically shuts down the first week of December till the second week of January. Lately, in the US, people still show up at the office, but the truth is, everybody’s budget is gone. Next year’s budget won’t be released till mid-January or so.
Overseas, I go to Brazil or the Middle East. They don’t even open offices, because it’s not even worth the time.
No events going on. We wish everybody out there a great holiday season. I know it’s politically incorrect, but merry Christmas, happy New Year. We have some more shows coming out before the end of the year, so stay tuned. This is just a good time to remember what’s important and to spend time with friends and family.
James: Yeah. What’s important is the fact that we have no reviews.
Mark: We have no reviews? Wait. No. That can’t be true. Is that true?
James: No. We have no new review.
Mark: Okay. Folks, if you like the show, we don’t charge you for it. We do this for free. It’s much, much more work than it seems. Trust me.
If you enjoy the show, will you please, please do me a favor? Take the minute and a half it takes to go to iTunes, give us a review, and what this does is basically iTunes is a search engine. Your review elevates our show so that other people just like you can find it and get usefulness.
Please, please, please go give us a review.
James: Yeah. Thank you very much if you give us a review, even if it’s “I hate James and love Mark” – we’re getting more and more of those. By all means, triberocket.com/twreviews will take you straight there. Like Mark said, it takes you 60 seconds, and you just click the five or the one, whatever works for you.
LinkedIn group – I’ve been adding some daily quotes to the LinkedIn group. Shout out to Brain Mann – Oil Man, as he is on Twitter – because everyone who listens to this show long enough or who has talked to me for roughly seven seconds knows I love Jim Rohn. I was posting a lot of his quotes in there, and he said “What about oil field quotes?”
I just started yesterday. I’m going to be dropping a gem a day from the oil field into the LinkedIn group. We started off with Mr. Wallace Pratt. “Where oil is first found is in the minds of men.” Mark thinks he stole it. No disrespect, Mr. Pratt. He said Hemingway, though.
Mark: Yeah. Folks, if you listen to the show, we have a sister to the show. It’s our LinkedIn group. Go join. It’s an awesome group. It will take you, I don’t know, 30 seconds to join. We share.
You have all your peers in there. We bounce ideas off each other. I see people sharing contacts. If they might get stuck with something, we help you. James jumps in all the time. Actually, I’ve seen him write copy or help people understand marketing.
Take a few minutes. Join our group. You’ll be glad you did.
James: Yeah. Triberocket.com/linkedin on that one. We are of course brought to you by Red Wing, our charter sponsor, if you will. Our under riding sponsor. We still have spots – two more spots, right, Mark?
Mark: Yeah. We have two more spots for 2016. We opened the sponsorship up in November and rapidly sold out all of our under riding sponsor for the entire year, even if it’s not 2016 yet. We have two more spots left open.
I think we have a verbal on one. There’s at least one left. If you’re interested in getting your company’s proctor services in front of 100% oil and gas audience, reach out to James and I, and let’s talk about it.
James: Our contact information is in all of the show notes which we’ve talked about before. Triberocket.com/tw41.
I’m trying to think if we have anything else. I think that about concludes it for now.
Mark: Yeah. Folks, as we’re moving toward the end of the year, James and I are going to have probably a couple special episodes that aren’t the typical news. Look out for that. It should be a lot of fun.
James: Yeah. We’re going to have some fun with that. We might be recording them this morning.
Mark: We might be. Everybody has a trip into Minnesota.
James: Minnesota. Minnesota?
Mark: I’m sorry. Michigan.
James: Yeah. Although maybe I swing by Minnesota and go and see our people up at Red Wing.
Mark: Hey, that might not be a bad idea.
James: That might not be a bad idea. Thank you very much to Red Wing. Thank you very much to all of y’all for tuning in. To echo what Mark said, merry Christmas and happy New Year. I’ll have to drop some Run-D.M.C. into the show notes as well.
All right, Mark. Let’s get out of here.
Mark: Yeah, folks. Do great work. Pay it forward. And we will see you next time.
James: Go find some grease, guys.
