Robert Workman, Group President of Distribution Services, National Oilwell Varco, and Chairman, Petroleum Equipment Suppliers Association
If it is possible to feel somewhat optimistic while you are still in a downturn, I am there.
Of course, I would be happier if more projects were moving forward, fewer rigs were laid down, oil prices were a little higher and gas prices were a lot higher. But I think now, more than a year into our oil and gas malaise, we are starting to see a hint of the light at the end of the tunnel.
The past year has been a rough ride for everyone in our industry. We have experienced swings of more than $100/bbl of oil and $9/Mcf of gas and have all been forced into bunker mode to trim inefficiencies and costs. It wasn’t fun, but we did it—and, this time, we did it right.
As a whole, our industry has proven that history is an excellent teacher. Rather than slashing spending and personnel to the bone, as was done in several prior downturns, each company’s leadership team took on the part of a surgeon with a scalpel, trimming just enough to keep the business strong, intact and poised to succeed after the downturn.
And that is where we are today—poised to succeed in an improving market. With judicious cost cutting and the entire industry working together to solve our collective problems in the downturn, I think that, while 2010 will start off slow, we’re heading for recovery.
Working with the NOCs. Less than a decade ago, the national oil companies began making their presence known throughout the globe. Many in the industry saw them as an emerging customer base, and conventional thinking was that they’d simply be another customer and we would help them adapt to our way of doing business.
Then we came to realize that NOCs control the vast majority of the world’s reserves and that they were quickly coming up to speed in terms of knowledge, well expertise and technology application. NOCs were clearly not just another customer like our traditional customers, the IOCs. We needed to do more than adapt, so the keyword became evolve. More and more, service and supply companies became intimately involved with their NOC customers, with a few of the larger companies beginning joint-venture research institutes with them.
And now, as a new offshore power rises from the pre-salt fields of Brazil, we again see a huge change in the way we do business on the horizon. The Brazilian government’s focus is beyond ensuring a ready supply of products and services for oil and gas exploration; they are aiming for economic growth, jobs and domestic industry development. The government is including significant local content requirements in their contracts, some as high as 50%.
I think this is the beginning of a revolution in the way the service and supply sector operates. For one, it is a safe bet that other countries that are able to set similar terms will do so. What this means is sweeping changes for service and supply companies in everything from our global supply chains to talent management programs. To remain competitive, companies will need to accelerate development of their in-country manufacturing bases, create relationships with new partners, and begin developing local populations into trained workers.
The gas and oil industry. When speaking of our industry, we invariably say oil and gas. Oil always comes first because, until recently, money and growth were to be found primarily in oil. That may be changing.
With the advent of shale plays, peak oil concerns, environmental pressure, and technological advances that allow for gas exportation, we now live in a world where gas is rapidly becoming a primary energy resource. Much like oil, gas has become fungible; LNG can arrive virtually anywhere in the world to obtain the best price. As electricity demand continues to grow, new gas-fired electric generation plants are being built all over the world.
Shale plays are unquestionably reshaping our industry. North America in particular has vast gas reserves in shale, and we are now proficient at getting it to the surface. The shale play wells are prolific, with some wells in the Haynesville producing 16–18 Mcfd.
This has two effects. The first is that I doubt we will see $13 gas again anytime soon—but the good news is that many of the shale plays are profitable at prices as low as $3. The second is that the US is going to use a lot more gas. Permitting a coal-fired electric plant is more difficult these days, and the price differential between coal and gas is nearing parity. Natural gas may indeed be the fuel of the near future.
The 2010 forecast. I am happy to say that it appears that the worst of the downturn is behind us, and recovery is on the horizon.
On the gas front, weather will, of course, play a significant role. But, the number of rigs that the industry has laid down in the past year will also have a profound impact on the recovery. Long-term weather forecasts predict a colder than average winter for the US Midwest and South. And the Northeast’s weather patterns are too unpredictable to be more than a guess. On average, we expect a fairly cold winter, which means we could easily make a big dent in gas storage.
The US has too many rigs laid down to sustain the supply and refill storage at current prices, particularly assuming that industrial demand creeps up in 2010 as the economy improves. It could likely mean more drilling and a few more rigs by fall 2010, and an overall improved gas price from current levels.
LNG shouldn’t play much of a role in North America, as Europe is expected to have another very cold winter this year.
For oil, improvement lies in the world’s economies. Other than the US, most of the world is in recovery from recession. This bodes well for worldwide demand, creating a slight increase or, in a worst-case scenario, no growth. Demand destruction appears to be over. A microcosm of the improvement can be seen in India with the Tata Nano, a $2,500 car for the country’s emerging middle class; the car has a 200,000-person waiting list.
Back in the US, the Federal Reserve says that the worst is over and we should see some economic improvement in the third quarter of 2010. Anecdotally, US oil demand destruction may not be permanent. A recent study of those who downsized or purchased small cars and subcompacts last year for fear of permanently high fuel prices found that many regret the decision and would upgrade to a larger car if given the chance.
The more things change. Amid all the upheaval that our industry has faced in the recent past, one key principle will remain as it has for the past 100 years—providing our customers with world-class service.
Companies achieve this by first engaging their customer to better understand their particular business challenges. Much as no two oil fields are alike, no two customers are alike. Therefore, we must continuously innovate not only in our products and services, but also in the way we provide those solutions to our customers. In the end, a successful company will leverage its technological achievements with trained, professional and customer-focused personnel.
Finally, we as an industry must always remember that we’re solving the world’s energy needs as a global team. It’s essential that vendors and customers jointly determine goals, implement performance metrics, and follow a continuous improvement process to be measured by all stakeholders to ensure the highest levels of safety, efficiency and effectiveness.
With that, we’ll be poised to perform even better in the coming upturn than we did in the last. 
|
THE AUTHOR
|
 |
Robert Workman is President of the Distribution Services business unit at National Oilwell Varco. He started his career at NOV in 1991 in field operations while studying petroleum engineering at Texas A&M University, and has since served in a broad range of leadership positions. Mr. Workman received his MBA from Rice University in 2005. He is Chairman of the Petroleum Equipment Suppliers Association and is also a member of the American Petroleum Institute, the International Association of Drilling Contractors and the Independent Petroleum Association of America.
|
| |
| |
|
|
