PESA News - Winter 2012

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Volume 66, Number 1 Winter 2012 www.pesa.org

PESANewsIn thE nEWS Unconventional Plays

Greatest example of free enterprise is good & bad news

Speci Gues

Prior to Lee Boothbyspresentation at the PESAMembership meeting, PastPESA Chairman GalenCobb (Halliburton)arranged for a briefappearance by RepublicanPresidential hopeful MittRomney.

The former MassachusettsGovernor brieflyaddressed PESA members.For more on his remarks,see Page 7.

That unconventional resourceplays have reshaped the industryis beyond question. But the long-term effects are still a question.

In addition to unlocking hugeamounts of oil and natural gas,there is no greater example offree enterprise than the rise ofunconventional resource plays,

says Lee Boothby, Chairman,President, and CEO forNewfield Resources.

Our industry received a pricesignal, quickly deployed capital,technical resources, and talentand unlocked a 100-year supplyof natural gas and now werein the early innings ofunconventional oil, saysBoothby. We found that wehave lots more energy under ourfeet than we imagined, and Ibelieve this will be the energysuper highway for economicprosperity for the U.S.

The abundance of natural gasis both good news and badnews. To the good, outside thegovernment, the oil and gasindustry is the only sector creat-ing jobs, he says. The technologyused to unlock the tight gas hasalso been transformed for use intight oil plays.

It seems like every day youread about new activity, new

records, new wells, and lowunemployment in places like theWilliston Basin, the Eagle Ford,Uinta Basin, and the list keepsgrowing, he says. Bit by bit,were reducing our dependenceon foreign oil while creatinghigh-paying jobs in the U.S. andpositively impacting the com-munities where we work.

Oi Is I

Domestic oil production has

been on a steady decline for 30years. But Boothby says thoughthe industry is in the early stagesof tight oil production, domesticproduction is on the rise, andlooking to move higher.

The latest up-to-date reportshowed an extra 1 million bar-rels per day (bbl/day) in domes-tic production added in the pastcouple of years, he says.Were in the early innings and

Lee Boothby, Chairmain, President, and CEO for Newfield Resources

n See Boob, Pge 4

PESa Supp CiSemiFebruary 1, 20127:00 a.m. to 11:00 a.m.Houston InterContinental Hotel

FYI: Speakers include MichaelHalloran, Robert W. Baird &Co.; Mark Ellis, LINNEnergy;

Jeff Flaherty, Helmerich &Payne; Peter Tesark, HessCorporation; Mike Van Hook,

Schlumberger Drilling; andJohn Vogt, Halliburton

Eecuie aessSeiesFebruary 28, 201211:30 a.m. to 1:30 a.m.Westin Memorial City Hotel

FYI: Speaker is John Gremp,Chairman, President &CEO,

FMCTechnologies, Inc.

Epoes Goftoume

March 1, 201210:00 a.m. to 6:00 p.m.Redstone Golf Club, Humble, TX

Wsigo d.C.F-IMarch 18-20, 2012Washington, D.C.

FYI: This meeting is tentativelyscheduled pending finalarrangements. A notice withCongressional visits and acomplete timeline will be sentto members as soon as possible.

PESaau MeeigApril 11-14, 2012Hyatt Regency Gainey Ranch,Scottsdale, AZ

FYI: Speakers include RiceUniversitys Amy Myers

Jaffe, Raymond JamesMarshall Adkins, EOGResources Mark Papa,Stone Energys Dave Welch,U.S. Steels John Surma, OilStates Internationals CindyTaylor, and consultant LewWatts.

EvEnt CalEndar


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John Gremp, FMC Technologies, Inc.

Chris Cragg, Oil States International

Charlie Jones,Forum Energy Technologies

Sherry A. Stephens

Michael Perini

Chris Evans

PESA, Petroleum Equipment SuppliersAssociation, and the PESA logo are allregistered marks of the PetroleumEquipment Suppliers Association.

Petroleum Equipment SuppliersAssociation1240 Blalock, Suite 110Houston, Texas 77055Phone: (713) 932-0168Fax: (713) 932-0497 2012, PESA

2 PESA News Editorial

Editor's Note: Thisessay was compiled

from John Gremp'spresentation at theCID Annual Meeting.

Uncertainty andchallenge are nothingnew to our industry.

For more than 100years, weve facedtechnical, business,and economic trials.Every challenge hasbeen met withinnovation, technology,and the can-do spiritof the oilfield. Thistime around, ourobstacles are

different, and perhapseven beyond ourdirect control.

As weve discussedseveral times atPESA meetings, theoil and gas industryhas new realities toaddress. A positivenew reality is that wehave in our grasp two critical sources ofhydrocarbons: deepwater Gulf of Mexicoand the unconventional shale plays in NorthAmerica. Even though we cant say that theU.S. is on the cusp of energy independence,

no one would have suggested two or threeyears ago that we could have even gottenclose. Yet today, were talking of at leastnarrowing the gap of our dependence onforeign oil.

We also have some uphill challenges.The political environment today is essentiallyopposed to our industry at a level unseen indecades, if ever. We know that regulatoryagencies are imposing their beliefs in waysthat are unprecedented in our industry. Weknow the public perception of oil and gas isat a place that we havent seen in decades,if ever. We also know that any of these newrealities cannot be addressed by onecompany, or even a group of companies.

If there was ever a time for a tradeassociation like PESA to step up, and usetheir voice to deal with these new realities,it is now. If there ever was a time we

needed all 184 member companiesrepresenting almost 400,000 employeeswith a market cap of over $200 billion, it isnow. If ever there was a time to becomemore involved in your trade association,PESA, the time is now. We need your

participation, your expertise, and yourenthusiasm to add to PESAs voice.

First lets start with our size184companies and 400,000 employees seemsbig, but it could be bigger, and bigger isbetter when it comes to having a voice inWashington. Our membership committeeheaded up by Charles Currie (Schlumberger)has done a fantastic job, adding a recordnumber of companies to PESAs rolesdespite the active consolidation environ-ment. We can do better, and it can begin witha simple question. Earlier this year, JohnStreeter asked his management whySuperior Energy wasnt a member of

PESA they looked into the value propositionand joined soon after. You too can not onlyencourage your management to increase

PESA Chairman John Gremp (FMC Technologies, Inc.) says that if therewere ever a time for close member involvement in PESA, its now.

New realities call for stronger PESAWe must becomeinvolved in thegovernment process

As we begin 2012, our industry and ournation have a lot in front of us. There is abig year coming up with many decisions tobe made, and the choices made willdirectly affect each of us. We should beinvolved in the decision making process.

Our industrys story is one of hope forthe country. Time and time again andpresident after president we haverepeatedly heard the declaration that whatAmerica needs is energy independence andenergy security. Over the years instead ofgetting closer to achieving that goal,America has slipped further intodependence on nations that would ratherharm than help us.

PESAChairman John Gremp (FMCTechnologies, Inc.) and the members of theExecutive Committee are hoping to havePESA do its part to help bring aboutchange in two areas. They want toencourage greater participation by membercompanies in the political process bothregionally and in Washington, D.C. Inaddition, they believe that our associationshould be more involved in educating thepublic about the oil and gas industry andthe benefits derived by all Americansthrough the work of the energy industry.

The PESA Energy Educators Committeeand the Government Relations Committee

are positioned to help us achieve thesegoals. The new PESA Energy EducatorsCommittee moved forward this past yeartoward doing a better job of educatingpeople outside the industry while at thesame time encouraging young people totake a look at energy as a career path. Inaddition, PESAs Government RelationsCommittee has begun making plans tobecome more involved in political issuesin 2012 and beyond. Our secondWashington Fly-In is tentatively scheduledfor March.

The new year would be a great time toget involved in the activities of both

committees. Please consider calling thePESA office and volunteering to help.

Sherry StephensPESAPresident n See Cim, ne Pge


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3PESA NewsNEws

their presence in PESA, but encourage othercompanies with which you do business.

Among the strengths that make PESA soattractive for companies is the unparalleled

opportunity to networkthe CID AnnualMeeting is a terrific example. These newrealities demand that member companiesshare experience. One way to deal withuncertainty is to learn from other companiesthat are going through the same experience. Iencourage you to seek out all the PESAopportunities that we have for networking,the best of which is the PESA AnnualMeeting. If there was ever a time to expandyour network, it is now. Dont miss out onopportunities to network with your peers.

Second is our Energy Educators Committee,which is our newest and least developedcommittee, but it will arguably become one

of our most important. When you think aboutthese new realities, among the most jarring isthe poor perception that our industry hasamong the public and the government. Weneed to educate our stakeholdersespeciallythe public and our governmenton what ourindustry does and how we do it. Thatsexactly the mission of our Energy EducatorsCommittee. Its vital that we get our messageout, and were doing it in several differentwaysamong them are educating the nextgeneration via IPAAs Petroleum Academies,sponsor externships and scholarships, andwere developing our own messages toeducate the public. If youre so inclined,wed love to have your participation.

The next area is one we dont talk aboutenough in the industry. As Jim Wicklunddescribed, our industry is poised forgrowthoil and gas fundamentals arestrong, and all of our companies are strivingfor expanded opportunities. One constraint tothat growth is going to be incredibly difficultto overcome, and thats talent. Everyone hasheard that we have the missing generation inthe 1980s and that the average age of peoplein our industry is about five years shy ofretirement. Theres a huge talent gap andunless its filled, we wont meet ourcompanys expectations for growth, and wewont meet the industrys expectation for

delivering growth in supply.Five years ago, PESA formed the Emerging

Leaders Committee. It's designed to addresscareer development for our younger talentwho didnt have the opportunities to learnabout our industry, to network, or to developrelationships in the industry as we in theolder generation had. The committee hasbeen hugely successful, and this year wevehad more than 700 people at their events.Among the most popular events is Oil 101,which gives an introduction for the industry,and the Executive Address Series, for whichIll be giving a career lecture Feb. 28. Weprovide Emerging Leaders with many

opportunities to network not only amongtheir peers, but with the more experiencedpeople in the industry. If you have youngertalent in your organization, I encourage youto introduce them to the EL Committeeitsa terrific way to further develop the talentthat our industry so desperately needs.

Another way that PESA addresses the new

realities is our government relations work.This is an area that hasnt perhaps been ahigh priority for PESA, but given the realitiesthat we faceyou read it in the paper all thetimewe must make our voice heard withour representatives in Washington and theregulatory agencies that have so muchcontrol over our industry. At our annualmeeting we had a couple of speakers thatwere stunning in what they announcedtheysaid that our industry will no longer have theright to direct our future course. The decisionabout what technologies will be allowed tobe used, which companies will exist, andwhich geological basins will be developed

will no longer lie with our industryit willbe decided by Washington, regulatoryagencies, and even public perception. Thatsshocking. Our industry has always been ableto plot our own course, to set our owndestiny, and now we may no longer have thatability.

Our voice in Washington, the marshalingof our 184 companies, is essential toeducating and influencing the people whohave such a large say in the future of ourcompanies. We had a terrific Washington,D.C session earlier last year in which anumber of member company executives metwith members of Congress. It has helped us

immenselywe didnt understand beforegoing how little our industry is understood.Another surprise was their interest. Despiteeverything you hear about Washington,Congressmen want to hear the anecdotes andstories about the operations were opening,

the people were hiring, and how theregulatory agencies are affecting ourdecisions to expand our businesses.

We further realized that we need to domore work in crafting our message, inmarshaling our resources, and use all thestrength of PESA to educate and influencethese decision makers. We also realized the

importance of collaborationwe arent theonly trade association that represents theinterests of the oil and gas industry.Collectively putting together our voices andmaking our case to our representatives isessential. This year, the executive committeeis determined to redouble our efforts ingovernment relations, reaching out to oursister associations and working collaborativelywith them. Were planning anotherWashington Fly-In this year that will bebigger and better than the previous one. Welbe better prepared, well have moreexecutives, and well see more people inWashington.

Were also continuing our 19-year historyof supporting foreign service officers. PESAinvites FSOs to Houston to spend a weeklearning about our industry. This is a grass-roots effortif we can reach out to the FSOsand get them to understand our industry,well have friends in key places, as they takepostings in energy producing countriesaround the world.

These are a few ways that your tradeassociation, PESA, can address the newrealties that face our industry. I urge you tonot only re-think your commitment to PESA,but as individuals that have experienced howPESA can contribute to your business, think

about acting as an advocate for PESA in yourorganization to increase its participation.If we ever needed a strong trade

organization like PESA, it is now.John GrempPESAChairman

tecig e newGeeio PESA is a strong supporter ofthe IPAA energy academies,three HISD schools that preparestudents for college courseswith an industry focus. Anotherof PESAs educational initiativesis sponsoring MOLU (Mobile

Offshore Learning Units)visits to area schools. Theunits teach students thebasics of energy production.

These two areas combined asthe Young Womens CollegePreparatory Academy, soonto be the fourth IPAA EnergyAcademy in Houston, receiveda MOLU visit courtesy of PESA.Much like the other threeacademies, PESA will providespeakers, educationalcontent, and scholarships. Tovolunteer for the program,please call (713) 932-0168.

ChaIrManContinued from Previous Page


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5PESA NewsNEws

We need to look for creativeways to work together in lastingrelationships that removevolatility from activity levelsand extreme pricing swings, hesays. Mid-year price increasescan throw a budget into a tail-spin and force reduced activityto balance expenditures.Predicting that annual investmentwith certainty is a critical pieceof the equation today. We haveto make sure we think about thatwhen were working togetheron a capital program to find awin-win place.

Embracing a new win-winparadigm relationship will allowan opportunity to attack shared

problems like talent as a team.People are an issue for all of

us today, and its imperative thatwe work together to attract,train and retain the people weneed, not just in todays work-force, but for tomorrow, hesays. We need lots more peoplethan weve had in the businessin the last 10-15 years, andwere going to have to docreative things together toattract them to the business,train them, and get themparticipating. Our mutual

businesses and reputations areinextricably linked.Vertical integrationas in

E&P companies adding servicesto their portfoliosis here tostay.

From our perspective,business has changeditsturning into something that youknow more about than we do:manufacturing, he says. Ithink that an inability to accessquality services at acceptableprices have led some to increasevertical integration. We do notwant to add serviceswebelieve that you can managethese crews and equipmentbetter than we can, whichallows us to focus on what wedo best.

Boothby says that there has tobe a better way than havingE&P companies and servicecompanies competing forpeople and materials. Bothparties share responsibility formaking it happen.

We own drilling rigs andservices in the Uinta, weve

successfully managed them, andcreated value. So it can be done,but the basin is a core asset withdecades of drilling ahead, hesays. Today, what we do ismore alike than different,because we focus on resourceplays. Weve conducted internal

evaluations of verticalintegration and are consideringareas where it may haveapplication. We do not want tocompete with you, but we will ifwe have to.

aboe Gou riss

Regulation left unchecked isan impediment to business andthe creation of jobs, saysBoothby. It can createredundancies in operations,increase costs, and make the

development of domestichydrocarbons less competitiveon a global scale. The key tostemming overregulation iseducating key stakeholders.

Many companies in thisroom worked to build FracFocus,a transparent solution in which adatabase discloses the chemicaluse in hydraulic fracturestimulation by state, county,lease, and individual wellagreat example of how we canwork together to providetransparency and gain the trust

of the broader public, he says.We have an obligation toeducate the public, media, andour elected officials.

Finally, he says the industrymust speak up, and demand afirm energy policy.

Our future will require thatwe harness all forms ofeconomically viable andenvironmentally sound energy.There should be no doubt thatnatural gas is the future of ournations energy supply. Its theonly energy source we havethats abundant, economically

viable, and helps reducegreenhouse gas emissions, hesays. We need an administrationthat will develop a sound, non-partisan 20, 50 or 100-yearenergy plan, not the pithysound-bytes to the mediadesigned to aid their reelectioncampaigns. It is imperative thatE&P and service companiesspeak with a concerted voice,that our interests are aligned,and that we have seats at thetable.

In the world of investing, JimWicklund says hes a playerthats often misunderstood,sometimes unliked, but alwaysnecessary.

Wicklund, Principal andPortfolio Manager for CarlsonCapital, L.P., is a hedge fundmanager specializing in oil andgas service companies. CarlsonCapital, like other hedge funds,buys stock and sells shorttheir average holding period istwo months. On the other side

of the investment world aregroups like Fidelity Investmentstheyre considered long-onlyand own stock for 10 years ormore.

The conventional wisdom isthat guys like Fidelity are yourfriends because they forgivelittle blemishes along the way,says Wicklund. In the hedgefund world, we try to createshort term efficiencies in capitalallocationthe blemishes that aFidelity wouldnt noticebecause they hold stocks for ten

years I speed date. Were notalways well-liked, but we insistthat we provide a service.

Due to the uncertainty infinancial markets, long-onlysarent playing in the market,says Wicklund.

They dont know if oilsgoing back to $45 or $147were in the middle of thatprice, so theyre in the middlesitting on their hands, heexplains. In the past couple ofmonths, the only peopleinvesting in the stock market are

guys like me. Today in theinvestment world, the peoplethat are buying and selling yourstocks and all the stocks in themarket are the short-term daterslooking for the marginalproblem.

Muipe disocios

The industry has sufferedthrough the economic crash of2008, the Macondo disaster, thegyrations of the oil market, anduncertainty surrounding

government regulations.All these are bad, but theyre

balanced against the fact thatthe world needs the oil and gaswe producetheres noalternative, says Wicklund.China announced that they'regoing from making 16 millioncars a year to 32 millionthatalone increases oil demand by 8million barrels a day.

But demand projections andstock prices do not necessarilygo hand-in-hand. Following the

2008 market crash, the stocksfor Transocean, Cameron,Halliburton, and Weatherfordlost 47 percent of their marketcapitalization. Following theMacondo disaster, those stocksfell a further 47 percent.

Yet most companies,especially those who workonshore, saw their earnings,pricing, and hiring go up, allwhile the markets trimmed 47percent off of the large companiestwice, says Wicklund. Thatsthe separation between the stock

in your companies versus thework that you do.

Epecios SiSocs

Wicklund says he's incrediblybullish on how much liquids-rich drilling the industry will doover the next several yearsthe

Market fundamentalssolid, but stocks may

slide in the short-term

BOOthByContinued from Previous Page

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Jim Wicklund


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6 PESA News NEws

Oxy Oil & Gas USAs President accepted the Explorers Award on behalf of the companys 11,000 employees. Attending with him, from left to right are:Ron Brokmeyer, President & General Manager, South Texas; Robert Palmer, Vice President, Production Engineering ; Joseph DeDominic, President &General Manager, Williston; Richard Jackson, Vice President, Drilling Americas; Jeff Bennett, Director, Supply Chain Management; Bill Roby, President &General Manager, Mid-Continent; Michael Land, President & General Manager, Permian Prime Development; Jeff Simmons, Vice President, SubsurfaceEngineering; and Doug Chester, Drilling Manager, Permian.

Running an oil companyone trulyfocused on oilis nearly a relic of the past.

Not for Oxy Oil & Gas USA, a fact thattheir President, Bill Albrecht, says isnt

going to change.Were proud of the fact that 75 percent ofour reserves on a global basis are oil reserves,which makes us the oiliest of our major peercompanies, says Albrecht. Were an oilcompany true to form. Were not in the processof transitioning from natural gas-weighted tooil-weighted like some of our independentfriendswe are indeed an oil company, andyou wont see us deviate from that.

But the market foresight of staying thecourse in oil isnt the reason that Oxy wasselected for the 2011 Explorers of HoustonAward. Each year, PESA presents the awardto an oil and gas exploration and productioncompany that has a proven record ofpursuing and achieving the advancement oftechnology and innovation in the energyindustry.

As the fourth-largest U.S. oil and gascompany, Oxy is an acknowledged leader inapplying advanced technology to boostproduction from mature fields and accesshard-to-reach reserves, says RobertWorkman, President of Distribution andTransmission for National Oilwell Varco andChairman of PESAs Explorers of HoustonCommittee.

Oxy is the largest onshore oil producer inthe contiguous U.S., and most of theirworldwide reserves are U.S.-based. Their

flagship operation in the Permian Basinclosed out 2010 producing more than

25 percent of the companys worldwide total.Of particular note is the fact that

approximately two-thirds of the Permian oilproduction is from fields that employ CO2flooding which also has importantenvironmental benefits, says Workman.The CO2 circulates within a closed loopand virtually all of the injected CO2ultimately becomes permanently and safelytrapped in the underground oil reservoirwhich could significantly reduce future

greenhouse gas emissions.Oxy also has made a commitment to

protect the health and safety of employees,contractors and neighboring communities.

The companys HES ManagementSystem encourages individual responsibility,values quantifiable results and promotescommunication, says Workman. Withmore than 30,000 employees and contrac-tors, Oxy is committed to respecting theenvironment, protecting safety and upholdinghigh standards of social responsibilitythroughout its worldwide operations.

Explorers Award goes to Oxy Oil & Gas USA

n See Epoes aw, ne Pge

Explorers of Houston Committee Chairman Robert Workman (National Oilwell Varco) presented theaward to Oxy, citing their excellence in performance, safety, and community service.


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Presidential candidate Mitt Romney madea brief appearance prior to Lee Boothbysremarks at the 2011 PESA MembershipMeeting. Below are his remarks.

Some people wonder what the future holds,and I think you got a good taste of that if

you read the Wall Street Journals Op-Edpage this morning (Dec. 1). At the top of thepage is an article written by the head of theService Employees International Union,Andy Stern, in which he lays out what hethinks our policy should be moving forward.

He says the government ought to run oureconomy. He literally says Chinas got itright, weve got it wrong. Free marketsdont work, and the right course for Americais to have an industrial policy set by ourfriends in Washington. Sometimes you justshake your head, but this gives insight intothe thinking of the people that surround thePresident. But fundamentally, he believesgovernment guiding an economy and

guiding our lives is a better course forAmerica, than free individuals creating freeenterprises in free markets.

Thats the battle thats going on rightnowwhere those that think a government-guided life and economy is the right coursefor America. And theyre fighting hard. Itsnot that were protecting our society againstsome bad thing that might happen, but insteadprotecting our society against business, andtrying to guide business, and trying to replacebusiness with their own arrangement. Theyreally feelthe EPA and other agenciesthat they could do a better job running andguiding the health sector, the energy sector,

and the list goes on.Were in the middle of a battle. I shudder

to think what would happen if we had asecond term with President ObamaI dontthink we will, I cant be 100 percent sure ofthat because its hard to defeat an

incumbent, but I intend to do that if Im thenominee. At this stage, it looks prettygoodits narrowed down, I wouldnt haveguessed it would narrow down to me andNewt Gingrich. But you never knowDonald Trump was the leader for a while inthe polls, then Michelle Bachman, and thenGovernor Rick Perry, and then HermanCain. We all have microscopes tuned to usand were considered for our strengths andweaknesses. I think its going to be a greatopportunity for people to decide what theright course is for the country.

I respect the work that youre doing, and Iknow that people in Washington dont likeyou very much. I like you a lot, and I look

forward to working with you. I want to seeyou succeed and thrive, because I want tosee more domestically produced energy forAmerica. I want you to succeed and thrivebecause I want to see more tax revenuecoming in from you and the people youpaywhen business does well, the countrydoes well. I look forward to being aPresident that makes America the best placein the world again for enterprise, forbusiness, for development, for job creation,and for the middle class in America. I lookforward to having your help, and well seeyouhopefully from the White Houseina couple of years.

Presidential hopeful MittRomney speaks to membersPESA Chairman John Gremp echoedWorkman, saying that Oxys well-known

reputation created one of the largestaudiences for the Explorers Award.

Im pleased to recognize Oxy for theirsuccess in increased productivity while atthe same time finding ways to protect thehealth and safety of your employees andcontractors, he says. Additionally, wecommend you for your recognizedaccomplishments in protecting the environmentand your worldwide involvement in com-munity service.

Accepting the award, Albrecht gave abrief glimpse at Oxys 2012 operations.

We dont know exactly what our 2012capital program is yet because it has notbeen blessed by our Board of Directors,says Albrecht. But suffice it to say that if

the commodity prices stay where they are,were going to have a pretty level loadedprogram in 2012, and, if anything, youregoing to see an increase in our capitalspending.

For production, Albrecht says that Oxy isthe largest producer in the state of Texas; thenumber-one natural gas producer inCalifornia; and recently, they became thenumber-one overall producer in Californiaon a barrel of oil equivalent (BOE) basis.Overall, the company produces 750,000BOE per day, the majority of which is in theU.S. Their largest operation is in thePermian Basin, in which theyve succeeded

in unlocking increased oil productionthrough CO2 flooding.Our EOR operations in the Permian

make us the largest handler of CO2 in theworldwe move about 1.7 bcf per day, ormore than 600 bcf of CO2 every year.

Finally, Albrecht said a significant sourceof pride for the company is their financialperformance.

Weve had a successful record of increasingour dividendssince 2002, our dividendshave gone up 268 percent and have paid adividend every year since 1975, he says.Were very proud of our stock price relativeto the S&P 500weve outgained the S&Pfor the last 12 years, the longest streakrunning for any company in the S&P.

Finally, Albrecht says that while it is anhonor to accept the Explorers Award onbehalf of Oxys 11,000 employees, theiraccomplishments would not be possiblewithout their partners.

None of this would be possible withoutyour help and cooperation and willingnessto work with us, he says. We owe you adebt of thanks, and the only way we canachieve these kinds of performance metricsyear over year is to have a great workingrelationship with our service companyfriends. We look forward to a successful2012 working with you.

ExPlOrErS aWardContinued from Previous Page


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long-term fundamentals aresolid. But he does haveconcerns about the short term.

Long-term fundamentals forthe industry will not mirror thegas drilling booms that began inthe late 1970s and 1980s.

We didnt quit drilling for oilbecause we wanted to drill forgaswe couldnt find oil ineconomic accumulations, hesays. So we started drilling forgas, and were so good at it thatwe ruined the economics of itfor 13 out of the past 25 years.

Natural gas is a localizedcommodity, and if too much isproduced, prices fall. Oil,however, is globally fungible.

We now have the

opportunity to drill oil wellsthe industry now has 15 years ofcurrent drilling inventory atcurrent rig rates for oilprospects, he says. We cantkill the commodity price of oillike we have gas, and we canshow the efficiency of thisindustry that has been reined inby price in the past.

However, the business is stillcyclical, says Wicklund. As acyclical business, rig count and

pricing accelerate, then plateau,and then decline before re-accelerating.

A recent Halliburton confer-ence call said that business hasbeen fabulous. Prices have beenrising for the past 3 years andare starting to plateau, butHalliburton is not concernedabout them going down, hesays. In a cyclical businessthey do, but then they re-accelerate.

Wall Street pays closeattention to the dips in pricingand performance, howeversmall. Wicklund gave a currentexample:

In pressure pumping, theyrebragging that they can buy apressure pumping spread andget a full cash payback in 14months, he says. Wall Streetwill ask if business will still be

good next year. The companiesalways answer yes. But if thatrate of return moves to 24months, service companieswould still be happy. Our con-cern is that its going from a 14month payback to a 24 monthpayback, which means marginsare coming down, and we sellyour stocka 14 month pay-back on capex normalized overtime is Wall Street lingo formargins are going down soon,

we just dont know when.The broader market is calling

for a slowdown, he says. Thereis a high correlation between theU.S. rig count and the Dow Jones.

The Dow Jones has recentlycome down, though some willargue that it was a marketmistake, an aberration, that itwont be the same as previoustimes its different this timeis a lousy argument, he says.This is what Wall Street isconcerned about. The market isa discounting mechanism, and itsees the future before we do,and it indicates that business isgoing to slow down.

The problem, Wicklund says,is expectations. As of thepresentation, the industry waseight rigs away from theSeptember 2008 highs, and ninerigs from the highs of 1985.

I understand well complexityis increasing, frac lengths aregoing up, wells are moreexpensive, and if activity stayedwhere it is right now, youd allbe happythat would beincredibly negative for WallStreet, he says. If the heads ofSchlumberger, Halliburton, andBaker Hughes came out andsaid rig count will stay rightwhere it is for the next threeyears, your stocks would be

down 25 percent the next day.We dont buy stocks becausethings are staying good, we buybecause things are getting better.

For 2012, the market expectsrevenues in North America to beup by 20 percent next year, andoil will be $100.

I love optimism, but it drivesinvestment expectations, hesays. The future strip has beenbetween $75 and $89 for the lastwo weeks. The difference isthat at $80 oil, the E&P industryhas to outspend their cash flowby 60 percent just to keepactivity flat. Wall Street wouldntthink this is a good thing.

Wicklund says that the goodnews is that it isnt a repeat of2008, and virtually no companywill lose money from anearnings perspective.

Stocks always swing to

extremes relative to theunderlying business, he says.Were not expecting businessto crashthe outlook is betterthan it's been in years, and werenow drilling for a commodityfor which we cant screw up thepricing. There hasnt been abetter time to be in the business,its just that for the next severalmonths it may not be the besttime to be in the underlyingstocks.

First ClassUS Postage Paid

Houston, TXPermit No. 04805

8 PESA News NEws

U.S. Oil and Gas FieldEquipment Exports

(in U.S. $1,000)

Source: U.S. International Trade Commission

WICklUndContinued from Page 5

PESA News - Winter 2012

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