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8/12/2019 Vegas Energy Conference Recap v2 Web
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CONFERENCE RECAP
THIRTEENTH ANNUAL
Spring 2013
8/12/2019 Vegas Energy Conference Recap v2 Web
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SIMMONS & COMPANY INTERNATIONAL
THIRTEENTH ANNUAL ENERGY CONFERENCE PANEL PARTICIPANTS
E&P PERSPECTIVES:
LARGE CAP
Ernie Leyendecker
Vice President, Exploraon
Anadarko Petroleum Corporaon
John Christmann
Region Vice President
Apache Corporaon
William Thomas
President
EOG Resources
Tim Dove
President & CEO
Pioneer Natural Resources
CAPITAL EQUIPMENT
Chuck Sledge
Senior Vice President,
Finance & CFO
Cameron Internaonal
Corporaon
John Gremp
Chairman & CEO
FMC Technologies
Jeremy Thigpen
CFO
Naonal Oilwell Varco
E&P PERSPECTIVES:
NATURAL GAS
Dan Dinges
Chairman, President & CEOCabot Oil & Gas Corporaon
Ray Walker
COO & Senior Vice President
Range Resources
Steve Mueller
President & CEO
Southwestern Energy
MIDSTREAM/MLP
Randy Fowler
Execuve Vice President & CFO
Enterprise Products Partners
Park Shaper
President
Kinder Morgan, Inc.
Terry Spencer
President
ONEOK Partners
LARGE CAP SERVICE
Andy ODonnell
Vice President,
Oce Of The CEO
Baker Hughes Incorporated
Tim Probert
President, Strategy &
Corporate Developement
Halliburton Company
Bernard Duroc-Danner
Chairman, President & CEO
Weatherford Internaonal
MID CAP SERVICE
Ernesto Bausta III
CFO
CARBO Ceramics
David Demshur
Chairman, President & CEO
Core Laboratories
Cindy Taylor
President & CEO
Oil States Internaonal
Dale Dusterho
CEO
Trican Well Service
SMALL CAP SERVICE
Josh Comstock
CEO
C&J Energy Services
Wm. Stacy Locke
President & CEO
Pioneer Energy Services
Bryan Shinn
President & CEO
U.S. Silica Holdings
MID CAP MAJORS: NAMUNCONVENTIONAL/GLOBAL EXPLORATION
Howard Thill
Vice President, Investor Relaons
& Public Aairs
Marathon Oil Corporaon
Kevin Fitzgerald
Execuve Vice President & CFO
Murphy Oil Corporaon
Helge Haldorsen
Vice President, Strategy &
Business Development North
America
Statoil ASA
OFFSHORE DRILLERS
Mark Mey
Senior Vice President, CFO
Atwood Oceanics
Larry DickersonPresident & CFO
Diamond Oshore Drilling
John Rynd
President & CEO
Hercules Oshore
Simon Johnson
Vice President, Markeng &
Contracts
Noble Corporaon
Mark Keller
Execuve Vice President,Business Development
Rowan Companies
REFINING
Donald Templin
Senior Vice President, CFO
Marathon Petroleum
Tim Taylor
Execuve Vice President,
Commercial, Markeng,
Transporaon & Business
Development
Phillips 66
Dan Romasko
Execuve Vice President,
Operaons
Tesoro Corporaon
Bill Klesse
CEO, Chairman Of The Boar
Valero Energy Coroporao
E&P PERSPECTIVES:MID CAP
Joe Wright
Senior Vice President, COO
Concho Resources
Lee Boothby
Chairman, President & CEO
Neweld Exploraon Comp
Taylor Reid
Execuve Vice President, CO
Oasis Petroleum
Jim Flores
Chairman, President & CEO
Plains Exploraon & Produ
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SIMMONS & COMPANY INTERNATIONAL
THIRTEENTH ANNUAL ENERGY CONFERENCE OVERVIEW
At Simmons 13th annual Energy Conference in Las Vegas in February,
39 CEOs and other top execuves across the energy industry met withinvestors, and tackled some of the most pressing issues facing the industry
today in panel discussions. Among the most signicant takeaways were:
While some companies in the service and midstream segments see
potenal for consolidaon acvity, most panelistsparcularly in
exploraon and produconare put o by what they consider to be
high asset valuaons.
The big queson of the conference was about North American
onshore oil producon and whether or when the astounding growth
of the past few years will start to decelerate.
Another big queson was about when the decline in natural gas-
directed rig count will oset associated gas producon from oil plays,
catalyzing natural gas pricing improvement.
The renaissance in North American oil & gas producon is spreading
the wealth across industry segments as rising domesc supplies bring
new vitality into the midstream and downstream markets.
The outlook for oil service companies appears to be mixed, with some
panelists reporng pockets of strength while othersand many of
their E&P clientssaw pricing in selected areas remaining so.
Excitement over new nds and producon prospects has shied
decidedly from North American onshore sites to the Gulf of Mexico
and beyond. Oshore acvity has picked up in many places around
the globe, although acvity in Brazil remains somewhat uncertain.
Comments from panel parcipants were frank, and the discussions
revealed dierences in opinion and outlook. The following are some of
the insights from execuves, in their own words.
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Panelists, with a few excepons, were unenthusiasc about current M&A
opportunies, cing high valuaons. Most companies will focus this year ongrowing their businesses and increasing producon from core assets--wheth
those assets are new drillships or Permian acreage or pipelines. Buying
earnings right now is a heck of a lot more expensive than building them, said
Terry Spencer, President of ONEOK Partnersin the midstream space. At 12
13x market mulples, we like the grassroots investments; those prices make
easy for us to decide where to deploy our capital.
Helge Haldorsen, Vice President of North American Strategy and Business
Development for Statoil ASA, would like to be a buyer in the U.S. but is held
back by the high prices. Our strategy is to get bigger so we can be doing thi
for 40 years, he said. We have our smallest presence in the Eagle Ford, and
if the price is right will increase our presence, but prices in the market are ve
high. Hw Thll, Mth Ol Cps Vc Pst f Ivst
Rls, agrees. We do connue to look at opportunies to do bolt-on
acquisions, but the market is very expensive today, and theres not a lot for
sale, quite frankly, he said. The Eagle Ford has just a few large companies
operang there, while the Bakken is more splintered with a lot of smaller
players. We expected more consolidaon there by this point, but over the ye
as we got comfortable with the price level, it would run away from us again.
On the North American service side, lower rig counts and some low pricing
might suggest there are opportunies for consolidaon, but asset prices are
holding buyers back. We are out of the M&A market, said Dl Dsth
CEO of Trican Well Service. If we were to do any M&A in the U.S., we
would want to do it under asset value, and we dont see any opportunies
out there right now. Others see selected opportunies. We are looking at
diversicaon of our exisng service lines, said Josh Comstock, CEO of C&J
Energy Services. We want to create higher diversicaon of our oerings a
see some opportunies. Taylor Reid, EVP and COO of Oasis Petroleum, thi
consolidaon would benet the North American E&P segment as well. Whe
you look at the shale plays, as people transion to pad and to drilling mulple
wells, the complexity of those operaons increases signicantly, he explaine
To gain the scale and ability to take advantage of those opportuniesit
makes sense to consolidate, its just a queson of whether you can make the
numbers work.
PRICEY ASSETS SUBDUE M&A INTEREST
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Companies are going to the markets
o sell paral interests in selected
projects in an eort to boost market
valuaons of what they feel are
under-recognized assets in their
porolios. Marathon announced in
October that it was considering selling
an interest in its Canadian oil sands
project. If we do sell, we would keep
an exposure of 10% or more, said
Howard Thill. That property has
great potenal over the next 20-40
years for development, so it is not like
we are exing the business. Selling
an interest would put a marker out
here. The full value of our oil sands
project is not reected in our share
price. Marathon is doing the same
hing with its Gulf of Mexico interests,owering its interest in prospects such
as Madagascar from 100% to 30-
50%. We are doing that to manage
nancial and polical risk, explained
Thill. Those properes are all part
of our larger porolio, and it is part of
whats dierent now about Marathon:
Our Gulf interests are more balanced.
Kevin Fitzgerald, CFO of Murphy
Oil Corp., has moved his company
forward with divestures to create
value for shareholders, with a spino
of U.S. retail operaons set for the
second half of 2013, and plans to move
capital from Canadian assets to the
Eagle Ford basin. We will be le with
a pure play E&P company that has
exploraon, primarily internaonal, as
its rst focus, he said.
A few companies who have been
aggressive buyers in the past connue
to look for acquisions, sll seeing
opportunies to earn a reasonable
return. Park Shaper, President ofKinder Morgan, Inc., is sll a buyer.
We are happy to invest capital in
transacons where we earn in excess
of our cost of capital, he said. We
found lots of opportunies to do that
with our El Paso acquision. We invest
in both acquisions and expansion
so we are trying to nd transacon
where we have condence that we
earn in excess of our cost of capita
Other execuves whose companie
are in niche markets see potenal
M&A opportunies among weaker
performing competors. We are
looking all along our value chain,starng in the mining and process
areas where lots of capacity has be
added, said Bryan Shinn, Preside
and CEO of U.S. Silica Holdings. L
of people have goen themselves
over their heads, so we are in the M
market right now. Some oshore
companies would also welcome
consolidaon acvity. We would to see a bit more M&A acvity, sa
Simon Johnson, Vice President of
Mkg & Ctcts t Nl C
There have been new names com
into the drilling space, and it would
good to see headcount reduced a
We invest in both acquisions and expansionsso we are trying to nd transacons where we
have condence that we will earn in excess of
our cost of capital.
Park Shaper, President of Kinder Morgan, In
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This year, discussion of North American unconventional oil
E&P moved away from last years tales of new discoveries andclimbing reserve estimates toward spirited debates about how
high U.S. onshore oil production will actually goand when the
peak will come. While most participants that are active in the
unconventional space believe there are still further production
gain surprises to come on the upside, particularly in the Permian
basin, a few voiced skepticism that the current trajectory of
production growth will continue much longer or reach 10 million
barrels per day by 2015. When it comes to U.S. oil production,we think estimates of 10 million barrels are too optimistic, said
Dv Dmsh, CEO f C Lts. In the oil plays,
all the good wells get drilled first. Over the last three years,
they have drilled a lot of pretty good wells, and efficiencies
can only take us so far. The days of the best wells being drilled
are probably behind us. Demshur is skeptical of the economic
viability of some of the onshore oil development. Outside of t
sweet spots in the Bakken, Eagle Ford and Wolfcamp plays, youneed WTI upwards of $90 to get a decent return on capital.
Others are more optimistic. With the right fundamentals we
can get significant volume out of all these incredible plays, said
Ernie Leyendecker, Vice President of Exploration for Anadarko
Petroleum. We are optimistic that the Eagle Ford and the
Bakken plays really have the resource potential for us to unlock
and grow capacity. Jim Flores, CEO of Plains Exploration &
Productionpointed out that responsibility for reaching 10 millio
barrels of production is shared across other segments of the
industry. To get to those production levels you have to have
infrastructure, he said. Think of all those pipelines that cause
increased gas production; we havent built any crude pipelines.
NORTH AMERICAN OIL: WHEN DOES THE FLOW START TO SLOW?
To get to those producon levels,
you have to have infrastructure.
Think of all those pipelines that
caused increased gas producon;
we havent built any crude
pipelines. Youve got a long way
to go to get to those 10 million
barrel producon levels with
infrastructure for crude.
Jim Flores, CEO of Plains
Exploraon & Producon
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Youve got a long way to go to get to those 10 million barrel
production levels with infrastructure for crude.
Most panelists expressed excitement over the production
prospects in the Permian Basin and believe in the potential
or more positive surprises as horizontal drilling ramps up.
We are very early in the Permian plays with horizontal
drilling, said John Christmann, Region Vice President of
Apache Corp. The Permian basin has historically been
developed using vertical spacing. It is now starting to be
urned on its side, which takes a lot of legwork up front. But
hat is what you have to do to develop those vast resources,
nd the results will surprise people. Tim Dove, CEO of
Pioneer Natural Resources,agrees. The big surprise in the
U.S. will be the Permian, he said. When it is turned on its
ide, it is going to be shocking to see the kind of resources
hat will come out of those horizontal plays.
The big surprise in the U.S. will be
the Permian. When it is turned on
its side, it is going to be shocking
to see the kind of resources that
will come out of those horizontal
plays.
Tim Dove, CEO of Pioneer
Natural Resources
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Panelists at the Simmons Conference voiced near-universal consensus on
one topic: that U.S. natural gas price weakness will extend at least into 201
Execuves were much more sanguine about a quick rebound in natural gas
liquids (NGL) prices, but panelists made clear that the best thing for dry gas
at the moment is to have it stay in the ground. I think that natural gas pric
will connue to be impaired, said Jim Flores of Plains. We are in $3.00 la
for some me unl we get industrial demand. We are planning on good ga
prices in 2016-2020. It is good to make plans now, but it will be hard to get
superior returns in the gas business.
Associated gas from oil plays is not staying in the ground and appears to
be part of the supply problem. About 40% of current producon of gas isassociated gas, explained Tim Dove, President & CEO of Pioneer Natural
Resources. With all the oil drilling that went on last year, we grew gas
producon by 10%, even though we drilled no gas wells. Joe Wright, COO
of Concho Resources, is in the same posion. 100% of our gas produco
is associated gas, so we are growing both oil and gas domescally, he said
Those producers with the luxury of choosing between oil and gas produc
would need to see a substanal upswing in prices to lure them back to
the dry gas elds. We would like to see prices north of $5.00 to push the
accelerators on with gas producon, said Ernie Leyendecker of AnadarkoHowever, we will certainly see some people go back to gas when it is
between $4.00 and $5.00. D Dgs, CEO f Ct Ol & Gs, also
idened $4.50 as the price point for natural gas. I think gas has to be up
that area before you see a large inux of rigs, and prices have to be there f
a long period of me.
Producers who had switched over to liquids were hit with a sudden
downturn in those prices during 2012, but most panelists expect NGL price
to recover much more quickly than dry gas. We see a so market for NG
in the short term, but over the long term, when petrochemical demandcatches up, we will see price recovery, said Ernie Leyendecker. In the
midstream area, panelists also were opmisc about the liquids market.
Inventories have reached historically high levels, said Terry Spencer,
President of ONEOK Partners. We see the propane situaon resolving w
a more normal winter this year and ethane inventories coming down as we
So we think we will see pricing strength in liquids in 2014 and 2015.
LOW U.S. GAS PRICES ARE NO FUN FOR PRODUCERS BUT BOOST DEMAND
Inventories have reached
historically high levels. We
see the propane situaon
resolving with a more
normal winter this year and
ethane inventories coming
down as well. So we think
we will see pricing strength
in liquids in 2014 and 2015.
Terry Spencer, President of
ONEOK Partners
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One issue of contenon is the level and impact of any
uture LNG exports on the natural gas sector. Parkhaper of Kinder Morganbelieves exports will play
part in the natural gas future. Clearly more gas
will be exported, he said. Steve Mueller, CEO of
outhwestern Energy, does not believe exports will be a
ignicant source of demand long-term given the limited
ize of the market, the cost, and the expectaon that
nly a limited number of plants will be approved in the
U.S. I am very comfortable that plants approved will be
more than one, but it is a long process and we will not
ee anywhere near the 12-13 approved that equals theumber that have been requested, he said.
ooking ahead, the good newsand a glimpse of that
right future for domesc natural gascame from
anelists in the midstream and downstream areas. Low
as prices are benecial to the extent that they drive up
emand, said Park Shaper of Kinder Morgan. Those
rices are driving demand in gas-red generaon, in
etrochemicals, and other industrial sources.
More posive news was evident in natural gas panelists
escripons of eorts by the gas industry itself to bring
bright future closer. The good news is that today,
ouve got the Marcellus Coalion and other groups
ocused on raising demand for natural gas, said Ray
Walker, COO of Range Resources. If we all believe
hat gas is a superior fuel, then we need to work on
emand, and thats the real secret. Transportaon
s the big potenal market, but all agreed it would be
low to develop. We see a 10-year me frame to get to
omething that will signicantly impact the demand side
or natural gas, said Steve Mueller, CEO of Southwestern
nergy. It is coming, however, because it is economically
iable.
That bright future for domesc natural gas is compelling
enough for execuves to look beyond the more cloudypresent. We are in the right business, asserts Walker.
It might be two years, it might be ve before prices
improve, but at some point we are going to be really
glad that we are doing what were doing. That gets me
excited.
We are in the right business. It might be
two years, it might be ve before prices
improve, but at some point we are going
to be really glad that we are doing what
were doing. That gets me excited.
Ray Walker, COO of Range Resources
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Operators of pipelines and reneries in the U.S. are
reaping the benets of burgeoning U.S. oil & gas
producon, which has breathed new life into once-
sleepy industry segments. Keep telling the E&P guys
to drill, said Bill Klesse, CEO of Valero Energy Corp.
We announced last quarter that we ran all domesc
for light sweet crude in our Gulf Coast and Memphis
plants, and that used to be foreign oil. Where once
execuves focused on how quickly capacity could
be eliminated, now the focus is on how to grow
light crude handling ability on the Gulf Coast fastenough, and in the right direcons. What investors
under-appreciate about us is that we reners have
growth prospects with the resource advantages
of crude and natural gas, and at the same me we
are generang lots of free cash ow, said Klesse.
Prot forecasts will be upgraded for all of us. With
our free cash ow and the amount of oil coming in,
that is changing everything.
While E&P execuves are already debang howhigh onshore oil producon will go and how long it
will last, execuves downstream are just beginning
to prepare for the inux of light, sweet crude that
is coming their way. Producers and reners alike
believe the Gulf Coast will be the recipient of most
of this producon increase. We are focusing on
a large inux of light sweet crude coming into the
Gulf and that could aect pricing over the next
2-3 years, said Tim Dove of Pioneer Natural
Resources. Bill Klesse of Valeroagrees. By the
me you get to 2015, a lot of light sweet oil will be
moving to a lot of places, and that is when it is going
to be more signicant to see everyones ability to
process it, he said. The Gulf Coast will be very
long light, sweet crude.
Midstream execuves tell an equally posive story.
It is a phenomenal me to be in the midstream
area, thanks to the work of our upstream colleagues,
said Park Shaper of Kinder Morgan. Theres
tremendous incremental demand for transporng
liquids right now, we have an abundant domesc
supply of fuel, low prices that will drive domesc
demand, and export potenal. Randy Fowler, CFO
of Enterprise Products Partnersdrew parcular
aenon to NGLs, where low prices may have
U.S. PRODUCTION BREATHES LIFE INTO THE MIDSTREAM
AND DOWNSTREAM SEGMENTS
Keep telling the E&P guys to drill. We
announced last quarter that we ran all
domesc for light sweet crude in our Gulf
Coast and Memphis plants, and that used to
be foreign oil.
Bill Klesse, CEO of Valero Energy Corporaon
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egavely aected producers but have spurred demand
or pipeline capacity. The NGL side has been preymazing, he said. It is amazing what NGLs have done
or the U.S. petrochemical industry, which was given up
or dead. Weve taken that industry from one of the most
xpensive producers in the world in 2003, to producon
hat is now the cheapest in the world.
&P sector panelists spoke of their dependence on
midstream commitments to provide takeaway capacity
nd how that will aect producon over the long term.
In the Eagle Ford, we cant say enough how importanthe takeaway capacity has been, said Howard Thill,
f Marathon. Weve spent $350 million on pipelines
nd facilies. People dont think about the addional
work past the wells you have to do to make certain
ou have takeaway capacity. Long-term prospects
epend on capital outlays to expand takeaway capacity
s well. Some of the midstream projects that are
esigned out there are not just trying to create gas-on-
as compeon in exisng markets, but also to access
ew markets on the Atlanc Seaboard, said Dan Dinges
f Ct Ol & Gs. In the long term that will lead to
nhanced demand for us.
eners are engaged in transport issues as well.
For example, they have to grapple with the high potena
but dicult logiscs of transporng Canadian crude intoCalifornia. Midstream operators see years of opportunit
for expansion ahead, transporng natural gas to Mexico
and new markets in the eastern U.S. and eastern Canada
Overall, panelists in the midstream and downstream
segments are gearing up for growth, and their comment
reect the posive outlook for once-dormant industry
segments that North American producon now promise
to deliver.
In the Eagle Ford, we cant say enough how important the takeaway capacity has
been. Weve spent $350 million on pipelines and facilies. People dont think about the
addional work past the wells you have to do to make certain you have takeaway capacity.
Howard Thill, Vice President, Investor Relaons & Public Aairs
Marathon Oil Corporaon
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Acvity in the Gulf of Mexico has fully recovered to pre-Macondo
levels, and at the Simmons conference, the Gulf was the focus of muenthusiasm. In the Gulf, we saw super-strong results in the fourth
quarter, and the outlook connues to be strongboth in acvity an
mix, and even some pricing, said Andy ODonnell, Vice President a
Baker Hughes, Inc. Helge Haldorsen of Statoilis equally bullish on t
Gulf. This year, we have a number of excing wells coming up on t
producon side, he said. We have enormous investments in the G
We are ramping up producon, and with our exploraon eorts, we
hope to nd something big soon. Last year, we found Logan with 1.
billion barrels in place, so the boom line is that we are in the Gulf fo
the long haul and believe the Mpd return per barrel is twice as high
you get onshore.
Outside of the Gulf, E&P companies express enthusiasm about the
potenal of deepwater plays around the world and the oshore
drilling and subsea capital equipment panelists echo that enthusiasm
We are seeing a strong internaonal market in all sectors, said Ma
Kll, Excv Vc Pst f Bsss Dvlpmt t Rw
Companies.
John Gremp, CEO of FMC Technologies, was, like other makers of
subsea equipment, happy to see a strong pickup in tree orders durin
2012 and sees strength connuing into this year. The increase com
from a number of West Africa projects, he said. Weve got a num
of Angola projects queued up to be awarded, another in Ghana, one
Equatorial Guinea, and in other places. It looks like West Africa is n
starng to break out. A large tree order for Cameron Internaonal
Corp. in Nigeria pointed to higher prices ahead, but Chuck Sledge,
CFOof the company, warned that the pricing on that order reected
the parcular risks Cameron assumes while operang in Nigeria andmay not reect pricing in other parts of the world. Helge Haldorsen
of Statoilexpects lots of good news to come from Africa in the near
future. For us, exploraon is a major growth engine, he said. We
are working on rigs now in Angola presalt, and you should see that
come on in 2013. On the other side of Africa, we have Tanzania whe
we are drilling a new well, and one in Mozambique that might be oil
To have wells in that acreage this year is very excing.
E&P FOCUS SHIFTS FROM U.S. ONSHORE PLAYS TO THE GULF OF MEXICO
AND INTERNATIONAL WATERS
This year, we have a number
of excing wells coming up
on the producon side. We
have enormous investments
in the Gulf. We are ramping
up producon, and with our
exploraon eorts, we hope to
nd something big soon.
Helge Haldorsen, Vice President
of North American Strategy for
Statoil
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Panelists also menoned Mexico, Southeast Asia, and
even the U.K. as areas of increased acvity. The U.K.sector in the North Sea has blossomed with a new,
sensible tax policy, noted Andy ODonnell of Baker-
Hughes. Brazil, however, remains a queson mark,
although subsea equipment makers expect to see new
orders this year. Brazil is a dicult market, said Chuck
Sledge of Cameron. This year, however, we do expect
o see incremental orders out of Brazil. John Gremp of
FMC Technologies, agrees. Its very hard to predict what
Petrobras will do, but I am more opmisc and think we
will denitely see not only presalt manifold awards but
addional tree awards this year, maybe in the rst half.
Drillers are less opmisc but believe that Petrobras will
have to respond to todays oshore market condions.
The big change is that Petrobras is facing capital
discipline challenges from the government, said Larry
Dcks, CEO f Dm Osh Dllg. Theres
a downside for them to cut back in midwater because of
exisng producon there. Youve also got renewals in
deepwater coming, and all operaons have been facingregulatory challenges. I suspect that Petrobras is going
o get scker shock when they see the rebids. Simon
hs f Nl Cp.believes that Petrobras will also
have to adjust its expectaons in order to aract the sort
of drilling partners it needs to move forward. One of the
things people are watching is the terms and condions
Petrobras puts in the contracts going forward, he said.They have not changed, and I would argue that they are
out of step with the rest of the world.
Execuves across a number of panels at the conference
complained that investors do not appreciate the value of
their internaonal holdings and operaons. For example
Apache Corp.s Egypan projects generate generous cash
ows used to fund other operaons, and Anadarko sold
a percentage interest in its Mozambique acvies to
parally moneze their investment and highlight its valuWe dont get the value in our share price for a lot of our
internaonal assets, said Ernie Leyendecker of Anadark
This is true parcularly for our deepwater assets. We
are spending 20% of our capital looking for new and larg
opportunies around the world in deepwater basins, and
it is parcularly frustrang that the value recognion
is not there. Howard Thill of Marathonagrees that
investors underesmate the value of internaonal
assetsand their importance to the balance sheet. We
have such a strong balance sheet and are able to fund
resource play growth as well as exploraon because we
have an internaonal porolio that spins o a lot of cash
he said. The idea that we should spin o our internaon
operaons because of their low return, that is simply a
misunderstood piece of our business.
Brazil is a dicult market. This year, however, we do
expect to see incremental orders out of Brazil.
Chuck Sledge, Senior Vice President, Finance & CFO
Cameron Internaonal Corporaon
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Onshore rig counts have aened in 2013, but Simmons conference
parcipants were lukewarm on the outlook for onshore servicecompanies. Panelists described a 2013 outlook for the onshore North
American service segment that was good but not great, with pockets
pricing pressure in certain areas and business lines. Aer a year wher
several E&P panelists reported that they were seeing 10-12% overall
reducons in onshore service costs, larger service companies were
eager to change the subject away from the U.S. unconvenonal marke
to stronger Gulf and internaonal operaons.
Onshore, as producon matures in some places
and is just geng started in others, pockets of
strength and weakness are occurring throughou
the service segment. The areas of interest are
shiing, said Cindy Taylor, CEO of Oil States
Itl. The outlook is cloudy for verca
rigs and lower horsepower rigs. Theres nothing
negave going on in any play; the issue right now
geng the right equipment to customers in tho
plays.
Several players menoned seeing parcular
pricing soness in fracking services. Compleo
intensity has increased, and that is good for us,
said Josh Comstock, CEO of C&J Energy Services. But there is pressure on pricing in the frack market. The spot markets
extremely compeve, and we have seen lots of degradaon there in pricing. We think we have seen the boom, though
Producers back this up, reporng easing service costs in the fracking sector. We have seen a 10-15% drop in frack costs t
quarter in the Eagle Ford, and that speaks to capacity, said Jm Fls, CEO f Pls Expl & Pc. What he
some boom lines puts pressure on others. Most people underesmate the size of our smulaon equipment business
and that business has fallen o the face of the earth, said Jmy Thgp, CFO f Nl Olwll Vc. In the second
quarter of 2012, we had our highest backlog ever for smulaon equipment, but by the end of the year it had dropped o
65%. We are denitely right-sizing that business.
Stacy Locke, CEO of Pioneer Energy Service, sees a wide variaon in the service outlook among his business segments. O
the producon services side, wireline services, well and coil tubing, the outlook compared to November and December is
improving as rig counts pick up and should be even beer in the second half, he said. On the drilling side, the one chang
is in the Permian vercal market for oilthat changed rather abruptly as some of our major clients have decided to allocat
more to horizontal than to vercal drilling.
OIL SERVICE: POCKETS OF STRENGTH, POCKETS OF WEAKNESS
The areas of interest are shiing. The outlook is
cloudy for vercal rigs and lower horsepower rigs.
Theres nothing negave going on in any play; the
issue right now is geng the right equipment to
customers in those plays.
Cindy Taylor, CEO of Oil States Internaonal
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Oil & gas and the producon of these two commodies have usually gone hand in
hand in North America. One of the most notable trends on display at this years energy
conference was how divergent the pathways have becomenot only for current prices, but
for future domesc supply growth prospects as well. The worldwide outlook for oil prices is
bright according to the overwhelming majority of panelists, but quesons are being raised
about how long the onshore oil boom will last in the U.S.
Meanwhile, natural gas producers chase a bright future that to some is beginning to seem
forever out of reach, given connued depressed domesc prices. However, midstream and
downstream companies are already prospering from the growing demand for natural gas
that these low prices are encouraging. All conference parcipants agreed a brighter future
s just a maer of me and paencequalies some companies may possess in more
abundance than others.
Excitement in the energy industry has always revolved around new discoveries. For
the past several years, that enthusiasm has been focused on North America as newtechnologies opened up new basins for development and reserve esmates climbed. At the
Simmons conference this year, however, a noceable change in E&P emphasis took place as
panelists worked to shi aenon to discoveries oshore and overseas.
For the industry as a whole, in North America and around the globe, the outlook is bright,
and well-posioned parcipants in most industry segments are looking forward to healthy
oil prices and growth opportunies in many areas.
NORTH AMERICAN OIL AND NATURAL GAS E&P ON DIVERGING PATHS
Other panelists noted the big switch to horizontal drilling in
the Permian as well. For C&J Energy Services, this is goodnews. In the Permian as a whole, a relavely large poron
of the rig count is sll vercal, but it is shiing to horizontal,
and doing more stages as well, with mulwall pads and
mullaterals per well. All that intensity will drive higher
demand, Comstocksaid.
Execuves with service operaons outside of North
America spoke of improving business and major
opportunies popping up in other parts of the world. For
us, the most notable improvement has come in Australia,
said Cindy Taylor of Oil States Intl. The outlook has beenclouded there by slowing demand growth in China, but
GDP forecasts are up, and we have seen a re-acceleraon
of growth in Australia. Dl Dsth, CEO f Tc
Well Service, agreed. I was pleasantly surprised by things
moving ahead more quickly in Australia, he said. In
Russia, we also saw a beer than expected increase in the
growth of horizontal fracturing. We are now doing quite a
few horizontal wells there.
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SIMMONS & COMPANY EXECUTIVES
SENIOR EXECUTIVES
Michael E. Frazier
Chairman, President &
Chief Execuve Ocer
Anthony P. Banham
Advisor Director
Nicholas L. Swyka
Advisor Director
CORPORATE FINANCE
HOUSTON
James P. Baker
Managing Director,
Midstream & Downstream
Jay B. Boudreaux
Managing Director,
Exploraon & Producon
Frederick W. Charlton
Managing Director,
Ener Services & Euipment
Ira H. Green, Jr.
Managing Director,
Capital Markets,
E&P and Alt. Ener
Mhw G. Pl
Managing Director,
Ener Services & Euipment
Spencer W. Rippstein
Managing Director,
Midstream & Downstream
Andrew C. Schroeder
Managing Director,
Ener Services & Euipment
Paul R. Steier
Managing Director,
Ener Services & Euipment
Damon Box
Director, Exploraon & Producon
David C. Newman
Director of Enineerin
Exploraon & Producon
Todd A. Parsapour
Director, Ener Services &
Michael S. Sulton
Director, Midstream &
Downstream
J. Kris Terrill
Director, Ener Services &
Euipment
SIMMONS COMPANY
INTERNATIONAL LIMITED
Aberdeen, London, Dubai
Colin I. Welsh
Chief Execuve Ocer (SCIL)
Mike Beveridge
Manain Director (SCIL)
Nick Dalgarno
Manain Director (SCIL)
Eddie Leigh
Manain Director (SCIL)
Craig Lyon
Manain Director (SCIL)[email protected]
Dan Barnosky
Manain Driector (SCIL)
SECURITIES
HOUSTON
Wllm F. B
Managing Director,
Co-Head of [email protected]
A. Denney Cancelmo
Managing Director,
Head of Tradin
J A. Dtt
Managing Director,
Head of Research
Pearce W. HammondManaging Director,
Co-Head of E&P Research
Wllm A. Ht
Managing Director,
Co-Head of Securies
David W. Kistler
Managing Director,
Co-Head of E&P Research
John M. Daniel
Director, Co-Head of Oil Serv
Research
B Gml
Director, Research
Ian Macpherson
Director, Co-Head of Oil Serv
Research
imacpherson@simmonsco-in
Sean W. Mitchell
Director, Co-Head of
Instuonal Sales
David P. Orr
Director, Instuonal Sales
Mark L. Reichman
Director, Research
mreichman@simmonsco-intl
SIMMONS COMPANY
INTERNATIONAL CAPITAL
MARKETS LIMITED
London
Rt C. Ms
Director, Head of European
Instuonal Sales (SCICML)
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SELECT ACTIVITIES
UPSTREAM OIL & gAS
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SELECT ACTIVITIES
ENERgy SERVICES & EqUIPMENT
*Denotes a transacon completed by Simmons & Company Advisory Limited.
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SELECT ACTIVITIES
MIDSTREAM & DOwNSTREAM
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*Simmons & Company International is a member of FINRA/SIPC. Simmons & Company International Limited (SCIL) (Reg. No. SC190220) is authorised and regulatedby the Financial Conduct Authority in the United Kingdom and by the Dubai Financial Services Authority as a Representative Office in Dubai Simmons & Company
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