Volume 63, Number 4
PESANews October-November 2009
IN THE NEWS
Volunteers Needed
Twenty volunteers are needed
to teach effective leadership
skills or business ethics at any of
the three Houston Petroleum
Academies—the academies are
an ongoing partnership between
PESA, IPAA, HISD and other
industry members.
The teaching opportunity
represents a one time per week,
seven-week commitment. Each
class lasts about 90 minutes.
Each volunteer will co-facilitate
with another volunteer, and may
teach all seven courses together
or alternate teaching dates.
Each volunteer must complete
a Junior Achievement Training
class, which are scheduled for
either Dec. 9 or 14—the
training class is two hours. A
curriculum will be provided.
Volunteers may choose to
teach either leadership skills or
business ethics, and also may
choose at which school they will
teach—Milby High School,
Lamar High School, or Westside
High School.
For specific class times and
dates, or to sign up, call Sarah
Hewitt at (713) 737-5856 or
email shewitt@ipaa.org.
EVENT CALENDAR
Gulf Coast-LA
District Meeting
Jan. 28, 2010
5:30 p.m. to 7:30 p.m.
Petroleum Club, Lafayette, LA
FYI: Speaker is Doug Suttles,
COO of BP E&P
Gulf Coast-Texas
District Meeting
Feb. 23, 2010
5:30 p.m. to 7:30 p.m.
Intercontinental Hotel, Houston
FYI: Speaker is Chuck
Davidson, CEO of Noble Energy
For more information on any
PESA event, call (713) 932-0168.
www.pesa.org
Explorers Award
Petrobras
America
receives PESA’s
highest honor
They were the first to explore
the Gulf of Mexico’s lower
tertiary. They will be the first to
produce it. They will be the first
to bring an FPSO into the Gulf
in a few months.
And now, they’re the first
National Oil Company to receive
PESA’s Explorers Award. With
seven of his senior executive
staff attending, Petrobras
America President Jose Orlando
Melo De Azevedo accepted the
Petrobras America President Jose Orlando Melo De Azevedo accepted the
explorers award on behalf of his executive team Nov. 10.
award at a ceremony in Houston
on Nov. 10.
The award is given annually Explorers of Houston Committee equipment for the very deep
to the E&P company that has and Forum Oilfield Technologies water—about 1,000 feet.
demonstrated excellence in President and CEO. “We thought we were hot
technological innovation and Jones says that the first time stuff working at that depth, and
leadership in the industry. he heard of Petrobras was 20 then some drawings came across
years ago as a young subsea my desk that were bid requests
Petrobras exemplifies that edict
in the finest way, says Charlie engineer working for Cameron. from Petrobras,” says Jones. “It
Jones, Chairman of the PESA At the time, he was designing  See Explorers, Page 8
Coates: Industry on the brink of an upcycle
Bill Coates is as an optimist the downturn, how
for 2010. Schlumberger models supply
While Coates, the President of and demand for U.S. gas, and
Schlumberger Oilfield Services, how that translates into rig
North America, says the activity for 2010 and 2011.
The Human Impact
industry is on the brink of a
strong multi-year upcycle, 2010
will lay the foundation.
“There are two poles of Service companies with a
thought for next year, one is North American focus had a
very bullish and one is miserable year. In the recent
negative—mine is probably third-quarter earning reports, the
down the middle,” says Coates. major service companies were
“Compared to where we are down 40 to 50 percent on a year-
now, I think it’s a positive story.” over-year basis.
His presentation, “A Slightly “That has a real human
Optimistic View of 2010,” impact,” says Coates. “If you’re
 See Coates, Page 5
delves into the human impact of
2 PESA News EDITORIAL

Industry headed for recovery in 2010

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 natural gas prices were a lot higher. But I
think now, more than a year into our current
oil and gas malaise, we are starting to see an
indication that the light at the end of the
tunnel may soon come into view.
Over the past year, it has been a rough ride
for everyone in our industry. We have
experienced swings of more than $100 per
barrel of oil and $9 per 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
PESA Chairman Robert Workman (National Oilwell Varco) speaks at the 2009 CID Annual Meeting.
company’s leadership team took on the part
of a surgeon with a scalpel, trimming just
enough to keep the business strong, intact, And now, as a new offshore power rises That may be changing.
and poised to succeed after the downturn. from the pre-salt fields of Brazil, we again With the advent of shale plays, peak oil
And that is where we are today—poised to see a huge change in the way we do business concerns, environmental pressure and
succeed in an improving market. With on the horizon. The Brazilian government’s technological advances that allow for gas to
judicious cost cutting and the industry focus is beyond ensuring a ready supply of be an exportable product, we now live in a
working together to solve our collective products and services for oil and gas world where gas is rapidly becoming a
problems in the downturn, I think that while exploration - they are aiming for economic primary energy resource. Much like oil, gas
2010 will start slow, we’re heading for recovery. growth, jobs, and domestic industry has become fungible—LNG can arrive
Adapt. Evolve. Revolutionize.
development. The government is including virtually anywhere in the world to obtain the
significant local content requirements in their best price. As electricity demand continues to
contracts, some as high as 50 percent. grow, new electric generation plants are
Less than a decade ago, NOCs started I think this is the beginning of a revolution being built all over the world, and many of
making their presence known throughout the in the way the service and supply sector these plants are gas-fired.
globe. Many in the industry saw them as an operates. For one, it is a safe bet that other Shale plays are unquestionably reshaping
emerging customer base, and conventional countries that are able to set similar terms our industry. North America has vast gas re-
thinking was that they’d simply be another will do so. What this means is sweeping serves in shale, and we are now proficient at
customer and we would help them adapt to changes for service and supply companies in getting it to the surface. The shale play wells
our way of doing business. everything from our global supply chains to are prolific, with some wells in the
Then we came to the realization that talent management programs. To remain Haynesville producing 16 to 18 mcf per day.
NOCs control the vast majority of the competitive, companies will need to This has two effects. The first is that I
world’s reserves and they were quickly accelerate development of their in-country doubt we will see $13 gas again anytime
coming up to speed in terms of knowledge, manufacturing bases, create relationships soon—but, the good news is that many of the
well expertise, and technology application. with new partners and begin developing local shale plays are profitable at prices as low as
NOCs were clearly not just another customer populations into trained workers. $3. The second is that the U.S. is going to use

The Gas & Oil Industry

and certainly were different than our
traditional customers, IOCs. We needed to do
more than adapt, so the keyword became
evolve. Service and supply companies
became more intimately involved with their
NOC customers, with a few companies
beginning joint venture research institutes.
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.
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.
 See Chairman, Page 3

PESA News is published by: PESA Chairman PESA President

Petroleum Equipment Suppliers
Association
9225 Katy Freeway, Suite 310
Houston, Texas 77024
PESA, Petroleum Equipment Suppliers Phone: (713) 932-0168
Association, and the PESA logo are all
Fax: (713) 932-0497
registered marks of the Petroleum
Equipment Suppliers Association. © 2009, PESA
Robert Workman,
National Oilwell Varco
PESA Vice Chairman
Bill Coates, Schlumberger
PESA 1st Vice President
John Gremp, FMC Technologies, Inc.
Sherry A. Stephens
PESA Vice President
Michael Perini
PESA Director of Communications
Chris Evans

Predicted M&A boom of ‘09 never materialized. What happened?
When the global
economy collapsed
and commodity prices
plummeted, everyone
in the industry was
searching for anything
that could be consid-
ered a silver lining.
For many industry
analysts and experts,
the prospect of
increased mergers and
Jeremy Thigpen
acquisitions—espe-
cially amongst some
of the larger oilfield service and
manufacturing companies—was one of the
few potential bright spots in an otherwise
depressing marketplace. Those mergers,
outside of a few cases, haven’t materialized.
So, why haven’t we seen more consolidation
in the industry this year?
Complexity—Even in the best market
conditions, executing a public transaction is
tough. There is a general market perception
that deals should be accretive to earnings,
and a simple common sense idea that deals
should be accretive to cash flow. Given this,
and given the inclusion of stock in most large
public acquisitions, it can be difficult for the
stars to align on a public-to-public deal.
Share prices need to be aligned so that both
parties’ shareholders benefit from the transac-
tion. Given the volatility of the public equity
markets, particularly over the last few years,
this has proven to be an incredibly difficult
CHAIRMAN
Continued from Page 2
The 2010 Forecast
It appears 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 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
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.
We have too many rigs laid down to
sustain the supply and refill storage at current
prices, particularly assuming that industrial
demand is expected to creep up in 2010 as
the U.S. economy improves. For the industry,
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 the
North American market as Europe is expected
EDITORIAL
task. Conversations can sometimes go on for
years before value gaps converge, share
prices align, and a deal can be struck that is
equitable for both parties.
Uncertainty—While the Dow is up 57
percent from its low point in March and oil is
trading over $75, many question whether the
rally is warranted and sustainable. Is the
growth in the Dow driven by improving
fundamentals and the genuine belief that the
economy is recovering? Or is the Dow
growth merely attributable to the U.S.
government’s stimulus programs and the
Federal Reserve’s decision to maintain
historically low interest rates? And is the
increase in oil prices based on the belief that
demand will increase, or is it simply a hedge
against a declining U.S. dollar? Since
acquisition valuations are based on a
projection of future cash flows, these
uncertainties present a significant challenge
to potential buyers and sellers.
Timing and Expectations—It was not
that long ago (July ’09) when most of the
publicly traded oilfield service companies
were enjoying record stock prices, margins
and backlogs. Since most of those companies
can still clearly see those higher prices in
their rearview mirrors, some still believe that
they deserve valuations commensurate with
those record prices. As time passes, and
companies gain additional clarity around the
direction of the global economy, those
expectations may change.
Strong Balance Sheets/Diversification/
to have another very cold winter this year.
For oil, improvement lies in the world’s
economies. Other than the U.S., most of the
global economy 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.
Closer to home, the Federal Reserve says
that the worst is over and we should see
some improvement in our economy by 3Q
2010. Anecdotally, U.S. 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 …
Of all the upheaval that our industry has
faced in the recent past, one key principal
will remain as it has for the past 100 years—
providing our customers with world-class
PESA News 3
International Exposure—Most of the larger
oilfield service companies have learned from
the past, and have positioned themselves to
survive a sustained downturn in the market.
They have built cash reserves to sustain
themselves through more difficult times; they
have diversified their respective product and
service offerings so that they can participate
in all stages of the cycle; and they have
aggressively expanded operations
internationally where projects are typically
contractual and funded or sponsored by
government entities, making them far less
susceptible to temporary changes in
commodity prices. As a result, these
companies now have the freedom and
flexibility to “wait and see” how the market
plays out.
As we’ve seen with the announcements of
the Baker Hughes and BJ Services merger, as
well as the Cameron and NATCO
combination, it’s not impossible to close a
big public-to-public deal in this environment.
However, given the previously mentioned
challenges, I believe that the vast majority of
the deal activity that we will see in the
near-term will consist of larger oilfield
service and manufacturing companies
acquiring for strategic fit—either a natural
extension of, or complement to, an existing
product line, or an expansion of
infrastructure and relationships in a target
geographic market.
Jeremy Thigpen
PESA Service Committee Chairman
service, be they IOCs, NOCs or anyone else
requiring our products and services.
Customers have been and always will be a
primary focus as the service and supply
sector strives for greater value propositions.
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 continually
innovate in not only our products and
services, but the way in which we provide
those solutions to our customers. In the end, a
successful company will leverage their
technological achievements with trained,
professional and customer focused personnel.
Finally, we as an industry must remember
that we’re solving the world’s energy needs
as a 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.
—Robert Workman
PESA Chairman
4 PESA News
Derricks & Diamonds Tournament
Oil and gas industry unites
to battle pediatric cancer
Giving back to the
community and helping those
in need has never been easier
or more fun.
The Sixth Annual Derricks
& Diamonds Charity Softball
Tournament will be held May
1 and 2 at Big League Dreams
Sports Complex in League
City.
Derricks & Diamonds is a
one-of-a-kind event benefiting
Texas Children’s Hospital
(TCH) Charity Care Center
and Hematology & Oncology
Department. The tournament’s
history lies in a unique
partnership between two of our
industry’s leading companies,
National Oilwell Varco and
Schlumberger. The goal is
simple: unite the industry
around an event focused on
fighting pediatric cancer and
giving back to the Houston
community.
Since its inception in 2005,
Derricks & Diamonds has
raised over $500,000 for Texas
Children’s Hospital and its
secondary beneficiaries
Snowdrop and Plex
Foundations. In just five years,
the tournament has grown
exponentially and become one
of the highest ranked
community events benefiting
The tournament complex has six fields designed to replicate Yankee
Stadium, Wrigley Field, Fenway Park, Ebbets Field, Crosley Field, and,
shown above, Sportsman’s Park.
EDITORIAL
Texas Children’s Hospital.
“The growing success of
Derricks & Diamonds is a
testament to the integrity of
our industry to reinvest in the
communities in which we do
business,” says Pete Miller,
CEO of National Oilwell
Varco. “It offers the unique
opportunity to witness what is
possible when we unite to
serve a greater cause.”
Texas Children’s Hospital,
the tournament’s primary
beneficiary, is one of the
largest freestanding pediatric
hospitals in the United States
and consistently ranks among
the nation’s top 5 pediatric
cancer institutions, according
to the U.S. News and World
Report. Derricks & Diamonds
is committed to assisting TCH
in their efforts to provide every
child treatment, regardless of
their ability to pay.
The tournament goes beyond
an ordinary softball event and
provides a unique atmosphere.
The tournament exudes a spirit
of inspiration which is
embodied by each team’s bat
boy or girl. As former and
current patients of TCH, they
The tournament exudes a spirit of inspiration which is embodied by each
team’s bat boy or girl. As former and current patients of TCH, they
represent the fundamental
represent the fundamental purpose behind the tournament.
purpose behind the
tournament. The format is a
co-ed round robin slow-pitch “Our employees have a firm
softball tournament where each commitment to the communities
team consists of employees where they live and work and
from donating companies. we have been pleased with the
The goal of Derricks & success of Derricks and
Diamonds is to unite the oil Diamonds,” says Andrew
and gas industry around an Gould, CEO of Schlumberger.
event that all levels of employ- “With more of the service
ees and their families can industry involved and working
participate in and be proud of. together, we can make it an
We invite you to join this even greater success in the
encouraging journey by future.”
assisting us in our efforts of To donate or find out how
fighting pediatric cancer and you can get involved with
participating in the 2010 Derricks & Diamonds, visit us at
Derricks & Diamonds Charity www.DerricksandDiamonds.org
Softball Tournament. or contact us at
Participation from your Derricks.Diamonds@nov.com.
company is a crucial ingredient Michael Noviello
in our continued efforts and National Oilwell Varco
increasing support of TCH and Derricks & Diamonds
its patients. Marketing Committee Head

COATES
Continued from Page 1
a service company in North America, you’re
spending between 20 and 40 percent of your
total revenue on compensation. So when
your business declines, it has an immediate
impact on the size of your workforce.”
The U.S. land force has been reduced by
30 to 50 percent since last year. Hardest hit
by the reduction are the younger, front-line
managers who were hired earlier in the
decade, says Coates.
“It’s been a 1986-type of event for the
onshore business this year,” he says. “For
Schlumberger, the average seniority of the
workforce declined significantly from 2002
to 2008 as we engaged in new hiring—the
average was 2.5 years for 2006-2007.”
Those workers, who knew nothing but
getting more and more business, are sud-
denly faced with the worst decline that the
industry has had in decades.
“At least with our own management
population, trying to keep the morale and the
focus of the young managers has been a
major issue for us the past six months,” says
Coates. “As an industry, if we don’t make
them feel better about themselves and our
industry, it’s going to be bad for us.”
Coates recommends that senior managers
communicate with young managers to assure
them that 2010 will not be 2009 revisited.
“Communicating with your young line
managers is the single-most important task
we have over the next few months,” he says.
“If they’re not ready, it’s going to be difficult
to become as efficient and safe as we can be
as we start to grow with the coming upcycle.”
He says that the hiring cycle for 2010 is
going to be the most important hiring year of
the next upcycle.
NEWS
“We’re going to be in one of those funny
situations where we just got through this
terrible downturn and morale is spotty, but
we need to hire right this year,” he says. “I
really think we’re at the beginning of the
next 3-to-4-year upcycle and if we under-
invest in 2010, we’re going to get trapped in
a cycle of rushing and doing poor hiring,
which increases costs for everyone.”
Good Stories
The North American service and supply
sector lives and dies by the U.S. rig count.
From 1999 to 2001, a short upturn added
about 6.6 rigs a week. Then, in the long
upturn that lasted from 2002 to 2008, the
industry added rigs at a rate of 3.6 per week.
Within the past three to four months, the
rig count has started to rise again.
“We’re adding rigs at a point of 9.3 per
week, or if you look at the macro rig count
we’re up about 30 percent from the bottom
in May,” says Coates. “I would caution that
if you look at every post-decline build, you
get a little phase where there’s aggressive rig
building, then it flattens out a little, and then
we’re on the march.”
When it comes to forecasting rig count,
Schlumberger uses a number of indices and
proprietary modeling programs—many
show a positive outlook for 2010.
The first predictive indicator is compiled
from data from the Energy Information
Administration to create a consumption to
production ratio. Going back to March 2008,
rig count was still going up but the supply
versus demand indicator was going in the
wrong direction.
“Did we believe it at the time and did we
make our plans knowing this? Not really,
everybody was busy and things seemed to be
going well,” says Coates. “There was an
PESA News 5
indication on supply and demand saying that
we were approaching an untenable situation.
In the last two months, the consumption-
production ratio looks like it has bottomed
and it has been a reliable indicator of
changes in the market.”
Another mode is a line in the rig index,
specifically small private companies because
they tend to have contrarian behavior at
turning points of the market—when costs
are high they do less, and when costs are low
they jump back in.
“The small privates underworked versus
the average in late 2006, because fourth
quarter 2006 was the pricing peak for the
service side,” he says. “The index to small
privates shows increasing activity, which
indicates to me that something is changing in
a positive way.”
One predictor that could go either way is
the gas profitability index. The company
takes the price of gas, subtracted by the cost
of doing business as an operator.
“Profitability has not yet returned, so that
tells me we might have a little ways to go,”
he says. “Based on operator profitability it
looks like $5.80 is a tipping point where the
economics of a 10 percent rate of return
become reasonable and you expect rig count
to grow. So you can take your gas price
forecast and tell if that’s bullish or cautious.”
Coates says the company drives a lot of its
assumptions based on how they think supply
is going to evolve. When Schlumberger
looks at future supply, the primary mindset is
that the U.S.onshore gas market is the most
efficient in the world. Therefore, outside
influences like LNG do not set the price,
rather the U.S. onshore gas will contract or
expand quickly and predictably to balance
supply and demand.
“Our model for supply, which also
includes demand, is that demand will equal
70 Bcf by 2012,” he says. “There’s a lot of
discussion around LNG, but it’s a small
piece of the puzzle—our current models
have about 3 Bcf/day coming in next year
and I think that might be a little high.
Canada and the Gulf will continue to
decline, and we expect the U.S. land to do
what it needs to do to meet demand.”
Another predictor is rig efficiency, which
is the average production per well versus
average decline. Currently, Coates says that
the average decline does not quite match
production. This will not create a decline in
rig count but does put a damper on the
significant increase that might be expected.
In the end, Schlumberger is expecting a
positive year in terms of rig count.
“Our view this year is based on average
weather, an economic assumption slightly
under consensus at 1.8 percent GDP growth,
and 3 Bcf per day of LNG,” he says. Add all
that up with our assumptions, and we have a
1,053 rig count for U.S. onshore gas, which
is a 25 percent increase above our 800 this
year. I think that’s a positive story to tell.”
6 PESA News
Supply Chain Seminar ‘09
Shell: Cost an issue
now, but oil and gas
has a sound future
Count Shell among the optimists in oil and
gas … at least for the next 40 to 50 years.
Delivering a forecast that ranged from the
near term to extreme long term, Dean
Malouta, Shell E&P America’s Technology
Manager, says he sees the world needing a
consistent and extensive supply of oil and
gas well through the middle of the century.
Taking into account that long view, he
says that though the industry is clearly in the
midst of a downturn, Shell’s outlook for their
business has not changed materially.
“Our overall strategy is more upstream
and a profitable downstream—the
commodity part of our business is always
tight,” he says. “The growth is in upstream.”
Re-prioritizing Upstream
Upstream is a business that needs constant
reinvention. Malouta illustrated the need for
exploration with Shell’s portfolio.
“As you look from 2000 to 2008, our 2000
portfolio was coming in at 3.8 million barrels
a day and that portion steadily declined to
about 2.2 million barrels by 2008,” he says.
“We’ve had to replace those with assets from
Nigeria, other growth, and acquisitions.”
Malouta says that Shell has six upstream
priorities—safety overarches all of them—
that changed in order of priority depending
on the times.
“I can tell you that cost structure has
moved steadily up the list as costs continue
to rise—it’s no third,” he explains. “We have
a new CEO who used to be our CFO, so
everyone will be looking at cost.”
He presented a chart that showed the rising
costs in the oilfield versus Brent Crude—
essentially overall industry costs have risen
by 250 percent from 2003 to 2008 and cost
actually overtook Brent in mid 2006.
“It’s starting to come down, but there’s a
steeper decline curve on price versus cost,”
he says. “In the mid 2000s we had offshore
rigs in the $200,000 to $300,000 per day
range, and it went up to $657,000 per day.
Getting these on time and on budget is
critical to going back to the shareholder and
asking for more money in the future.”
The company looks for balance in its
portfolio, which ranges from assets with big
initial production and rapid decline to long-
term assets like oil sands and the Western U.S.
 See Shell, Page 7
NEWS
Presenters for the 2009 Supply Chain Seminar were from left to right: Paul Lord (AMR Research); Richard
Stoneburner (Petrohawk Energy Corporation); Dean Malouta (Shell); Supply Chain Committee Chairman
Burk Ellison (National Oilwell Varco); and Michael Hoover (Columbia Energy and Natural Resources Fund.)
$100 oil will make a comeback
As oil crashed to $32 in December 2008
on the heels of record highs, many wondered
if $100-plus oil was ever to be repeated.
Not so, says Michael Hoover, Senior
Equity Analyst for Columbia Energy and
Natural Resources Fund. In fact, he says
revisiting $100 oil is virtually guaranteed.
To build his case for $100 oil, Hoover says
one must look at the root cause for a peak of
$145 followed by a crash to $32.
“In 2005, worldwide demand caught up
with supply at 84 million barrels per day, and
we had 1 million barrels of spare capacity, all
while oil installations became terrorist tar-
gets,” he says. “So oil prices moved up be-
cause demand moved up, particularly in
India and China—China surpassed Japan as
the world’s second largest consumer of oil.”
Meanwhile, Goldman Sachs forecasted
that oil would go as high as $200, based on
America’s appetite for oil, thinking $6 to $7
gas would be the demand destruction point.
“Goldman didn’t realize that at $4 gas,
you start to get into recession, and combined
with the credit mess, led to the worst reces-
sion since the Great Depression,” he explains.
“All of those people who bought oil on
margin had to cover those contracts. And as
oil started to fall, they had to cover more
contracts, selling out sending prices to $32.”
With a price differential of more than $110
in only six months, and then slowly creeping
up to the $70 range over the past 12 months,
many are left wondering about the price of
oil on a normalized basis. For Hoover, it’s a
matter of balance.
“A mid-cycle price should be $70 to $75,”
he says. “It works for OPEC to meet their
obligations to their populace and translates to
$2.65 a gallon for us.”
As for oil broaching the $100 point again,
Hoover maintains it’s a matter of spare
capacity and possible inflation.
“Spare capacity got down to about
1 million barrels per day and now is about
7.2 million barrels,” he explains. “Oil has
become an asset class for investors as a
hedge against the dollar and inflation—there
is a fear that the government’s stimulus is
going to come back to haunt us in the form
of inflation. We think that around 2012, spare
capacity will get back to 2 million barrels a
day and we’ll get back to $100 oil prices.”
While spare capacity will shrink, Hoover
doesn’t believe that the world has reached
peak oil—but it is getting tighter.
“Eighty percent of the conventional oil is
controlled by NOCs and most NOCs are not
producing at optimal production,” he says.
“For example, the Cantarell field in Mexico
is in steep decline and it’s not because of the
asset, but because of lack of investment and
the people above ground. It’s the same in
Algeria, Nigeria, and several others.”
 See Investing, Page 12

Petrohawk ‘bet the company’ on
Haynesville Shales; gas prices,
drilling should improve in 2010
Petrohawk is one of a handful of
companies that couldn’t exist just a few
years ago—an E&P company that
specializes in shale gas.
The decision is paying off, says Richard
Stoneburner, President and COO of
Petrohawk Energy Corporation. The
company posted a 71 percent year-over-year
production growth from 2008 to 2009, and is
poised for another 30-40 percent annual
growth next year.
“We made a conscious decision to go after
shale, though we still have a few
conventional assets in areas like Elm
Grove,” says Stoneburner. “But we bet the
company on the Haynesville play—we have
about 15 Tcf risked resource potential, so it’s
a huge investment with a huge upside.”
Stoneburner delivered an overview of
Petrohawk rounded out with a natural gas
forecast.
Richard Stoneburner, President and COO of
Petrohawk Energy Corporation
NEWS
The Shale Plays
For year ending 2008, Petrohawk had 1.42
Tcf of proved reserves with about 56 percent
proved developed, about 94 percent of
which is natural gas. The company has 26.5
Tcf of risked resource potential at 8,000 net
drilling locations, primarily in the
Fayetteville, Haynesville, and Eagle Ford
shales.
Stoneburner says the company also is
releasing non-core assets to maintain high
liquidity.
“If we have assets that aren’t doing
anything for us in the long term, we will
divest them,” he says. “It keeps our liquidity
high and enables us to keep drilling. We
have divested our Permian Basin assets and
have about $1.2 billion in liquidity, not
counting the Permian sale.”
Petrohawk’s drilling budget is $1 billion
and is risked at about 65 percent potential.
The bulk of the budget—$720 million—is
spent in the Haynesville shale.
The company dominates when it comes to
results in the Haynesville, says Stoneburner.
Petrohawk holds 325,000 net acres under
lease with the average leasehold cost about
$5,000 per acre—inexpensive considering
some $20,000 to $30,000 lease rates during
the 2008 land rush. In the second half of
2009, the estimated well cost was $8.5 to
$9.5 million with an average initial
production of 18.1 Mmcf per day.
Stoneburner noted that the tally included all
47 wells completed to date, with the
exception of two wells with mechanical
issues and three with restricted rates.
In the Eagle Ford shale, which
Stoneburner says is similar in nature to
Haynesville, the company has 210,000 net
acres under lease on 1,700 net risked
locations. The primary difference is that the
Eagle Ford has shallower pressure.
Petrohawk’s average leasehold cost in the
Eagle Ford is $400 per acre with an average
well cost of $4.5 million to $5 million. The
average initial production for 11 wells to
date is 8.9 Mmcf per day with a gas to oil
ratio of 6:1 and 10.5 Mmcf per day with a
gas to oil ratio of 15:1.
Since the drilling pace is not dictated by
short primary terms since the leases contain
continuous drilling clauses, Petrohawk has
been working on tests of stimulation theory
in the Eagle Ford.
 See Petrohawk, Page 12
PESA News 7
SHELL
Continued from Page 6
“Technology is a key piece of this, and we
invest more than our competitors because of
the class of plays we’ve elected to get into—
we’re in ultra deep water, tight gas, shale gas,
and a number of other challenging plays,” he
says. “The good news is that my technology
budget has continued to climb because our
leadership sees the results of the work we do
internally and with the service companies as
contributing to the bottom line.”
Shell’s growth engine is in the Americas.
Malouta says that while some might be
surprised by their focus on the Americas, the
reason is in the numbers.
“Though our global production is about
3.2 million barrels a day, our Americas
produces 20 percent of that, but it’s 30
percent of our earnings,” he says. “We will
continue to invest in the rest of the world, but
our growth is here.”
Shell is expanding its deepwater and arctic
frontiers, and has made tight gas and oil
sands acquisitions in Canada. Its Aera heavy
oil field has 1 billion barrels of oil in place.
The Americas does have its challenges, he
says. “In Alaska, a couple of years ago we in-
vested over $2 billion in leases and we have
not drilled any wells yet—this is a real issue
for us. A lot of this has to do with our legisla-
tive and legal system. I’d like to issue a call
for us to better work together and interface
with our government officials.”
Moving Forward
Malouta says that Shell’s stable outlook on
the future is encapsulated in their former
president’s three hard truths.
“One is that from now through the mid
part of the century, the population will
increase and so will demand for energy,” he
says. “Two is that the easy oil has already
been found, and third is that the public will
demand greener and cleaner solutions to
energy consistently through time.”
While public enthusiasm is high for alter-
native energies, the reality is that it cannot
have an appreciable effect on energy demand
until at least 2050.
“Five years ago, our alternative energy
usage was one tenth of one percent of all our
energy usage, and now it’s up to about 2 per-
cent,” he says. “Some people think we’ll be
at 30 to 40 percent alternative by 2050, but I
don’t see it. No one solution will work, so we
need to think about alternatives that will
make a real difference, not hype.”
Malouta concluded with the statement that
Shell is bullish in E&P for the next 40 to 50
years.
“We’re on a bit of a rollercoaster in the
near-term, but there’s no alternative solution
to oil and gas being the primary source of
energy for the foreseeable future.”
8 PESA News NEWS

Explorers Award goes to Petrobras

EXPLORERS
Continued from Page 1 “ It’s amazing to
think about the
work that they have
had the designs of their subsea done to get us to the
Christmas trees and flowline
systems and I remember thinking point where we
as an engineer: This stuff is have approval—the
phenomenal—I was impressed first approval—for
with their designs and technology an FPSO to operate
and how they were really working in the Gulf.
in deep water, about 1,800 to
2,000 foot-deep completions.” —Charlie Jones
”
Then as now, Petrobras is at the
forefront of technology. award, adding that the company
“Under Jose Orlando’s has enjoyed long and fruitful
leadership, Petrobras has made partnerships with its suppliers.
tremendous investments in the “Petrobras always has an open
Gulf of Mexico,” says Jones. Charlie Jones, Chairman of the PESA Explorers of Houston Committee. door for its suppliers,” he says.
“They have spent their time, “For us, they deserve the same
money, and knowledge and have always Chinook and Cascade fields. special treatment given to our investors,
shared their ideas freely—they believe in “It’s amazing when you think about the customers and employees. Without our
moving the technology forward for the work that they have done to get us to the suppliers, it would be impossible to achieve
betterment of producing the energy resource.” point where we have approval—the first our corporate goals.”
Last month, Azevedo flew to Singapore to approval—for an FPSO to operate in the He added that Petrobras is the largest
christen the new FPSO that will arrive in the Gulf,” says Jones. Brazilian investor in the U.S. and the Gulf of
Gulf of Mexico in the first quarter of 2010. Azevedo says that he and his executive Mexico is of strategic importance for the
The ship will be used to develop the team were truly honored to accept the company.

From left to right: Fabrizio Franzio Dinelli, Petrobras America’s Procurement Manager; Ricardo Antonio Abreu Ianda, Petrobras America’s Corporate
Department Manager; Gustavo Adolfo Amaral, Petrobras America’s Senior Vice President, Upstream; Robert Workman, PESA Chairman and National
Oilwell Varco’s President of Distribution Services; Charlie Jones, PESA Explorers of Houston Committee Chairman and Forum Oilfield Technologies’
President and CEO; Jose Orlando Melo De Azevedo, Petrobras America’s President; Otavio Pessoa Ladvocat Cintra, Petrobras America’s Senior Vice
President, Downstream; Rui Antonio Alves da Fonseca, Petrobras America’s HSE Department Manager; and Michael Ditchfield, Petrobras America’s
Planning Department Manager.
 NEWS PESA News 9
PESA Chairman Robert
Workman (National Oilwell
“We were the first to discover
Varco) gives the Explorers
and now the first to develop the
Compass to Petrobras
lower tertiary ultra deep water
America President Jose
reservoir, which is the most
exciting new frontier in the Gulf of Orlando Melo De Azevedo.
Mexico,” says Azevedo. “As was Each of the eight attending
said, I just came from Singapore, Petrobras America executives
where we named the new FPSO received an Explorers
‘Pioneer’ because it will be the first Compass.
vessel of its kind in the Gulf.”
At the moment, Petrobras has 24
percent of the total fleet of FPSOs,
and the second company has only
13 percent—this track record was
instrumental in receiving approval
for the vessels in the Gulf of
Mexico.
“To approve the project with the
MMS and other agencies was an
ongoing, daily process,” he says.
ABOUT THE EXPLORERS AWARD
“Now, it’s amazing how the MMS
and Coast Guard are excited to
NAME: Explorers of Houston
work with us to open this frontier
Award for Leadership and
for the American oil industry.”
Innovation.
Finally, Azevedo says that the
pre-salt discoveries in Brazil will
bring further opportunities to HISTORY: The Explorers
increase the company’s Award has been PESA’s
partnerships with its suppliers. pinnacle form of recognition
“Our CEO is constantly asking since 1999. Each
suppliers to come to Brazil and November, the Explorers
partner with us so we can do this of Houston Committee
correctly,” he says. Our goal is 4 honors an exploration and
million barrels per day by 2020 and production company that
we are aware that we cannot do this has demonstrated
alone. We have great partnerships excellence in technological
with all of you and would like for innovation and leadership
those relationships to continue to in the industry.
OBELISK: At two feet tall
prosper.”
More than 100 people attended the and mounted on a lighted
reception honoring Petrobras America. base, the Explorers Award
Obelisk is an impressive
Above is Mike Benjamin (Schlumberger)
sight. The piece weighs in
and Walter James (Sunbelt Steel).
at 20 pounds and is
To the left is Rui Antonio Alves da made of optical crystal.
Fonseca (Petrobras America), Douglas
COMPASSES: Given to
Polk (Vallourec & Mannesmann USA),
and Roger Lindgren (V&M Star).
each of the recipient
company’s executive
Below is Steve Jacobs (RMI) at center team and symbolize
and Gary Halverson (Cameron) at charting a new path.
right.
10 PESA News NEWS

Top: Jim Geary (Hess Corporation) led Oil 101’s introduction to geology and
seismic. He discussed the theory behind fossil fuel formation and the tech-
niques involved in finding their formations.

Above: Steve Jacobs (RMI-a Division of Decision Strategies, Inc.) gave two
presentations. His first discussed the history of the industry from ancient
Chinese methods through modern technology turning points. His second
discussed new and emerging technologies most likely to make a major
impact in the industry.

Bottom: David Reid (National Oilwell Varco) discussed the machinery and
technique involved in drilling a basic land well as well as equipment needs
for offshore wells.
Oil 101
NEWS PESA News 11

The Emerging Leaders Committee sponsored the

third session of the highly anticipated Oil 101. The
course featured experts from member companies
outlaying the drilling process from geology to end-
of-life reservoir issues. The next session of Oil 101
will be held in winter 2010.
This session was the first to include breakout
sessions, which were broken into three 20-minute
sections. Participants selected the topic of their
choice—there were ten—each of which was led by a
subject expert/moderator. Discussion topics
included career progression, rigs, drilling, refining,
well servicing and more.
Speakers for this event were:

Layout of the Industry

Ed Hemphill (GE Drilling)
History of the Industry
Steve Jacobs (RMI, a division of Decision Strategies)
Economics of the Oilfield
Section cancelled due to speaker illness
Introduction to Geology and Seismic
James Geary (Hess Corporation)
Rig Systems and Drilling the Well
David Reid (National Oilwell Varco)
Breakout Session Leaders
Installation of Subsea Hardware—Mike Ellis (Oceaneering)
Well Servicing—Pat Bond (Weatherford)
Economics, Finance, and M&A—Craig Jones (Cameron)
Challenges of Subsea—Ed Hemphill (GE Drilling)
Completions—Ricki Jannise (Halliburton)
Moving from Contributor to Leader—Debbie Logan (Halliburton)
Career Progression—Mahesh Puducheri(Halliburton)
Working in the Subsea Environment—Charles Royce (Oceaneering)
Oil and Gas Equipment & Manufacturing—David Reid (NOV)
Refining—Julian Migliavacca (Mustang Engineering)
Completions and Flow Equipment
Ricki Jannise (Halliburton)
Well Servicing and Well End-Of-Life
Pat Bond (Weatherford International)
Challenges of Subsea Production
Charlie Jones (Forum Oilfield Technologies, Inc.)
Refining & Transportation
Julian Migliavacca (Mustang Engineering) Julian Migliavacca (Mustang Engineering)

Pat Bond (Weatherford) Ricki Jannise (Halliburton)

12 PESA News NEWS

U.S. Oil and Gas Field PESA News

First Class
Petroleum Equipment Suppliers Association
Equipment Exports US Postage Paid
9225 Katy Freeway, Suite 310
Top 15 Destinations for Q3 2009 Houston, TX
Houston, TX 77024
(in U.S. $1,000) Permit No. 04805
J UL AUG SEPT
Singapore 64,542 92,653 71,015
Brazil 80,550 68,480 56,399
Korea 36,604 56,481 22,653
Angola 30,918 34,321 35,187
India 15,369 36,413 48,169
U.A.E. 34,200 39,869 22,421
China 29,223 49,328 16,733
Mexico 27,778 31,294 36,064
U.K. 31,150 32,731 31,071
Saudi Arabia 28,228 33,533 21,029
Nigeria 16,116 41,171 13,708
Iraq 13,115 1,205 33,600
Colombia 13,908 12,253 16,247
Norway 12,352 13,026 13,706
Eq. Guinea 6,792 5,945 25,195

Subtotal: 440,844 548,702 463,196

All Other: 338,502 280,580 212,162
Total: 779,347 829,282 675,358
Source: U.S. International Trade Commission

INVESTING PETROHAWK
Continued from Page 6 Continued from Page 7

On Energy Investing The company completed

Hoover says that one of the questions he’s
most often asked is why create an energy
investment fund? The thinking goes that, “If
I own a diversified portfolio, I’m going to
get energy as a side dish.”
He counters that energy is diversified in
two respects. One, it tends to run counter to
the S&P 500 because recessions are brought
about by high energy prices, so an energy
portfolio will do well when the market is
down and energy is up.
“It also tends to outperform the S&P 500
because in certain years you get big
percentage gains like commodity price
returns,” he says. “The trick is to find small
oil and gas firms that can double or triple
two wells with 18 stage
fracs, using more frac fluid.
The result is strong initial
production rates with
shallower pressure and
production declines. The
Dora Martin 1850 #1H has
an initial production of 8.8
Mmcf per day and an
National Oilwell Varco’s Bud Landrum asks a question following
production of 8.1 Mmcf per Richard Stoneburner’s presentation.
average first-30-days
day. The Henderson-Cenizo 877 #1H has an The study assumed that demand will
initial production of 13.2 Mmcf per day increase 1 Bcf per day over 2009 levels
with an average first-30-days production of with a 10 percent renewable standard and 2
10.4 Mmcf per day. These rates are 35 to 75 percent GDP growth. It also assumes that
percent higher than the average of the first supply will drop 5 Bcf per day from year
seven wells in the Eagle Ford. end 2008 to year end 2009, which

production and therefore double or triple the
stock price.”
He further explained that investors should
look at energy holdings on anticipated
market movement, and move their
investments accordingly.
“If you think oil prices will fall and want
to be conservative, you’d be in utilities and
in the major oil companies, because they
have dividends and buy-back,” he says. “If
you thought oil would rise, you’d go for
E&P companies and the oil service sector.
We manage our portfolio with six energy
buckets as they move up and appear
overvalued, we trim one bucket and add to
the other.”
Forecast
Stoneburner says the rig count has virtually
assured this will occur.
He says that the wild cards in the analysis
While he admits that a case can be made are a lack of good understanding of shale
for both a Bull and Bear market next year, performance, the possibility of rig count
Stoneburner says his background as a geol- skyrocketing beyond 1,500, and
ogist makes him an optimist. assumptions in demand growth and
“It’s not going to be like this for much renewable standards.
longer,” he says. “There is credible evidence that the
In his forecast, Stoneburner cited current downturn in commodity prices and
extensively from a study conducted by resultant drilling will ease during 2010,” he
investment bank Tudor, Pickering, and Holt. says. “Demand growth appears to be on the
The general themes of the report were that crest of an upswing, with the unknown
natural gas will average $7.50 in 2010 and being how strong, or weak, it will be while
$6.50 for the next 5 years with rig counts supply is clearly declining and most believe
stabilizing at 1,500. This level of drilling it will continue to do so throughout much, if
will deliver 1 Bcf per day growth over a year. not all, of 2010.”