Volume 66, Number 1

PESANews
Winter 2012 www.pesa.org

In thE nEWS
EvEnt CalEndar
PESaSupplyChain Seminar
February 1, 2012 7:00 a.m. to 11:00 a.m. Houston InterContinental Hotel FYI: Speakers include Michael Halloran, Robert W. Baird & Co.; Mark Ellis, LINNEnergy; Jeff Flaherty, Helmerich & Payne; Peter Tesark, Hess Corporation; Mike Van Hook, Schlumberger Drilling; and John Vogt, Halliburton

Unconventional Plays
Greatest example of free enterprise is good & bad news
That unconventional resource plays have reshaped the industry is beyond question. But the longterm effects are still a question. In addition to unlocking huge amounts of oil and natural gas, there is no greater example of free enterprise than the rise of unconventional resource plays, says Lee Boothby, Chairman, President, and CEO for Newfield Resources. Our industry received a price signal, quickly deployed capital, technical resources, and talent and unlocked a 100-year supply of natural gas and now were in the early innings of unconventional oil, says Boothby. We found that we have lots more energy under our feet than we imagined, and I believe this will be the energy super highway for economic prosperity for the U.S. The abundance of natural gas is both good news and bad news. To the good, outside the government, the oil and gas industry is the only sector creating jobs, he says. The technology used to unlock the tight gas has also been transformed for use in tight oil plays. It seems like every day you read about new activity, new

Executiveaddress Series

February 28, 2012 11:30 a.m. to 1:30 a.m. Westin Memorial City Hotel FYI: Speaker is John Gremp, Chairman, President &CEO, FMCTechnologies, Inc.

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

ExplorersGolf tournament

March 1, 2012 10:00 a.m. to 6:00 p.m. Redstone Golf Club, Humble, TX

Washingtond.C. Fly-In

March 18-20, 2012 Washington, D.C. FYI: This meeting is tentatively scheduled pending final arrangements. A notice with Congressional visits and a complete timeline will be sent to members as soon as possible.

records, new wells, and low unemployment in places like the Williston Basin, the Eagle Ford, Uinta Basin, and the list keeps growing, he says. Bit by bit, were reducing our dependence on foreign oil while creating high-paying jobs in the U.S. and positively impacting the communities where we work.

OilIsIn
Domestic oil production has

been on a steady decline for 30 years. But Boothby says though the industry is in the early stages of tight oil production, domestic production is on the rise, and looking to move higher. The latest up-to-date report showed an extra 1 million barrels per day (bbl/day) in domestic production added in the past couple of years, he says. Were in the early innings and n SeeBoothby,Page4

SpecialGuest
Prior to Lee Boothbys presentation at the PESA Membership meeting, Past PESA Chairman Galen Cobb (Halliburton) arranged for a brief appearance by Republican Presidential hopeful Mitt Romney. The former Massachusetts Governor briefly addressed PESA members. For more on his remarks, see Page 7.

PESa annualMeeting
April 11-14, 2012 Hyatt Regency Gainey Ranch, Scottsdale, AZ FYI: Speakers include Rice Universitys Amy Myers Jaffe, Raymond James Marshall Adkins, EOG Resources Mark Papa, Stone Energys Dave Welch, U.S. Steels John Surma, Oil States Internationals Cindy Taylor, and consultant Lew Watts.

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Editorial

We must become New realities call for stronger PESA involved in the government process
As we begin 2012, our industry and our nation have a lot in front of us. There is a big year coming up with many decisions to be made, and the choices made will directly affect each of us. We should be involved in the decision making process. Our industrys story is one of hope for the country. Time and time again and president after president we have repeatedly heard the declaration that what America needs is energy independence and energy security. Over the years instead of getting closer to achieving that goal, America has slipped further into dependence on nations that would rather harm than help us. PESAChairman John Gremp (FMC Technologies, Inc.) and the members of the Executive Committee are hoping to have PESA do its part to help bring about change in two areas. They want to encourage greater participation by member companies in the political process both regionally and in Washington, D.C. In addition, they believe that our association should be more involved in educating the public about the oil and gas industry and the benefits derived by all Americans through the work of the energy industry. The PESA Energy Educators Committee and the Government Relations Committee are positioned to help us achieve these goals. The new PESA Energy Educators Committee moved forward this past year toward doing a better job of educating people outside the industry while at the same time encouraging young people to take a look at energy as a career path. In addition, PESAs Government Relations Committee has begun making plans to become more involved in political issues in 2012 and beyond. Our second Washington Fly-In is tentatively scheduled for March. The new year would be a great time to get involved in the activities of both committees. Please consider calling the PESA office and volunteering to help. Sherry Stephens PESAPresident Editor's Note: This essay was compiled from John Gremp's presentation at the CID Annual Meeting. Uncertainty and challenge are nothing new to our industry. For more than 100 years, weve faced technical, business, and economic trials. Every challenge has been met with innovation, technology, and the can-do spirit of the oilfield. This time around, our obstacles are different, and perhaps even beyond our direct control. As weve discussed several times at PESA meetings, the oil and gas industry has new realities to PESA Chairman John Gremp (FMC Technologies, Inc.) says that if there address. A positive were ever a time for close member involvement in PESA, its now. new reality is that we needed all 184 member companies have in our grasp two critical sources of representing almost 400,000 employees hydrocarbons: deepwater Gulf of Mexico and the unconventional shale plays in North with a market cap of over $200 billion, it is America. Even though we cant say that the now. If ever there was a time to become more involved in your trade association, U.S. is on the cusp of energy independence, PESA, the time is now. We need your no one would have suggested two or three participation, your expertise, and your years ago that we could have even gotten enthusiasm to add to PESAs voice. close. Yet today, were talking of at least First lets start with our size184 narrowing the gap of our dependence on companies and 400,000 employees seems foreign oil. big, but it could be bigger, and bigger is We also have some uphill challenges. The political environment today is essentially better when it comes to having a voice in opposed to our industry at a level unseen in Washington. Our membership committee headed up by Charles Currie (Schlumberger) decades, if ever. We know that regulatory has done a fantastic job, adding a record agencies are imposing their beliefs in ways number of companies to PESAs roles that are unprecedented in our industry. We know the public perception of oil and gas is despite the active consolidation environment. We can do better, and it can begin with at a place that we havent seen in decades, if ever. We also know that any of these new a simple question. Earlier this year, John Streeter asked his management why realities cannot be addressed by one Superior Energy wasnt a member of company, or even a group of companies. PESA they looked into the value proposition If there was ever a time for a trade and joined soon after. You too can not only association like PESA to step up, and use encourage your management to increase their voice to deal with these new realities, it is now. If there ever was a time we n SeeChairman,nextPage
PESA Chairman JohnGremp,FMCTechnologies,Inc. PESA Vice Chairman ChrisCragg,OilStatesInternational PESA 1st Vice President CharlieJones, ForumEnergyTechnologies PESA President SherryA.Stephens PESA Vice President MichaelPerini PESA Director of Communications ChrisEvans

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PESANews is published by: Petroleum Equipment Suppliers Association 1240 Blalock, Suite 110 Houston, Texas 77055 Phone: (713) 932-0168 Fax: (713) 932-0497 2012, PESA

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their presence in PESA, but encourage other companies with which you do business. Among the strengths that make PESA so attractive for companies is the unparalleled opportunity to networkthe CID Annual Meeting is a terrific example. These new realities demand that member companies share experience. One way to deal with uncertainty is to learn from other companies that are going through the same experience. I encourage you to seek out all the PESA opportunities that we have for networking, the best of which is the PESA Annual Meeting. If there was ever a time to expand your network, it is now. Dont miss out on opportunities to network with your peers. Second is our Energy Educators Committee, which is our newest and least developed committee, but it will arguably become one of our most important. When you think about these new realities, among the most jarring is the poor perception that our industry has among the public and the government. We need to educate our stakeholdersespecially the public and our governmenton what our industry does and how we do it. Thats exactly the mission of our Energy Educators Committee. Its vital that we get our message out, and were doing it in several different waysamong them are educating the next generation via IPAAs Petroleum Academies, sponsor externships and scholarships, and were developing our own messages to educate the public. If youre so inclined, wed love to have your participation. The next area is one we dont talk about enough in the industry. As Jim Wicklund described, our industry is poised for growthoil and gas fundamentals are strong, and all of our companies are striving for expanded opportunities. One constraint to that growth is going to be incredibly difficult to overcome, and thats talent. Everyone has heard that we have the missing generation in the 1980s and that the average age of people in our industry is about five years shy of retirement. Theres a huge talent gap and unless its filled, we wont meet our companys expectations for growth, and we wont meet the industrys expectation for delivering growth in supply. Five years ago, PESA formed the Emerging Leaders Committee. It's designed to address career development for our younger talent who didnt have the opportunities to learn about our industry, to network, or to develop relationships in the industry as we in the older generation had. The committee has been hugely successful, and this year weve had 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 which Ill be giving a career lecture Feb. 28. We provide Emerging Leaders with many

opportunities to network not only among their peers, but with the more experienced people in the industry. If you have younger talent in your organization, I encourage you to introduce them to the EL Committeeits a terrific way to further develop the talent that 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 a high priority for PESA, but given the realities that we faceyou read it in the paper all the timewe must make our voice heard with our representatives in Washington and the regulatory agencies that have so much control over our industry. At our annual meeting we had a couple of speakers that were stunning in what they announcedthey said that our industry will no longer have the right to direct our future course. The decision about what technologies will be allowed to be used, which companies will exist, and which geological basins will be developed will no longer lie with our industryit will be decided by Washington, regulatory agencies, and even public perception. Thats shocking. Our industry has always been able to plot our own course, to set our own destiny, and now we may no longer have that ability. Our voice in Washington, the marshaling of our 184 companies, is essential to educating and influencing the people who have such a large say in the future of our companies. We had a terrific Washington, D.C session earlier last year in which a number of member company executives met with members of Congress. It has helped us immenselywe didnt understand before going how little our industry is understood. Another surprise was their interest. Despite everything you hear about Washington, Congressmen want to hear the anecdotes and stories about the operations were opening,

the people were hiring, and how the regulatory agencies are affecting our decisions to expand our businesses. We further realized that we need to do more work in crafting our message, in marshaling our resources, and use all the strength of PESA to educate and influence these decision makers. We also realized the importance of collaborationwe arent the only trade association that represents the interests of the oil and gas industry. Collectively putting together our voices and making our case to our representatives is essential. This year, the executive committee is determined to redouble our efforts in government relations, reaching out to our sister associations and working collaboratively with them. Were planning another Washington Fly-In this year that will be bigger and better than the previous one. Well be better prepared, well have more executives, and well see more people in Washington. Were also continuing our 19-year history of supporting foreign service officers. PESA invites FSOs to Houston to spend a week learning about our industry. This is a grassroots effortif we can reach out to the FSOs and get them to understand our industry, well have friends in key places, as they take postings in energy producing countries around the world. These are a few ways that your trade association, PESA, can address the new realties that face our industry. I urge you to not only re-think your commitment to PESA, but as individuals that have experienced how PESA can contribute to your business, think about acting as an advocate for PESA in your organization to increase its participation. If we ever needed a strong trade organization like PESA, it is now. John Gremp PESAChairman

teachingthenew Generation
PESA is a strong supporter of the IPAA energy academies, three HISD schools that prepare students for college courses with an industry focus. Another of PESAs educational initiatives is sponsoring MOLU (Mobile Offshore Learning Units) visits to area schools. The units teach students the basics of energy production. These two areas combined as the Young Womens College Preparatory Academy, soon to be the fourth IPAA Energy Academy in Houston, received a MOLU visit courtesy of PESA. Much like the other three academies, PESA will provide speakers, educational content, and scholarships. To volunteer for the program, please call (713) 932-0168.

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we dont know what the upper bounds of production will be, but if you accept that weve achieved 1 million bbl/day growth already, getting to 3 million bbl/day by 2025 doesnt seem like a stretch. While most of the attention goes to the Bakken and Eagle Ford, Boothby says some of the newer plays have material growth potential far beyond whats currently known.

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newfield&Uinta
Newfield Resources started in 1989 with 26 people and $9 million. Now its a $10 billion enterprise. Nearly all of the companys resources are in the U.S., and for year-end 2010, Newfield had 3.7 trillion cubic feet in proved reserves75 percent of that is unconventional. But most importantly, says Boothby, the company grew its oil production percentage from under 30 percent in 2008, to north of 40 percent this year, and more than 50 percent in 2012. We accomplished this through organic growth, drilling oil and gas wellsthats a huge part of our story today, and to what our peers are doing as well, he says. This is simply because the margins for returns in oil are superior to natural gas. We have this blessing of a 100year supply of natural gas, but without a vibrant economy and increasing demand, guys that are pushing gas today are pushing an oversupplied commodity into an oversupplied marketnot a good recipe for prices, and easy to understand why gas is trading at just over $3. Newfields expectations for gas are more low prices for the near-term, but for the intermediate and longer term, Boothby says theyre gas bulls. For now, all of the companys resources are going to oil. The Uinta Basin in Utah is Newfields cornerstone asset. The resource potential net to our acreage is 700 million barrels of oil equivalent (BOE)this is where we already have wells producing, so these are not piein-the-sky stuff, he says.

Above: Lee Boothby discusses the countrys resurgence of oil thanks to unconventional resources. Right: Glenn Taylor (FMC Technologies, Inc.) listens as Boothby details the resource potential of the Uinta Basin.

Thats huge for an onshore resource and begs the question of how did stuff like that get left lying around? Its a good question, and a reminder that somewhere theres another position waiting to be found. Boothby says the basin, especially shallow to middledeep ranges, is very oily. For the future, the basin also has a deep gas potential of about 10 tcf, which will be held by production with the current oil drilling. Uinta now has three producing zones, all successively deeper: the Green River, the Uteland Butte, and Wasatch. The shallow Green River sands are spread over 165,000 acres between 4,000 and 6,000 feet deep with 4,000 drilling locations, the development of which Boothby likens to a manufacturing process. Uteland Butte has 200,000 prospective acres and 1,800 drilling locations. The Wasatch has 70,000 acres and 380 drilling locations. An historical Green River

well makes about 75 bbl/day initial production (IP), while the Uteland Butte wells have averaged over 500 bbl/day IPs and were just getting started, he says. We drilled some deep Wasatch wells vertically and have IPd north of 1,000 bbl/day. The exciting part of the basin is that we havent really taken it horizontal, so were going to be aggressively attacking it in 2012.

newrelationships
What E&P companies need from the service sector now more than ever, are long-term win-win relationships. Todays resource plays require us to look at our historic relationships differently, and make win-win more than words, says Boothby. n SeeBoothby,nextPage

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BOOthBy

We need to look for creative ways to work together in lasting relationships that remove volatility from activity levels and extreme pricing swings, he says. Mid-year price increases can throw a budget into a tailspin and force reduced activity to balance expenditures. Predicting that annual investment with certainty is a critical piece of the equation today. We have to make sure we think about that when were working together on a capital program to find a win-win place. Embracing a new win-win paradigm relationship will allow an opportunity to attack shared problems like talent as a team. People are an issue for all of us today, and its imperative that we work together to attract, train and retain the people we need, not just in todays workforce, but for tomorrow, he says. We need lots more people than weve had in the business in the last 10-15 years, and were going to have to do creative things together to attract them to the business, train them, and get them participating. Our mutual businesses and reputations are inextricably linked. Vertical integrationas in E&P companies adding services to their portfoliosis here to stay. From our perspective, business has changedits turning into something that you know more about than we do: manufacturing, he says. I think that an inability to access quality services at acceptable prices have led some to increase vertical integration. We do not want to add serviceswe believe that you can manage these crews and equipment better than we can, which allows us to focus on what we do best. Boothby says that there has to be a better way than having E&P companies and service companies competing for people and materials. Both parties share responsibility for making it happen. We own drilling rigs and services in the Uinta, weve

successfully managed them, and created value. So it can be done, but the basin is a core asset with decades of drilling ahead, he says. Today, what we do is more alike than different, because we focus on resource plays. Weve conducted internal evaluations of vertical integration and are considering areas where it may have application. We do not want to compete with you, but we will if we have to.

Market fundamentals solid, but stocks may slide in the short-term

In the world of investing, Jim Wicklund says hes a player thats often misunderstood, sometimes unliked, but always necessary. Wicklund, Principal and Portfolio Manager for Carlson Capital, L.P., is a hedge fund manager specializing in oil and gas service companies. Carlson Capital, like other hedge funds, buys stock and sells short their average holding period is two months. On the other side of the investment world are groups like Fidelity Investments theyre considered long-only and own stock for 10 years or more. The conventional wisdom is that guys like Fidelity are your friends because they forgive little blemishes along the way, says Wicklund. In the hedge fund world, we try to create short term efficiencies in capital allocationthe blemishes that a Fidelity wouldnt notice because they hold stocks for ten years I speed date. Were not always well-liked, but we insist that we provide a service. Due to the uncertainty in financial markets, long-onlys arent playing in the market, says Wicklund. They dont know if oils going back to $45 or $147 were in the middle of that price, so theyre in the middle sitting on their hands, he explains. In the past couple of months, the only people investing in the stock market are guys like me. Today in the investment world, the people that are buying and selling your stocks and all the stocks in the market are the short-term daters looking for the marginal problem. government regulations. All these are bad, but theyre balanced against the fact that the world needs the oil and gas we producetheres no alternative, says Wicklund. China announced that they're going from making 16 million cars a year to 32 millionthat alone increases oil demand by 8 million barrels a day. But demand projections and stock prices do not necessarily go hand-in-hand. Following the 2008 market crash, the stocks for Transocean, Cameron, Halliburton, and Weatherford lost 47 percent of their market capitalization. Following the Macondo disaster, those stocks fell a further 47 percent. Yet most companies, especially those who work onshore, saw their earnings, pricing, and hiring go up, all while the markets trimmed 47 percent off of the large companies twice, says Wicklund. Thats the separation between the stock in your companies versus the work that you do.

aboveGroundrisks
Regulation left unchecked is an impediment to business and the creation of jobs, says Boothby. It can create redundancies in operations, increase costs, and make the development of domestic hydrocarbons less competitive on a global scale. The key to stemming overregulation is educating key stakeholders. Many companies in this room worked to build FracFocus, a transparent solution in which a database discloses the chemical use in hydraulic fracture stimulation by state, county, lease, and individual wella great example of how we can work together to provide transparency and gain the trust of the broader public, he says. We have an obligation to educate the public, media, and our elected officials. Finally, he says the industry must speak up, and demand a firm energy policy. Our future will require that we harness all forms of economically viable and environmentally sound energy. There should be no doubt that natural gas is the future of our nations energy supply. Its the only energy source we have thats abundant, economically viable, and helps reduce greenhouse gas emissions, he says. We need an administration that will develop a sound, nonpartisan 20, 50 or 100-year energy plan, not the pithy sound-bytes to the media designed to aid their reelection campaigns. It is imperative that E&P and service companies speak with a concerted voice, that our interests are aligned, and that we have seats at the table.

ExpectationsSink Stocks
Wicklund says he's incredibly bullish on how much liquidsrich drilling the industry will do over the next several yearsthe n SeeWicklund,Page8

Multipledislocations
The industry has suffered through the economic crash of 2008, the Macondo disaster, the gyrations of the oil market, and uncertainty surrounding

Jim Wicklund

6 PESANews
Running an oil companyone truly focused on oilis nearly a relic of the past. Not for Oxy Oil & Gas USA, a fact that their President, Bill Albrecht, says isnt going to change. Were proud of the fact that 75 percent of our reserves on a global basis are oil reserves, which makes us the oiliest of our major peer companies, says Albrecht. Were an oil company true to form. Were not in the process of transitioning from natural gas-weighted to oil-weighted like some of our independent friendswe are indeed an oil company, and you wont see us deviate from that. But the market foresight of staying the course in oil isnt the reason that Oxy was selected for the 2011 Explorers of Houston Award. Each year, PESA presents the award to an oil and gas exploration and production company that has a proven record of pursuing and achieving the advancement of technology and innovation in the energy industry. As the fourth-largest U.S. oil and gas company, Oxy is an acknowledged leader in applying advanced technology to boost production from mature fields and access hard-to-reach reserves, says Robert Workman, President of Distribution and Transmission for National Oilwell Varco and Chairman of PESAs Explorers of Houston Committee. Oxy is the largest onshore oil producer in the contiguous U.S., and most of their worldwide reserves are U.S.-based. Their flagship operation in the Permian Basin closed out 2010 producing more than

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Explorers Award goes to Oxy Oil & Gas USA

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

25 percent of the companys worldwide total. Of particular note is the fact that approximately two-thirds of the Permian oil production is from fields that employ CO2 flooding which also has important environmental benefits, says Workman. The CO2 circulates within a closed loop and virtually all of the injected CO2 ultimately becomes permanently and safely trapped in the underground oil reservoir which 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 Management System encourages individual responsibility, values quantifiable results and promotes communication, says Workman. With more than 30,000 employees and contractors, Oxy is committed to respecting the environment, protecting safety and upholding high standards of social responsibility throughout its worldwide operations. n SeeExplorersaward,nextPage

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, Subsurface Engineering; and Doug Chester, Drilling Manager, Permian.

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PESA Chairman John Gremp echoed Workman, saying that Oxys well-known reputation created one of the largest audiences for the Explorers Award. Im pleased to recognize Oxy for their success in increased productivity while at the same time finding ways to protect the health and safety of your employees and contractors, he says. Additionally, we commend you for your recognized accomplishments in protecting the environment and your worldwide involvement in community service. Accepting the award, Albrecht gave a brief glimpse at Oxys 2012 operations. We dont know exactly what our 2012 capital program is yet because it has not been 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 loaded program in 2012, and, if anything, youre going to see an increase in our capital spending. For production, Albrecht says that Oxy is the largest producer in the state of Texas; the number-one natural gas producer in California; and recently, they became the number-one overall producer in California on a barrel of oil equivalent (BOE) basis. Overall, the company produces 750,000 BOE per day, the majority of which is in the U.S. Their largest operation is in the Permian Basin, in which theyve succeeded in unlocking increased oil production through CO2 flooding. Our EOR operations in the Permian make us the largest handler of CO2 in the worldwe move about 1.7 bcf per day, or more than 600 bcf of CO2 every year. Finally, Albrecht said a significant source of pride for the company is their financial performance. Weve had a successful record of increasing our dividendssince 2002, our dividends have gone up 268 percent and have paid a dividend every year since 1975, he says. Were very proud of our stock price relative to the S&P 500weve outgained the S&P for the last 12 years, the longest streak running for any company in the S&P. Finally, Albrecht says that while it is an honor to accept the Explorers Award on behalf of Oxys 11,000 employees, their accomplishments would not be possible without their partners. None of this would be possible without your help and cooperation and willingness to work with us, he says. We owe you a debt of thanks, and the only way we can achieve these kinds of performance metrics year over year is to have a great working relationship with our service company friends. We look forward to a successful 2012 working with you.

PESANews

Presidential hopeful Mitt Romney speaks to members

Presidential candidate Mitt Romney made a brief appearance prior to Lee Boothbys remarks at the 2011 PESA Membership Meeting. 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-Ed page this morning (Dec. 1). At the top of the page is an article written by the head of the Service Employees International Union, Andy Stern, in which he lays out what he thinks our policy should be moving forward. He says the government ought to run our economy. He literally says Chinas got it right, weve got it wrong. Free markets dont work, and the right course for America is to have an industrial policy set by our friends in Washington. Sometimes you just shake your head, but this gives insight into the thinking of the people that surround the President. But fundamentally, he believes government guiding an economy and guiding our lives is a better course for America, than free individuals creating free enterprises in free markets. Thats the battle thats going on right nowwhere those that think a governmentguided life and economy is the right course for America. And theyre fighting hard. Its not that were protecting our society against some bad thing that might happen, but instead protecting our society against business, and trying to guide business, and trying to replace business with their own arrangement. They really feelthe EPA and other agencies that they could do a better job running and guiding 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 a second term with President ObamaI dont think we will, I cant be 100 percent sure of that because its hard to defeat an incumbent, but I intend to do that if Im the nominee. At this stage, it looks pretty goodits narrowed down, I wouldnt have guessed it would narrow down to me and Newt Gingrich. But you never know Donald Trump was the leader for a while in the polls, then Michelle Bachman, and then Governor Rick Perry, and then Herman Cain. We all have microscopes tuned to us and were considered for our strengths and weaknesses. I think its going to be a great opportunity for people to decide what the right course is for the country. I respect the work that youre doing, and I know that people in Washington dont like you very much. I like you a lot, and I look forward to working with you. I want to see you succeed and thrive, because I want to see more domestically produced energy for America. I want you to succeed and thrive because I want to see more tax revenue coming in from you and the people you paywhen business does well, the country does well. I look forward to being a President that makes America the best place in the world again for enterprise, for business, for development, for job creation, and for the middle class in America. I look forward to having your help, and well see youhopefully from the White Housein a couple of years.

PESANews

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PESA News Petroleum Equipment Suppliers Association 1240 Blalock, Suite 110 Houston, TX 77055 First Class US Postage Paid Houston, TX Permit No. 04805

U.S. Oil and Gas Field Equipment Exports

(inU.S.$1,000) AUG SEPT Brazil 52,604 50,778 Singapore 37,592 43,560 Russia 31,101 32,125 Venezuela 27,235 28,062 P .N.G. 618 64,199 Korea 19,205 21,078 China 27,690 28,067 U.A.E. 21,793 30,754 U.K. 21,848 30,287 Canada 23,321 23,396 Mexico 26,060 19,349 Saudi Arabia 11,736 19,121 Egypt 19,686 9,061 Belgium 354 8,518 Israel 953 1,740 Subtotal All Other Total

Top 15 Destinations for Q3-Q4 2011

OCT 50,997 63,918 41,820 45,692 35,100 55,812 33,832 24,399 24,214 27,162 22,668 21,648 20,464 30,013 22,535

Source:U.S.InternationalTradeCommission

311,794 410,097 520,272 228,972 337,651 259,995 540,767 747,748 780,267

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long-term fundamentals are solid. But he does have concerns about the short term. Long-term fundamentals for the industry will not mirror the gas drilling booms that began in the late 1970s and 1980s. We didnt quit drilling for oil because we wanted to drill for gaswe couldnt find oil in economic accumulations, he says. So we started drilling for gas, and were so good at it that we ruined the economics of it for 13 out of the past 25 years. Natural gas is a localized commodity, and if too much is produced, prices fall. Oil, however, is globally fungible. We now have the opportunity to drill oil wells the industry now has 15 years of current drilling inventory at current rig rates for oil prospects, he says. We cant kill the commodity price of oil like we have gas, and we can show the efficiency of this industry that has been reined in by price in the past. However, the business is still cyclical, says Wicklund. As a cyclical business, rig count and

pricing accelerate, then plateau, and then decline before reaccelerating. A recent Halliburton conference call said that business has been fabulous. Prices have been rising for the past 3 years and are starting to plateau, but Halliburton is not concerned about them going down, he says. In a cyclical business they do, but then they reaccelerate. Wall Street pays close attention to the dips in pricing and performance, however small. Wicklund gave a current example: In pressure pumping, theyre bragging that they can buy a pressure pumping spread and get a full cash payback in 14 months, he says. Wall Street will ask if business will still be good next year. The companies always answer yes. But if that rate of return moves to 24 months, service companies would still be happy. Our concern is that its going from a 14 month payback to a 24 month payback, which means margins are coming down, and we sell your stocka 14 month payback on capex normalized over time is Wall Street lingo for margins are going down soon,

we just dont know when. The broader market is calling for a slowdown, he says. There is a high correlation between the U.S. rig count and the Dow Jones. The Dow Jones has recently come down, though some will argue that it was a market mistake, an aberration, that it wont be the same as previous times its different this time is a lousy argument, he says. This is what Wall Street is concerned about. The market is a discounting mechanism, and it sees the future before we do, and it indicates that business is going to slow down. The problem, Wicklund says, is expectations. As of the presentation, the industry was eight rigs away from the September 2008 highs, and nine rigs from the highs of 1985. I understand well complexity is increasing, frac lengths are going up, wells are more expensive, and if activity stayed where it is right now, youd all be happythat would be incredibly negative for Wall Street, he says. If the heads of Schlumberger, Halliburton, and Baker Hughes came out and said rig count will stay right where it is for the next three years, your stocks would be

down 25 percent the next day. We dont buy stocks because things are staying good, we buy because things are getting better. For 2012, the market expects revenues in North America to be up by 20 percent next year, and oil will be $100. I love optimism, but it drives investment expectations, he says. The future strip has been between $75 and $89 for the last two weeks. The difference is that at $80 oil, the E&P industry has to outspend their cash flow by 60 percent just to keep activity flat. Wall Street wouldnt think this is a good thing. Wicklund says that the good news is that it isnt a repeat of 2008, and virtually no company will lose money from an earnings perspective. Stocks always swing to extremes relative to the underlying business, he says. Were not expecting business to crashthe outlook is better than it's been in years, and were now drilling for a commodity for which we cant screw up the pricing. There hasnt been a better time to be in the business, its just that for the next several months it may not be the best time to be in the underlying stocks.