Doug Sheridan

Newsletter provider, oil & gas, oilfield suppliers, energy
Doug Sheridan
Newsletter provider, oil & gas, oilfield suppliers, energy
Contributor since: 2007
Company: EnergyPoint Research, Inc.
How about a chart showing trends of actual energy consumed in U.S. by energy source? Pretty sure the share of natural gas will be shown to be so large (and growing) so as to undermine much of this post's premise. Here's a link to one site that includes information that clearly suggests the demise of natural gas in the U.S. is nowhere in sight: http://bit.ly/1NBMFUO
But you have to know that their utilization is materially higher than that of solar and wind, right?
Dave Lesar is following the same playbook he used when disposing of KBR and legacy asbestos claims years ago: pick a strategy and stick to it until it's done. My guess is the whatever-it-takes strategy will eventually win out. Whether it will have been worth it is another matter.
Exactly my point. That said, it will be interesting to see if competitors can respond in kind. If so, the combination of Schlumberger's approach and that of competitors could unleash a new phase of productivity and efficiency in the oil patch.
Thanks for your comment.
The VorTeq technology, while certainly very interesting, is designed to reduce simple wear and tear on hydraulic fracturing pumps. Such a design feature has little to do with the envisioned automation or integration of the completion process (and nothing to do with the drilling process) discussed in the article. As a result, I chose not to mention it in an already length piece.
Doug
You are welcome.
With a winning system and buy-in from employees and customers, results tend to take care of themselves. That said, H&P's competitors are increasingly trying to copy the company's model. It will be interesting to see how close they get in coming years.
Doug
The editors fixed the duplicate chart issue. Thank you for pointing it out.
You are welcome. Glad you found it of interest.
Thanks for the catch on the duplicate chart. I'll get the editors to fix.
Your question about the ratings for products versus services is a very good one. NOV's ratings in EnergyPoint's surveys primarily reflect their oilfield products. And within their products, it tends to be the capital equipment (as opposed to downhole/consumables) that drive NOV's ratings lower. More specifically, it's the capital drilling equipment that tends to be lowest rated. However, this is the case with others in the space as well. The fact of the matter is it's very difficult to manufacture equipment that can withstand the rigors of the oilfield when operating 24/7, which is what drilling customers want. For example, the first supplier that's able to manufacture a reliable and robust top drive stands to make a killing. That's why you see companies like Cameron International entering the space. But, as with many things in the oilfield, it won't be easy.
You make a good point, so let me restate. All things held constant, NOV encroaching on CAM's traditional lines of business is, as you say, probably not good for Cameron. But all things are not constant since CAM is also encroaching on NOV's traditional lines of business with its acquisitions of TTI and LeTourneau Technologies. On balance, I believe the heightened level of competition between the two companies will make both better operators, although it's unclear at this time what the impact will be on their respective shareholders.
I presume you are speaking of the OneSubsea JV between CAM and SLB. If so, on balance, I think it's a great move for both companies, neither of which really had the critical mass needed to effectively compete against FMC Technologies, the market share leading in the subsea space. And, as you suggest, I don't see a need for the CAM - SLB partnership to go boyond the JV, primarily because CAM's a capital equipment manufacturer while SLB's an integrated service supplier. In other words, they are too different in their core focus. If interested in reading more concerning my thoughts on the CAM - SLB JV, go to: http://bit.ly/16BvBfW
I suspect you're speaking of NOV's acquisition of Robbins & Myers, including T3 Energy Services. If so, the increasing competition between Cameron (which is building its own drilling equipment business) and NOV (which is encroaching on Cameron's traditional business lines through M&A) will certainly be interesting to watch going forward. On one hand, increased competition tends to hone the performance of the companies involved, which should be good for all stakeholders (including customers) in the long run. At the same time, both Cameron and NOV are growing through acquisition, which usually has negative effects on legacy customers since customers of acquired companies tend to have lower levels of satisfaction after an acquisition. On balance, the more direct competition between NOV across all of its product lines seems to me to offer a little more opportunity than risk for Cameron (and vise versa for NOV). If you want to know more about our thoughts on this issue, take a look at this article: http://bit.ly/19F8sMb
If you are familiar with EnergyPoint Research, you know we specialize in understanding how oilfield suppliers are viewed by their customers. After having collected almost 20,000 evaluations of oilfield suppliers of all stripes since 2003, I can comfortably say that today's Weatherford is NOT viewed by the average customer as "bottom-of-the-barrel". Are there areas where customers would like to see improvements? Yes, absolutely. But as this and other recent articles we've published on Weatherford and its peers suggest, the company's current problems are not a direct function of its performance with customers. I acknowledge that there's more to a company than just its customer satisfaction; however, as I have tried to articulate in this article and other articles, company management appears to me to understand that "picking its battles" in the market place will go a long way in creating a more effective, results-oriented company. I'm not cheering for the company one way or another. I am simply offering my thoughts and insights based years of observing Weatherford and others in the space.
I'm pretty constructive on the domestic contracting picture. Activity on the natural gas side of things will pick up eventually, if not from the continued bending of the overall cost curve then from higher nat gas prices. Demand for oil-directed drilling looks to remain solid here as well, assuming we avoid a global recession. Down the road, I believe shale development internationally will be a significant opportunity for the stable of drillers and suppliers that have driven NAM's shale growth over the last several years.
Nabors has a pretty long hill to climb to get to the point where its fleet is fully optimized, both in terms of numbers and specifications. In its domestic drilling fleet, I believe the best of the company's newer rigs are competitive enough with H&P's FlexRig. However, because it's such a large company, and has so much in terms of legacy equipment, it's likely going to take a while before it can get its across-the-board fleet more fully on par with peers. International land markets have also been a drag on results, at least versus expectations. While I'm actually pretty optimistic in the long-term regarding prospects for international activity (read more here: http://bit.ly/UmpIK3), it does not yet look like much of a market. In terms of rationalization of its non-core assets, it seems management is determined to get a number of investments and non-core businesses off its balance sheet as soon as the market allows. Progress was slow on this front in the 3rd quarter; we'll see how the 4th quarter's progress was in coming weeks.
Overall, I'd characterize progress at the company as slow but steady.
I'm flattered, but, like LBJ, "If nominated, I will not run; if elected, I will not serve." :)
You bet. Glad you found it of interest.
If you listened to the most recent WFT conference call, it seems management at least undestands that it needs to change direction, including it's strategy and culture. This is the first time since we've been following the company that we can say that management seems committed to focus more one the things that will lead to more loyal customers and a better reputation in the the oilfield. If so, we'd expect its financial results to improve as a result.
"the company continues to rapidly focus on the newbuild program with a combined seven rigs completed this year or under construction. Prior to this year, the company only had seven operating rigs with two cold stacked."
Growth of this nature tends to introduce execution risk. The offshore drilling markets are high-performance markets. Contractors that don't hit their targets and run smooth, predicatable operations are disadvantaged. Should Atwood experience teething problems with its newbuilds that accumulate in the minds of customers, it could hold the company back in terms of demand and/or day rates.
That said, it's understandable how some might be very excited about the company's prospects. The new management team is certainly growth oriented.
I like the concept of the "jump." I have never heard that it was a tenet used by Buffet and Munger, but it certainly does make sense.
I think many observers of WFT have hoped for the company to make the jump, but it just never seems to happen. Even when I speak with some of its competitors, many will acknowledge that if, as one once says, "they ever get their act together" they will be a formidable competitor. Unfortunately, the company seemed to bet that if it just participated in as many segments of the industry as it could, the rest would fall into place. But it's much harder than that.
It's true, the company's growth-by-acquisition strategy has emphasized the wrong things for too long. But the company's problems are deeper than just that. Within oilfield customer circles there had in the past been a place at the table for Weatherford as the company with "great potential" but needing time to prove itself. Now, however, when we speak with customers and prospective customers of the company, we find many are giving up hope that it will ever create a lasting culture that can support the kind of pride in performance required for ever-demanding clients to take them seriously. Nothing more than a complete transformation of the company seems required at this point. But will it ever happen?
The good news is that the makeup of the BOD is changing as well. In the last 18 months, three new board members have been added, while one older member has left. In addition, John Yearwood, who only joined the board in late 2010, is now the lead director. Yearwood was previously on the BOD and then CEO of Smith International. Smith consistently rated very well in EnergyPoint's customer satisfaction surveys. My guess is that Yearwood is behind most of the positive change that's going on at the company.
Modern technology is a tricky issue in the industry. While it does tend to attract customers and sales, it also raises customer expectations. My experience is that oilfield suppliers tend to oversell technology in order to get the business, which only services to understandably frustrate customers and make them even more skeptical. A more healthy longer-term approach on the part of suppliers would be to more fully prove out new technologies before marketing them to their broad customer bases. However, the constant pressure to convince both customers and investors that a supplier is on the bleeding edge in technology tends to cause suppliers to sell new technologies before they are fully ready/vetted. The other issue customers have with oilfield "technology" is when suppliers simply rebrand older technologies with a new name, look, etc., call it "new" and then charge 2X what they did previously for the same technology. In short, game-changing technology in the oilfield is much more rare than what suppliers as a whole would have you believe. Personally, I'd rather work with a supplier that's more focused on delivering top-quality results for customers using the best available technology than one that is constantly pushing the benefits of game-changing technologies that might or might not even work.
While many of the same people are still "running the show" at NBR, they have different objectives and strategies than in the past. When the message from the board room changes, which I believe it has at NBR, entire organizations have a way of changing as well. Of course, there may be some old-school managers/personnel that don't buy into the new program, but my experience is that, if the change is real, they are forced to find religion or end up leaving the organization.
Yes, EnergyPoint's surveys do show HP as the premier land driller as seen by customers. PDS is the only other driller that has consistently rated above average. PTEN seems a bit less committed to being a premier land driller , and more interested in being a broader provider of services (i.e., pressure pumping). This hurts their focus, in my opinion.
Offshore, ESV is the top-rated driller. NE has also consistently been rated above average, as has RDC. DO is more toward the middle of the pack.
By the way, if you go to my profile page on Seeking Alpha, it should list by ticker all of the oilfield suppliers mentioned in the 60+ articles I have posted on Seeking Alpha.They can provide you with more specific insights on the companies you mention. You can also find summary reports at http://bit.ly/J9cn4O.
Hi Bill. I can't say that we have any specific data or knowledge of Gasfrac as an supplier of fracturing services. However, the data we do have suggest smaller/niche companies like Gasfrac can and do have a role to play in the segment. By its own admission, the segment's leader (Halliburton) seems to be picking and choosing which customers it seeks to make its services available to. Those operators not on Halliburton's "work with" list, or who don't want to subject themselves to HAL's contract terms, should provide smaller suppliers with opportunity to capture a respectable level of market share.
Craig, I think your points are very perceptive and very much on point.
Hi Rob, thanks for the note. If you go to my author profile on Seeking Alpha, you can find a list of all of the articles I have posted in the site, many of which either focus on or include information regarding Schlumberger (http://bit.ly/x2l87B). However, let me give you a summary of where I see Schlumberger in terms of oilfield service satisfaction. Generally speaking, Schlumberger's reputation in the oilfield is driven by its considerable capabilities in the area of downhole formation and well evaluation. It's a service that the company was founded on years ago, and it retains its leadership position in the segment to this day. That said, EnergyPoint's data do not tend to support the notion that all of Schlumberger's products and services are superior, from a technological or overall quality perspective, to that of other oilfield suppliers. However, the company has done a good job, in my opinion, of convincing its stakeholders, including investors, that they are. In terms of fracturing, the company, by its own admission, has somewhat neglected the segment until recently. So, it's had to play catch-up to some degree in the space. I'll also note Smith International, which the company recently purchased, has very strong levels of customer satisfaction, including in its M-I drilling fluids unit.
Hi rjj1960 - thanks for your comment.
I do agree with your assessment that as backlogs develop and suppliers tend to rush to complete jobs, quality and performance can and do suffer. However, I can't get on board with your other points. Keep in mind that the survey measured "customer satisfaction", not just "customer service". Customer satisfaction can be a function of a number of factors, including the quality of the frac job, the pricing and contract terms offered, the pre- and post-job planning of the job, the expertise of the crews and supervisors, as well as service and professionalism. So, its a lot more than just customer service. Furthermore, with crude prices over $100, a poor frac job can result in real monetary losses for customers. As a result, most oilfield customers today are much less likely to let poor quality products and services, for which can pay considerable premiums in many cases, just slide past them. Instead, they find alternative suppliers that can and do provide them with consistently good performance, during both busy and slow times. In fact, numerous studies have shown that stock prices of companies with high customer satisfaction, including oilfield suppliers, well outperform those with low levels of customer satisfaction. Of course, while there are still some persons and suppliers that believe they have the right to shortchange customers when times get busy, their numbers (and prospects) are shrinking.
I think that's a great analogy. To be sure, domestic oilfield services providers have benefitted as a group from the growth shale plays to date. However, just like in any business, those suppliers that are particularly good at helping their customers get the most from the shale assets will see their market shares increase over time. The good news is that unlike the Califonia gold rush, the shale play looks to be a legit long-term opportunity.
Research has shown that higher customer satisfaction levels correlate very well with stock price appreciation, including growth of top and bottom line. Companies with low levels of customer satisfaction have difficult times growing (e.g., Dell a few years ago) becuase they spend so much time replacing and/or dealing with complaints of dissatisfied customers. The point of the article was to provide readers with an understanding that Tetra appears to have reversed the negative impressions many customers had of the company. In short, happy lloyal customers are much more willing to spur the growth you mention than unhappy and fleeing customers.
And for the record: I don't smoke. :).
Glad you found it to be of interest.
Thanks very much for your comments. We'd love to have you participate in EnergyPoint's confidential surveys if you'd like to evaluate Basic and/or others. If so, contact us at info@epresearch.com, and we'll set up up in our program.
Doug Sheridan
Thanks for sharing this information. I agree, it does look like the company has been busy on the technology development front, particularly in it's businesses that fall outside of its flagship contract drilling rigs and crews.