2014 PESA Winter Newsletter

PESAnews Explorers Award ReceptionNovember 2013 – January 2014 Continental Resources, “Continental Resources is Harold Hamm, Continental Volume 67, Number 4 based in Oklahoma City, is on pace to meet its goal of Resources Chairman and CEO www.pesa.org focused on the exploration tripling production from 2012 and production of onshore to 2017. The company’s 2014 increased productivity for theUpcoming Events oil-prone plays and is a Top oil and natural gas production company, while at the same 10 independent oil producer is expected to increase 26 to time striving to protect not HR Roundtable in the United States. The 32 percent from 2013 levels only the health and safety of February 26, 2014 company has a long and with a capital expenditure your workers, but the healthMays Business School at CityCentre successful history of developing budget of 4.05 billion dollars.” and safety of your contractors its industry-leading leasehold and service providers,” Houston, Texas and production in the nation’s The Explorers Award is the says Workman. “We premier oil play, the Bakken of Association’s means of commend and congratulate Supply Chain Seminar North Dakota and Montana, recognizing excellence Continental Resources for your February 27, 2014 as well as significant positions among producers in a variety accomplishments.” Westin Memorial City in Oklahoma in its recently of categories. Since 1999, Houston, Texas discovered SCOOP play and PESA presents the award to —Explorers continued on page 4. the Northwest Cana play. In an oil and gas exploration Explorers Golf Tournament 2013, the company celebrated and production company March 6, 2014 46 years of operation. that has a proven record of pursuing and achieving the Golf Club of Houston “The company is on a advancement of technology Humble, Texas tremendous growth curve,” says and innovation in the energy Robert Workman, President of industry, while maintaining Washington, D.C. Fly-In Distribution and Transmission a track record of safety and March 9 – 11, 2014 for National Oilwell Varco and community involvement. Hay Adams Chairman of PESA’s Explorers Washington, D.C. of Houston Committee. “We’re happy to honor you for your success in pursuing Emerging Leaders Oil 101 March 13 – 14, 2014 Annual Meeting Norris Conference Center Houston, Texas 2014 PESA Annual Meeting April 2 – 5, 2014 Loews Ventana Canyon Tucson, Arizona Find all of our upcoming events The Annual Meeting is our Canyon (pictured at left). at www.pesa.org signature event each year, and we hope you can join us Speakers Include: In This Issue for what promises to be an excellent program. • Keynote Speaker MarkPESA Perspective.................Page 2 Papa, EOG ResourcesChairman’sLetter...................Page2 The theme of this year’sMembershipLuncheon...........Page3 meeting is “The Road to • John Daniel, Simmons &ExplorersAward...............Pages1&4 North American Energy Co. InternationalLegislative Seminar........Pages 4 & 7 Independence” with a varietyEnergy Educators Sporting of speakers discussing the • Susan Farrell, IHSClaysTournament..................Page5 opportunities, challenges • John Hollowell, ShellExecutiveAddressSeries..........Page6 and strategies of developing • Rick Muncrief, ContinentalIndustryTalkingPoints.............Page7 both onshore and offshoreOneAnalyst’sView.................Page8 resources. Resources • Steve Thurston, Chevron The meeting will be held • James Wicklund, Credit April 2 – 5 at Loew’s Ventana Suisse For more information, contact the PESA office at 713-932- 0168 or [email protected] PESA News

PESA Perspective Chairman’s LetterThanks for Giving Back What a busy winter! We hope to PESA Chairman have seen you at one of the many Charles E. JonesThis last week I came across a number of reasons to PESA events and if not, there aretake advantage of the opportunity I have to thank all plenty more opportunities to get Leaders Oil 101 (March 13-14)PESA member companies for their contributions to involved with PESA this spring. Houston; and the 2014 PESAeducation. November 1, we started off with Annual Meeting (April 2 – 5) the Energy Educators Sporting Tucson, Arizona.PESA was a co-sponsor this week of the World Affairs Clays Tournament at AmericanCouncil’s EnergyQuest. Pat Bond, COO of LTR and Shooting Centers. The event raises The HR Committee is currentlya member of PESA’s Executive Committee, served as funds for education outreach. planning events for this springmoderator of the competition for the third consecutive Four days later we honored and summer that should be anyear (see photo below). It was wonderful to see so Continental Resources with the outstanding resource to not onlymany young people who are knowledgeable on the 2013 Explorers of Houston Award HR professionals but all PESAsubject of energy and excited to learn more. for Leadership and Innovation. members. Mid-November, James WicklundAlso last week I learned that PESA had again shared the 2014 outlook for the Kevin McEvoy (Oceaneering) isbeen approved to provide oil and gas training to industry at PESA’s membership heading up a committee seekingrepresentatives from the U.S. Department of State who luncheon. I had the opportunity ways to actively get involved in aserve in Washington, D.C. and at embassies around to speak at the Emerging Leaders mutually beneficial relationshipthe world. Our member companies do a great job of Executive Address Series January with the USO. There areproviding information and letting the group actually 15. Finally, PESA members had tremendous plans underway, andmeet the people who play an integral role in providing the opportunity to meet Texas we are looking forward to sharingenergy, economic growth and thousands of jobs to Railroad Commissioner Christi them with you.America. Craddick on January 23. ThereOn Thursday, Galen Cobb (Halliburton) chaired a is more information and photos Membership in PESA can offermeeting of the Board of Directors of the IPAA-PESA from each of these events a great benefit to you, however,Petroleum Academies. There I had the opportunity throughout the newsletter. you have to take the initiative toto meet a number of the teachers and students from get involved. I hope to see you atthe various academies. PESA announced its Teacher You may notice a slightly different a PESA event soon.of the Year Award Winner, Katricia Conners, and we look to the newsletter. We haveheard from two of the students who had been awarded been hard at work updating and Charles E. Jonesscholarships to help support their future college refreshing things around PESA. PESA Chairmancareers. The students were outstanding (and eloquent) With the start of 2014, we haveas they told their stories of how much the academy introduced a modified newsletteropportunities had meant to them over the years. At the and website. I hope you willend of their presentations, I told them how proud all of visit www.pesa.org to see whatus are for their accomplishments. resources are available to our members.I appreciate this chance to convey to you how gratefulI am for the support you give to our programs. These Some meetings I hope you willgood things could not happen without you. Thank you. consider joining us for are:Sherry Stephens Blanks Supply Chain Seminar (FebruaryPESA President 27) Houston; Washington, D.C. Fly-In (March 9-11); Emerging PESA News is published by: PESA Chairman PESA President Petroleum Equipment Charles E. Jones Sherry Stephens Blanks Suppliers Association PESA Vice Chairman PESA Vice President 1240 Blalock Rd., Suite 110 Paul Coppinger, Weir Oil & Gas Michael Perini Houston, Texas 77055 Phone: 713-932-0168 PESA 1st Vice President PESA Director of Fax: 713-932-0497 Gary Halverson, Cameron Communications © 2014, PESA Molly Smart2 PESA News

Membership Luncheon2014 Outlook for the Industry presented by James WicklundJames Wicklund (Credit Suisse) James Wicklund (Credit Suisse) presented at the 2013 Membership • I n d u s t r i a l A m e r i c a i spresented “2014 Outlook for Luncheon. poaching, paying up forthe Industry” November 14, the privilege, stepping into2013, at PESA’s membership 2013 Membership Luncheon our shoesluncheon. Attendees networked before the luncheon began. Rig Count Projection:Wicklund began his careeras a geophysicist, and has duration capital charge throughout Canada is improving as itspent the past 15 years • Expanding outside of the the system have to take accelerates out of a trough.in financial services as a prominence In 2012, the 2nd half rig countresearch analyst covering the Golden Triangle was down 9%, a period ofoil & gas industry. He has been • $1.2 million daily spread • Long-term “stationary ” historical seasonal strengthrecognized by various awards operations are not what in Canada. Our forecast ofand recognitions including costs only going higher the industry has been 369 for 2013 is flat vs. 364#1 rankings in Institutional conditioned to operate in 2012, but this represents aInvestor and was a frequent In unconventionals: 6% improvement in 2H13 vs.contributor to CNBC and • High capex requirements • Va l u e d e l i v e r y h a s t o 1H13.CNN among others. change. Dayrates for more are not just an issue for E&P efficient rigs and stage- U.S. gas drilling appears toHe is currently the Managing companies but OFS as well count for fracking have bottomed after beingDirector and head of Credit • C o s t o f c a p i t a l a n d down 37% last year and anSuisse’s Oilfield Equity estimated 28% this year.Research. Momentum is gradually starting to accelerate butWicklund shared that the the levels of associated gasindustry has changed, more still being produced in thedramatically than you think country’s “oil” wells couldbecause: continue to slow the eventual recovery.• Dominance of Offshore and Unconventionals U.S. oil drilling has been up have reduced the volatility 113%, 67% and 39% over and increased the capital the last three years ending in required 2012. We are expecting only 3% growth in 2013.• Strategic drivers of the industry have changed from Horizontal drilling has similarly revenue growth and Ebitda had a 3-year run of growth but to Return on Capital and we are modeling down 2.5% Capital Allocation for the year. It is in horizontal drilling/pad drilling where the• Compensation has shifted greatest efficiencies are being to better accomplish the seen so down slightly on the shift in strategic drivers number would still have a very positive impact on spending.He said that the reality fordeepwater is that IOC cash We are estimating totalflow growth cannot support all footage up 2.6%, oil wellsnew and existing rig activity. up 3% and natural gas wells down almost 20% in the year• Increased access – 12,000 over year calculations. feet & Tertiary capability, new hydrocarbon systems Wicklund left us with the thought to “be very cautious• $ 3 0 b i l l i o n i n N E W and focus on returns because deepwater rigs on order the industry is not only cyclical, but even hyper-cyclical.”• OFS contracts bid on razor-thin margins with technology upsell & long 3 PESA News

Explorers AwardContinued from Page OneAccepting the award was Continental Resources Chairman andCEO Harold Hamm and four members of his executive team.“Our 2014 plan year two on the five-year road map ischaracterized by continued strong production growth, continuedcapital discipline and continued achievement of key explorationmilestones in the Bakken and SCOOP, as we work toward thetransition to full field development of these tremendous plays,”CEO Harold Hamm said.Attending with Hamm were W. F. “Rick” Bott, President andChief Operating Officer; Richard E. Muncrief, Sr. Vice Presidentof Operations; Jose Bayardo, Vice President of BusinessDevelopment; and Ollis Anderson, Purchasing Manager.The Explorers award is given once per year, and prior recipients Jose Bayardo, Harold Hamm, Robert Workman, Rick Bott,represent world-class performers including Pioneer Natural Richard Muncrief, and Ollis Anderson with the Explorers Award.Resources, OXY Oil & Gas, EOG Resources, Petrobras America,Marathon Oil Corporation, XTO Energy, Apache Corporation,and Chesapeake Energy. The first Explorer’s Award waspresented to Conoco Inc. in 1999.Meet Texas’ Top Oil & Gas Regulator Texas Railroad Commissioner “Meet Texas’ Top Oil & Gas I would like to share some world right now. We want to Christi Craddick Regulator” was a collaborative numbers with you. continue to grow. session of the Corporate Bob Moran (Halliburton) Counsel Advisory and We ended 2013 with a rig We know that the oil and gas introduced Craddick. Government Relations count in Texas of 829 active industry nationally as of July4 PESA News committees. The meeting, rigs. We’re at about 1.8 had already directly created co-chaired by Brad Eastman, million crude barrels a day in one million jobs. I believe Cameron, Bob Moran, the state. Our numbers don’t we are close to 500,000 Halliburton, & Mark Wolf, include liquids condensate. If jobs directly created from FMC Technologies, Inc., was our numbers included liquid the oil and gas industry in held January 23, 2014, at the condensate, we would be at Texas since the sustained Westin Memorial City Houston. about 2.5 million barrels a production began in 2005. Texas Railroad Commissioner day. That’s a job growth number Christi Craddick shared her with the average salary of insight on what to expect in People forget what $120,000. Midland, Odessa 2014 and how to prepare this industry is doing became the highest grossing for our industry’s dynamically to sustain this state salary location in the country changing landscape. The again. Over 25% of the Texas following is an excerpt of Ms. and the nation. workforce is directly involved Craddick’s presentation: in the oil and gas industry. –Texas Railroad It’s been an interesting year. Commissioner Not only are you creating jobs, There is a lot going on in this Christi Craddick but you are paying taxes to industry and we have a lot the state. This industry pays going on at our agency as We are predicting in Texas with 12 billion dollars in taxes a well. About half the rigs being all these numbers right now year. You pay in severance drilled in the country are sitting that by the end of the year we taxes, property taxes, sales right here in Texas. To give you will be the eighth largest oil taxes. People forget what this a perspective of where we are and gas producer in the world. industry is doing to sustain this and how much we’ve grown, We are the fourth largest producer of natural gas in the state and the nation. –Continued on page 7

Sporting Clays TournamentPESA’s Third Annual Sporting Clays Tournament was held on November 1, 2013, at the American Shooting Centers in Houston.Our Energy Educators Committee, chaired by Pat Bond (LTR), sponsored a 100-target tournament with trophies awarded for the topthree teams and the high overall individual man and woman based on Lewis Class Scoring.Proceeds from the tournament support PESA’s education outreach programs including college scholarships for graduating studentsfrom the IPAA-PESA Petroleum Academies.First Place Team 520 Second Place Team 505 Third Place Team 495David Chandler, 106; Scott Carroll, 106; Bill Henn, 104; Jeff Allison, 103; Joe Dillard, 104; Ricky Wright, 103;Corey Paybody, 104; Mike Griffen, 103; Brent Balcer, 103; Clark Clement, 100; Bill Bruce, 99; Kevin McDougald, 95;Scott Patton, 101 Jack Trice, 95 Tommy Chavat, 94High Overall Men High Overall Women National Oilwell Varco made lunch andDavid Chandler, 106 Holly Patton, 92 dinner for everyone. Platinum Sponsors Lunch Sponsor Drinks SponsorThe Sporting Clays Tournament was a great opportunity to raise 2014 OTC Asiamoney for the Energy Educators and for attendees to network. Meeting the Challenges for Asia’s Growth March 25 – 28, 2014 OTC Asia will focus on concerns pertinent to the region and be an avenue to share lessons learned, best practices and emerging technologies in offshore oil and gas activities towards meeting the challenges for Asia’s growth. 5 PESA News

Emerging Leaders Executive Address Charles E. Jones spoke about leadership at the Executive The Executive Address Series consideration to come up with the Address January 15, 2014. held on January 15, 2014, was collective group answer. sponsored by the Emerging Attendees enjoyed lunch while listening to PESA Leaders Committee and featured How are you ever going to be Chairman Charles E. Jones. PESA Chairman Charles E. Jones. extraordinary if you don’t have an Mr. Jones shared his knowledge opinion? How are you ever going Charles E. Jones speaks to Executive Address attendees. and experience of more than to lead your business forward or three decades in oil and gas. The transform it if you don’t have an Charles E. Jones spoke about the importance of integrity. following is an excerpt from his independent opinion? How many6 PESA News presentation: of you have been in a meeting – eight people around the table You can make a difference. You and everyone else is heading in have the chance no matter what one direction, and you’re thinking, your job is to be a leader. You can “You know, I just don’t agree with demonstrate leadership at any level that.” Yet, you don’t say anything. in your business. If you are lucky Remember, you are obligated to enough to have people that report say something. That’s the reason to you, and possibly people that you have a seat at the table, to report to them, you need to take have an opinion. back a message that you expect to see leadership at all levels. Never, ever compromise your principles. We all have some basic Management is a different process truths that we believe in. You need than leadership. Management is to ask yourself; how far to the about dealing with complexity. mat am I willing to go for those It’s about dealing with processes, principles? budgets, organizations; all the things that we all do in our jobs I was lucky that at an early age – that’s management. So, what is I was able to let my principles leadership? Leadership is about guide my actions. We had a dealing with change. The higher problem many years ago where the rate of change, the more we had millions of dollars’ worth necessity there is for leadership. of equipment installed on the sea floor and we discovered a Leadership is an obligation. metallurgical problem. Without Certainly people that are in this talking to the directors or board room today have a position in your of our company I committed to fix company or firm, which allows you it all. The estimated cost of fixing to come to an industry luncheon. it was in the tens of millions of Take away from that the fact that dollars. And not only did I commit you can be a leader and you can to do it, but I went to the customers make a difference. and told them – we’re going to do this. The integrity the business Set yourself up to continue to learn demonstrated by doing the right by finding a mentor. Mentors are not thing benefitted that company fixtures that stay with you your entire for years to come, because the career. As your career changes, business had the integrity to talk the people that are mentoring you to the customer about what the may change as well. problem was and not hide it. Your integrity is really an “in” with I am opinionated because I believe business. everyone needs to have an opinion. Look around you at the people Remember that humans don’t like that you work with and I bet you change. We like things steadily that several times a week you’re moving ahead when we are in an environment where no one dealing with people. But change is has an opinion. It’s all just group inevitable. Leadership is about the think, people being politically management of change. correct and taking everything into

2014 Legislative AgendaContinued from Page 4Here are some challenges that I think we affecting the oil industry, it’s alsohave going forward: affecting commercial development.1. State: Only six of the 181 members As a state, we need all the help we of the Texas legislature are directly can get with this. involved in oil and gas. Please tell 3. Water: I want to commend a lot of companies that are working on everyone you work with to educate different ways to recycle water (finding Sherry Stephens Blanks, Chris Cragg, those around them about what they brackish water and using that instead Christi Craddick, Bob Moran and Douglas do. It’s going to take all of us to of fresh water) and companies that Cain speak before the meeting. inform others of what we do. are looking at ways to not use water at all.2. Federal: Federally we have a couple of items on the horizon; the EPA and 4. Air quality: Flaring is going to be Endangered Species. an issue until we get the infrastructure built, particularly in south Texas. EPA: The EPA wants to make its own rules by propagating fracking 5. Taxation: We need to continue to make rules. We believe if they are able to sure that state taxes are appropriate. put rules on top of our rules, it cantake half a year plus to get a permit. 6. Transportation: There are dangerous roads in south Texas, and we need An attendee takes notes during the meeting.The Bureau of Land Management to ensure that the money is being 8. Identifying Potential Issues:wants to add their fracking rules invested where it needs to be utilized.for federal lands. If they implement The industry moves much quickertheir rules, it will take 229 days 7. Earthquakes: An area near Fort than the government, so as you seeto get a permit on federal lands. Worth has had twenty earthquakes issues that are going to arise, pleaseEndangered Species: There since November. We are in the process let us know. I think we have a longare 127 endangered species in of hiring a seismologist because as a potential road ahead as we continueTexas. The number has grown from commission we need an expert who to import less oil from overseas and110 about a year ago. This isn’t just can identify why this is happening. do it ourselves.Industry Talking Points 7 PESA News

U.S. Oil and Gas Field PESA News First Class Equipment Exports Petroleum Equipment Suppliers Association US Postage Paid 1240 Blalock Road, Suite 110Top 15 Destinations for Q4 2013 Houston, TX 77055 Houston, TX (in U.S. $1,000) Permit No. 04805 Oct. Nov. Dec.Mexico 87,239 48,048 156,224Korea 46,751 35,612 50,227Venezuela 6,217 35,835 48,813Argentina 5,155 6,714 44,662Brazil 37,374 18,458 40,214Nigeria 43,484 13,110 36,923China 26,724 32,897 32,332Russia 36,512 33,261 30,054Singapore 40,429 27,474 29,263Bahamas 0 0 28,750Canada 17,594 14,070 19,940Saudi Arabia 21,546 16,349 18,689Angola 26,630 20,133 16,088UAE 23,729 17,725 15,743UK 15,446 18,375 14,737Subtotal : 434,828 338,061 582,661All Other: 235,870 192,706 158,724Total 670,698 530,767 741,384Sources: U.S. Department of Commerce &the U.S. International Trade CommissionOne Analyst’s ViewWe are pleased to bring back “One The survey high points were: the strongest two-year activity in theAnalyst’s View,” which was a recurring • A 14.7 percent increase in exploration past 15 years.article in PESA News. The last time this • Preliminary indications are that robustfeature ran was December 1996. Geoff and production expenditures is planned spending growth will be sustainedKieburtz, Mark S. Urness, Stephen D. for 1997, the strongest year-ahead beyond 1997 - reinforcing our beliefGengaro and Mark Epstein of Saloman outlook in nine years. in a secular recovery for the oil serviceBrothers, Inc. shared their “Survey of • Double-digit spending growth is industry.1997 Worldwide Oil and Gas Exploration projected in all regions for 1997. It is an honor to renew this series with theand Production Expenditures.” • The 1997 outlook, combined with over expertise of James Wicklund of Credit Suisse. 15 percent growth in 1996, representsCautiously Positive by James Wicklund of Credit SuisseJames Wicklund, Credit Suisse As we settle into the New Year, companies’ operations but not never without challenges, but the conflicting arguments and for a growth stock’s valuation. we think careful and correct sentiments are higher than This makes the investment stock selection can outpace usual. In the world of Oilfield argument for equipment the broader market. Services, we are seeing a manufacturers, rig companies, cyclical rollover in several boat companies and a host That is the reason for our subsectors of our industry of companies in their supply focus on large capitalization, related to offshore, and chains much more difficult. technology focused, integrated typically down-cycles are not service companies. Their good for the stocks. Subsea We do think that this negative business will continue to grow, tree orders crested last year sentiment is giving way to a at 1.5-2.0 times the nominal and will be down in 2014. cautious sentiment – cautious increase in capex, because Deepwater rig orders have being the title of our sector parts of the business are gone from 41 in 2012 to 18 view in our recent Energy in rolling over. Yet capex is still last year and a rig company 2014 tome. The OSX isn’t going up by 5-6%, and while CEO says “[the] industry may likely to have another up-28%- this doesn’t sound like a big be entering a short, arguably year, capex growth is slowing, number, these are stocks that useful, pause in the cycle.” pricing isn’t improving much at will grow top line by 9-12% Business slowing to give all anywhere, some subsector and earnings by 17-45% this companies a chance to “catch orders peaked last year and year, and they are currently up” is probably positive for the there is the risk of lower oil trading at less than 14 times prices. Investing in energy is 2014 earnings.8 PESA News