Three Decades of Change

Source: Exec Digital Canada

Date :6/16/2008 2:17:13 AM

David Barr, Chairman of the Petroleum Equipment Suppliers Association (PESA), has encountered almost every situation imaginable during his 35 years in the oil and gas industry.

Written by Kevin Doyle

Barr’s experience prepares him for - and allows him to offer - a calm, reasoned explanation for the events resulting in historic prices of oil, which topped US$130 a barrel for the first time in late May. Barr says it’s a simple matter of supply and demand - as demand increases and approaches, or exceeds, supply then the price goes up.

“Our business on the service side has been growing steadily for about six or seven years. That’s quite a long growth cycle. Before that, it was more cyclical because there was quite a bit more supply than demand. Now the demand has been growing steadily for the last 20 years or so. Additional supply is coming in, but it’s barely keeping up to the demand. As supply and demand come into sync, or are in close sync, the price of the product obviously goes up,” says Barr.

Exploration never stops

While escalating prices have yielded the industry’s “fastest and strongest growth rate in the last six years”, Barr notes that oil companies aren’t stockpiling profits. Much of that revenue is poured right back into research and exploration.

“The key that people have to understand is that, although companies are making quite a bit of money, they have to spend a lot of that money to explore and develop new sources, and they have to take some risks to do that. The easy hydrocarbons have been found. Now we’re going where it’s not so easy,” he says.

Regulations and restrictions in the United States mean that companies have to search elsewhere for new reserves, in locales such as the sub-Sahara, Russia, China and throughout the Middle East.

“In the U.S. it’s off-limits to explore and develop through much of the country. That makes it tougher (and more costly) to bring forward the capability for the industry to offset large demands,” Barr says.

And, Barr says, “Some of the places where we receive a lot of supply – Nigeria, Venezuela, Angola, Saudi Arabia and Russia – are in turmoil right now. Any significant drop in their ability to supply product will drive prices up.”

This isn’t the ‘70s

The dynamics at work today are considerably different than those in place during the energy crisis of 30 years ago. A major contributing factor is the markedly increased consumption of China and India.

“We created a lot more supply than demand back then but we haven’t been able to do that this time around due to the development and demands of China and India. They were hardly in consumption mode back then,” Barr says.

“In the ‘70s, there was a short period where supply and demand was close to being in sync. As the price grew to high levels for that period, a lot of drilling activity grew significantly and the supply grew so fast that there was a strong overhang. When that happens, there’s not much discipline in the market and the price fell significantly and stayed low, or flat, for quite some time. It’s only since about 2000 or 2001 that the supply and demand have been close to in sync,” he says.

Drawing on experience

Barr was named Group President, Completion and Production of Baker Hughes in March 2007. Baker Hughes is a $9 billion organization and the world’s third-largest oilfield services company behind Schlumberger and Halliburton. Baker Hughes provides the oil and gas industry with products and services for drilling, formation evaluation, completion and production. The company operates in more than 90 countries, based mainly in those with a mature petroleum industry.

Barr began his career with Hughes Tool Company in 1972 after completing his Bachelor of Science degree in mechanical engineering at Texas Tech University. His career with Baker Hughes spans 34 years in various manufacturing, operations, engineering, and product management functions.

The oilfield services business, Barr says, ranges “from the seismic work from where we might want to explore and develop, to the completion work necessary to produce the hydrocarbons and take them to market.”

These days Barr splits his time between the United States and Dubai and feels the experience he’s had with Baker Hughes translates well to his role with PESA. “Just the experiences I’ve had help me shepherd the association along,” he says.

PESA’s purpose

PESA celebrates its 75th anniversary in September. Each segment of the oilfield equipment, service and supply industry is represented in the association’s membership -- divided into two geographic districts in the United States: Gulf Coast and Mid-Continent/Rockies - and each segment has its own general committee.

Representatives of the various industry segments also serve on the Association’s Board of Directors.

“The committees are chaired by various members and are designed to educate those in our industry. We have a series of meetings each year and bring in top-notch topical speakers from all across the industry,” says Barr. “The meetings are hosted by our committee chairmen for areas such as supply chain, human resources and manufacturing.”

Members unable to attend meetings in person are kept abreast of industry trends with recaps in the association newsletter. “Obviously we’d like as many people to come first hand but we do our best to keep them up to date,” Barr says.

The association has developed a highly-effective Emerging Leaders Committee that targets young high potential employees and provides them with additional training. “That program has been very successful,” says Barr.

PESA gets its message out in a number of ways. “Each year we have a full week training session when we bring in Foreign Service officers from the State Department and Energy Department. They serve in our embassies and consulates around the world. Since we work in probably more than 100 countries right now, we’re hoping to educate people to understand the industry. It’s quite an undertaking,” Barr says.

In order to make sure its message is heard, PESA has aligned with like organizations such as American Petroleum Institute (API); International Association of Drilling Contractors (IADC); International Association of Geophysical Contractors (IAGC); Independent Petroleum Association of America (IPAA); Mid-Continent Oil & Gas Association; National Ocean Industries Association (NOIA); Natural Gas Suppliers Association (NGSA); and Society of Petroleum Engineers (SPE).

“Sometimes in this industry we’ve been confusing messages. Sure, there are some different viewpoints and times when we disagree. But, it makes sense that the organizations that are most alike know each other and make sure there is some clarity of message,” Barr concludes.

Today, PESA has nearly 200 members. For more information, visit the association’s website at www.pesa.org

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