"Where Else Can You Get Rig Count To Decline 70% And Production To Increase 50%?" Featuring David Bat, Kimberlite

For our COBT viewers and listeners, it's Maynard, Mike, and Jeff. Here with the first part of a three-part nape series. It's NAPE in Houston, that's the big oil and gas conference week. There'll be thousands of people here in Houston thinking about oil and gas, oil and gas deals, the future of oil and gas, et cetera.

So uh we came up with uh this week's menu, and we're gonna kick it off with David Batt. He's the president of Camberlite Research. Uh he's founded Camberlite in November, November of 2015. And Kimberlight is all about the technologies, the services. the capabilities uh that are out there to find oil and gas, produce oil and gas, uh do all the cool uh technological things uh that are done in the search for oil and gas.

And w as we thought about this series today we're doing David and talking technology and productivity and all the great things that might happen. Uh tomorrow uh we're gonna talk about the A and D market, uh values for prices. uh price outlooks, uh activity levels, all those types of things with the team from Richardson Bar. And then on Thursday, we're gonna think about how we find some new stuff. The team from Wellagents will be here. So we have a sandwich for you this week, technology, A and D.

and expiration. Welcome David Bat. We love having you.

Thanks, Maider. It's great to be here. It's great it sounds like you got a great lineup this week and I'm great I'm glad to be part of it. David, I wanted to have four shows, but the team shut me down. So you know, that's why I got a three way sandwich here. No, no, we're we're pumped and and David comes with a lot of data and analysis and history. So uh you're like you're you're like E. F. Hutton when David Bat talks, people listen.

So, Mike Bradley, what's happening in today's world, big fella? Yeah, well, you know, obviously we had a kinda got the scruffed little Don Johnson going there, Mike. Yeah. If you're listening, you might want to touch the video. We got a little Don Johnson going. Who knows? It I I could look like Rip Van Winkle here in the next couple of weeks. Uh but yeah, look, I mean

Obviously it's a ho a holiday shortened week. You know, the S and P and Dow, you know, they're kind of flattish today. It's really kind of been a boring day. You know, if you think about the markets over the last, you know, say four or five days, you know, you really had a plunge in a tenure yield last week because you had

Uh, you had the inflation data come out a little cooler than expected. So ten year bonds around four point oh five percent and so that's one of the lowest it's been this year. So that's uh I think it's a good thing. You know, as far as um WTI. You know, WTI today is around sixty-two dollars a barrel. It's down a little bit. We've talked about this over the last few weeks.

You know, WTI's been stuck in this sort of sixty to sixty-five dollar range for a while. Obviously it's this give and take between, hey, the world economies are growing well, and hey, IA is saying that the market's 3.7 million barrels. Oversupplied in 2026. Now, what we had today, the reason why crude oil is down today is because of this.

potential um nuclear deal, you know, sort of uh, you know, they have a general agreement, the US and Iran, uh, on a nuclear deal. We'll see what happens in the next two weeks. Uh I'll see it when I believe it, but clearly if something happens on this front, you know, this

whole you know, IEA three point seven million barrels of supply gut in twenty twenty uh six is gonna probably start to mean a little bit more for people. So let's see wha how things play out here over the next uh week, two weeks. But clearly people will be watching that story. As far as natural gas

You know, we talked about this for the last four or five weeks. We went from three dollar gas to seven dollar gas. Now we're back at three dollar gas. A 12-month strip is around$350. So essentially all that polar pig, all of that Arctic basically weather has completely been taken out of price.

Uh the one good thing is is that um natural gas storage inventories are below average. They were above average going in. So it looks like we have a potentially interesting setup into summer months. Uh so we'll see how things play out here over the next couple of weeks.

You know, as far as general themes for the market, the same things that we've been talking about for weeks and weeks and weeks and spec we've been talking about for most of this year have played out again. Essentially that's AI anxiety, fears weighing on these tech stocks. You've seen a rotation of cyclicals. And this last week what we saw as a rotation into electric utility stocks. So you all so last week you had basically

You know, ten year bond yields plunging, and last week you had basically electric utilities up around six or seven percent. So looks like there's a little bit of flights, you know, a s a a flight to safety. And so we'll see how that plays out. But I've gotta say the electric utility companies, they've all been reporting numbers and

Their growth rates continue to go up. We've talked about this for probably the last 12 or 18 months. These are growth stocks. They are basically raising their growth rates or raising their dividend rates. And so they continue to do well in this market. Now, as far as far as um energy, you know

For the most part, we've had most of the energy report, but what we're gonna see now is the EMPs are gonna be reporting here over the next couple weeks. Most people expect that they're gonna have sort of flat issue. type spending patterns. Can be interesting to see what David has to say about that as uh as far as what he's picking up.

You know, that's kind of about it right now, you know, and l like I said, you know, Maynard didn't mention it, but uh, you know, NAPE is this week, right? So we're it's gonna be buzzing here in uh Houston. Right. Oh you you get a little bit but yeah. I thought I was like out of control. I mean I think I'm reemphasizing it's gonna be this week, so there's gonna be thousands and thousands of people we uh walking around all week. So

Hopefully we'll pick up something here in the next week or two to relate to you guys. So we'll hand it back to Mina. All right, good stuff. Jeff, before we jump in with David, anything on your mind? I think just to to hit um you know, up front, you know, w with some of these energy service providers that David's gonna talk about just

You know, the backdrop for them in the public markets, you kind of have stocks up between 10 and 50 percent um year to year year to date. You know, really stunning, you know. You know, how much of this is, you know, a rebound in expectations? How much was just too much caution being embedded in those stocks in terms of what the long term meant?

You know, how much is just rotation? You know, at the end of the day, there's not that much market cap to squeeze into in the energy services sector. And, you know, historically, this is a sector where the vast majority of the cyclical, you know, performance to the upside happens before earnings bought.

And so I think you're you're you're seeing some of that some of that now. And what regardless of what the the reason is, it's a it's a really nice, you know, public market backdrop for these technology providers that um we're gonna talk to David a lot about here to today. All right, awesome. All right, David. Well let's jump in. Um, you know, David, um one one place to jump in is uh you have such an innovative uh business here'cause I you know, I mentioned the topic and what you study and

what you analyze and what you report on. But it's a fascinating business on how you get your information. And I I know we've had you on before, but I think it would be good just to start at the top with remind people of how you're doing all this, where what how you get this information, um, because it's it's really quite unique. Yes, Banner, be glad to do that. You know, each year we invest about 20,000 hours talking to people.

You've got Nape in town uh this week. Obviously a lot of conversations would be taking place. But That would be David, I think that's like an hour per person coming to Nape. You'd have to hang out at Bush and then go over to Hobby. Like it's gonna be rough. I tell ya, it's gonna be busy.

But that's precisely kind of what we do. I mean, we we we spend about twenty thousand hours talking to users of oil field services from around the world. About half of our data collection is international, half North America. And so we're basically organically originating information through the voice of the operator across drilling, completion, production, sub C formation evaluation. Maynored. And when we talk to them, we are effectively organically originating information as it relates to.

their future plans for activity and activ pricing. Do you see pricing going up or down? Which technologies they plan to make greater use of. Which technologies are working, which ones are not working? Um, who are they using for their various oil field service suppliers and and how are they performing? So we can objectively begin to benchmark the competitive dynamics for the market. And so

As an operator, you can use data like this to help identify best value. As a service provider, you can use this data to help where do I need to improve.

David, I know you've got some slides uh you can share with us, but uh I've gotta ask the necessary question. Twenty thousand hours, all that collection analysis, et cetera. Are you using AI in your business uh in new ways, I assume? Well, you can imagine we prepare a lot of content. And we don't use AI to Or let me ask, am I talking to the real David Bat or is this an AI generated David Bat? This is an AI generated David Bat. No, this is the real David Bat.

But we do use AI as an enabler. You know, one of the great tools, I mean, when you collect as much content as we do, Maynard. Yeah, we're trying to use our God's given brain as best we can to analyze and assess and correlate and calculate. But sometimes it's helpful just to kind of run it through the AI machine and see what it sees. Sometimes it will point you in a direction that you may not have thought of in isolation. So we can kind of use it as an enabling tool.

Uh we haven't yet been able to replace everyone here at Camberlite, but when we do, I'll let you know. Well, and and one question about your your data. collection. Um, because you know, it's it would be I think I know the answer to this, but just help us understand. It's not like people are getting forms and saying, you know, click, click on your favorite, you know.

provider of Service X, you're actually talking to people and pulling out of them some of these subtleties. But tell us about the the interaction that gets the data. Sure. It is through one on one conversations, uh typically phone interviews, because it's a global business and we're reaching out globally. And it's a professional conversation. Um, you know, we're talking about a lot of very technical information when we talk to them.

Uh when we do publish these reports, we send a report summary back to all the ENP operators that participated as a thank you and a professional courtesy. And so it really kind of serves almost as a 360 degree feedback loop for the industry effectively.

David, I think we need to commission you to go find out who's got the best energy podcast. But we'll do that another time. So let well let's jump in. You're you're fresh uh from uh your l your latest analysis. T tell us some of the things I think when we decided to do this, we're all struck by the efficiency and the technology gains, whether they're uh classic or digital or or what have you.

There's a lot going on, but why don't you start where you like on the things jumping out at you in this year's report? Well maybe I'll pick up a little bit where Mike Bradley was talking and and that's a little bit about what Mike was talking about where we continue to see demand grow and we can argue at the pace of demand growth. But the IEA and the EIA keep saying we're oversupplied by two to four million barrels, and as a consequence.

There's a hesitancy to add supply. But even when you add these modest increases, it adds up to be 1.4 million barrels and doesn't do anything to knock down the you know the surplus. So in terms of operator sentiment and plans, The offshore operators are really planning to drill about the same number of wells in twenty six as twenty five, which is actually an improvement majored after two years of decline.

International, as you know, is growing, and we can talk more about where that is in just a second. And the most of the contraction is still occurring in US land and North America. And even though we're going to drill three percent fewer wells in 26 versus 25 projected, we're drilling four and a half percent longer laterals. So we're actually gonna drill and complete more footage in 26 than we did in 25.

What's really interesting is what's really driving the market is not so much activity, it's price. When you take a look at international and offshore using this Kimberlight index. for drilling, completion, production, subsurface, formation, evaluation, or subsea.

Price is a material driver internationally and offshore, really due to the demand for competent and qualified uh personnel and equipment. That's what's really driving the market. Um As a result of the concern about what Jeff and and Mike talked about, the uncertainty about, you know, are these agencies correct? I mean, are we really gonna be three two to four million barrels oversupplied.

Um, if we're staying at 60, it's pretty flat, maintain operational mode. But if the agencies are correct and we drop down to the 50s, we could drop 100 drilling rags pretty quickly, Maynard. And so when you look at operator sentiment. The oil basins of the Permian are sitting at that critical fifty marker. They're trying to figure out which way to go.

The gas basins are in expansion mode, right? And we saw that where we dropped a bunch of uh oil rigs in the back half of 25, but we picked up a bunch of gas rigs. So you've got a lot of great charts here for for those listening. We'll have to describe them. But w why don't you uh this operator sentiment index, just uh pause on that one and and uh walk us through it. Sure. You know, I think many people are familiar with the Cinnamon Index or Diffusion Index or the ISM Index.

uh the manufacturing index where you we you talk to folks and you ask them about their future plans if they plan to in this crease in this case increase drilling expenditures decrease or no change And as you may recall, an indices below 50 main or down here is known as contraction, also known as economic recession. But anything above 50 is expansion. And you saw what happened in the oil basins in the summer of 25. We were in deep contraction.

Remember how doomy and gloomy it was? And we we dropped about what 20% of our drilling rigs or 17% of our drilling rigs in the second half of 25 for oil rigs. But gas gas rigs actually grew, and you can see that the gas areas remained quite resilient. And so when we use the sentiment indices, we look at this for where the hotspots are, and you can see that expansion is most strongly observed internationally in Latin America, well above the 50 critical marker. Uh Middle East, Norway, West Africa.

And you can also use this approach for pricing expectations. You don't see very many operators expecting pricing to actually go down.

in twenty six. Most people expect pricing to remain steady or actually increased. David, do you mind going back to the chart you had on uh activity? Okay. So this is pretty fascinating. Um You you've got that Brazil Guyana enthusiasm, the Mid East. Right. North Sea. So that that's the Norwegian North Sea. No, not the UK sector. Yeah. Norwegian North Sea. And then West Africa is marginally up. But your your leaders there are Brazil, Guyana.

the Mid East and the Norwegian North Sea. Right. And when you look at oil field service providers And they're shareholder focused and returns focused. They're looking for where the growth areas, where do they need to be repositioning their very finite capital and equipment and people, right? And so they use this for for for targeting where the growth is going to come from.

All right. Well I interrupted your flow. No need. We need to call an oil field service provider to unclog the flow that I just clogged up. If I could I love this chart and I think you and I've talked about this before. Um, you know, I kind of came out back in the eighties when you could add a thousand drilling rigs, but the production line didn't really budge and we thought we were gonna run out of oil and gas and

We thought it was a commodity market, but it's far from it. This entire market's driven, Maynard, by technology and innovation and improved operational practices and performance. Or else can you get rig count to decline 70% and production to increase 50%, right? And so there's just a whole series of technologies. Um

and innovations that allow us to accomplish more with less. And that's probably the biggest misnomer of the oil and gas industry. Oh, it's all driven about price. No, it's all driven about technology.

Um, you know, one of the things that have really caught my attention is look at the recovery rates. We've gone from effectively seven barrels of oil produced for every foot drilled and completed. And we've tripled it to about twenty one barrels of oil produced and so The actual cost to drill and complete per foot may be going up, but the overall cost is going down because we can do with 500 drilling rigs what used to take 2,000 drilling rigs.

Oh that's good stuff. Do you mind pulling up the the uh barrels per foot again? Sure. Talk a little bit let's unpack that one'cause that's where there's there's all the action right there. Talk about what was going on in those numbers over the last five years, if you don't mind. Sure. Because you can look back, you've got a you've got a twenty five on the page in in in twenty twenty. Just maybe talk about the recent five year trend.

Sure. When you take a look at the five year trend, I mean obviously when when you had drilling activity go down so hard during COVID, it actually, you know, increased the production for foot. So you see some anomalies in the data. So I kind of tossed those out just a little bit. But when you look at the overall trend, it's very clear we're able to accomplish more with less.

And even though we've tripled our recoveries from seven to 21 barrels, you know, one major oil company CEO has challenged their organization to double recovery rates, right? And um you actually heard, you know, one major operator using lightweight profit. Uh claiming that they're improving recovery rates by twenty percent. Imagine the entire industry used that Maynard. We could drop a hundred drilling rigs and not lose any production.

Um, these are huge efficiencies, and there's no singular technology that's allowing this to happen. What are a few of the technologies that that you wanna highlight for us that are driving? Some we pick up a lot, obviously, but if I just had to highlight just a few, um Obviously the adoption of rotary stables is allowing us to drill faster, but

It's the oriented perforating guns, the self-oriented perforating guns are allowed us to put all the perforations in the same plane and get a a full uniform stimulation of that 240-foot uh frack stage. Remember how As we drill longer laterals, Maynard, I would always say yes, but there's 10 or 20 or 30 percent of the of the stages that are not materially contributing to the productivity of the well board.

This is helping to allow us to get more recovery out of the frack stages and per every foot drilled. Another big one is Prior to the 2015 downturn, many operators would drill complete, put it on a ride pump, and walk away. Today, most operators will use multiple forms of artificial lift over the life cycle of a well.

Very commonly starting with an ESP or gas lift or even high pressure gas lift here in the Permian Basin, and then migrate, eventually the well may die on a rod pump, seven, eight, nine years down the road as they get further down the road. But ESPs are allowing us to produce more. And a few other things that people don't think about.

is the refracturing market is nearly doubled from one point eight percent of completion activity to four point one percent. And that's adding barrels to the market, Maynard. in which we don't even have to add new well bores. And so when you start to tally all this up, these are just some of the technologies, including some companies are moving from toe sleeves to wet shoes, which effectively adds about half a frack stage for every well drill.

So if you're a major oil company and you're going to drill 200 wells in the Permian and you're going to move from toe sleeves to wet shoes. You're basically picking up about a hundred frack stages. You're picking up about two wells worth of productivity and you never added another well.

So maybe do you mind going back to the barrels per foot page again, David? And then I if you uh look at that twenty twenty four number, the twenty barrels per foot, if you um held the footage drilled constant. So if you if you got rid of the effect of longer lateral What do you think is just isolating that piece alone doing to that number?

The recovery rate per foot is a large measure you're seeing greater adoption of self-oriented perforating guns, greater adoption of ESPs. You're using ESPs for longer periods of time. Back in 2015, in the horrible downturn. of twenty fifteen, which I might add if you recall.

That was the time period, Maynard, where we added two million barrels to a fully supplied market, right? And we were sitting in the 40s. So we're sitting in the 60s now. So it's hard to imagine we're truly 3.7 million barrels oversupplied at$60.

But they now use ESPNR for up to four years before they move on. They'll run that ESP to failure, they'll pull it, resize it, and go back in. And so They're using all the technologies and all the arrows and the quiver to try to figure out how to optimize production. I think Jeff where I was headed is is this is this more uh barrels per foot or uh more feet.

You know, it's a combination of the thing.'Cause I I mean that was the first question I was gonna ask David. I think you know, too often, you know, this discussion, particularly around, you know, shale productivity devolves into you know, drilling wells faster, cheaper, you know, et cetera. It's a drilling efficiency game or, you know, just you know, bigger hammers, so more sand or or or more stages. But I I found, you know, the the the handful of slides you just went through interesting in that

You know, about forty percent of the North American land wells now use rotary steerable and that's been tremendous growth. And if you say that, you know, international just you know, call it seventy, so it'll never be a hundred percent, but it's material adoption but not near nearly as as as as widely adopted as internationally. You got about, you know, half the operators willing to do a U turn well. Um and then this optimized

Perforating guns, only about half the operators currently adopting. So it I guess where I'm going with the question is it seems like you You're going a l a layer deeper to explain, you know, what's happened on the productivity side. Um, but it seems like you're quite optimistic or you would, you know, looking at the data, you would be quite optimistic that there's a fair amount of room to run on this front. Maybe just talk about technology adoption and what you're observing.

Technology's continuing to evolve. I mean, I remember seven, eight years ago when people would ask, where where when when are these efficiencies going to end? And at one time you think, well, you'd have to reach the peak of diminishing returns at some point, right? But what we're finding is folks continue to innovate and come up with new chemistries, new slurries, new propens.

um and uh and new completion techniques that are really allowing us to improve the uh recovery rate. The digital technologies for hydraulic fracturing of helping us to be able to optimize uh the the pump stage. Okay. We're also starting to use automated geostering type technologies to make sure that we stay in zone.

In fact, that's a great question, Jeff, because in the 26th study, which we'll be implementing here over the next few months, we're going to ask the operators, what percent of the time are they actually in their desired location in the lateral? What percent of the time are they actually even landing the well in the proper location? Because if they misland the well, there's a good possibility by the time they self-correct, they just lost.

Two frack stages. And if each frack stage has an MPV value of five hundred thousand dollars, that just cost them a million dollars. And so it's it's getting so precise now. When I first started drilling wells in the 1980s, it was just You know, you're trying to follow a line on a wall and today, you know, you are proactively steering the well where you want it to be. Um, it's so much different.

Yeah, and I think the the million dollar question for the last couple of years is how much How much more optimiz optimization, how much more efficiencies do we have in the system before we kinda hit a a peak? And and I guess your your answer would be we're probably nowhere near that because technology who knows what technology is gonna be like in the next twelve, eighteen months, two, three years and so

Yeah, that that seems to to make some sense. But maybe talk about um maybe some trends that you haven't talked about so far that you saw last year and maybe this year and what you need what you potentially are going to see next year. not only domestically, but more so on the international front. Like everyone like thinks about the big three, you know, Baker, Halliburton,

and Slumberger, what is going on with those guys internationally? Are there any trends that you're seeing at all? Um you know, because it just seems like a lot of stuff that's going on internationally, be it just, you know, uh Um just different countries doing different things. Unconventionals are growing. It's a lot of stuff to unpack there. Well, the the big four. have about eighty percent market share for the for the bulk of the oil field services, uh, Mike. And so

As you see this growth taking place internationally and offshore, the big four are going to disproportionately benefit. Conversely, when you look at Permian Basin, the specialty providers excluding the big four, make up about seventy percent of the market. And that's where all the contraction is taking place today and where the efficiencies are taking place. And so

You have a very fragmented market in North America land. If I were to kind of you know I'll show you this slide back here really quick. I mean, do you really need 39 rodelus suppliers and 13 ESP providers and 27 mudmotor suppliers and 26 MWD suppliers, right? And the reason why you have so many suppliers is you've got folks out there who think they have better mousetraps. And the pace of innovation is incredibly fast here in the United States. Okay.

Um, and so that's something that's really quite unique. When you move internationally. It's a little bit different. There's different drivers when you move internationally. When you move internationally, what's really driving the market. is can you please bring me access to technology? Because I'm I'm I'm in a country and I don't have access to all the technologies that you have here in Houston, Texas during the week of May, right?

It's it's interesting when you take a look at even the Middle East and North Africa, how they went from being price driven in their recommendation of a supplier to being technology performance driven. They're waking up to the fact that if we want to achieve the efficiencies and the scales that we're seeing in the United States, we're going to have to bring the very best technologies over here.

And we're going to have to get the most competent and qualified personnel that know how to run this equipment. And so when you take a look at where the growth is going into 26 and 27, where it's hell highly leveraged internationally and offshore, the big four will disproportionately benefit from that. However, a lot of the innovation is being made by the smaller specialty providers here in the United States.

So David, if I uh just thinking about basins and and countries, uh tell us about some places that are highly innovative or or surprisingly um you know different. Just maybe take us on a on a tour of the where you think some really interesting things are happening, technologically speaking. In the US, uh the hot basins like the Hainesville, for example. Okay. Um that's where we've developed a lot of technologies that can handle these higher temperatures.

Such that when you go, where can you translate this to? To like Argentina, where they have enormous uh shell resources, right? They face very similar temperature regimes. And so we very commonly get a lot of calls from the operators in Latin America saying, hey, David, who's performing best in the Hainsville for Mud Motors and MWD? Right. And and how do we entice them to bring their tools and technology down here to Argentina to help us? Right.

Um and so that would be an example. But the Permian Basin is probably the biggest incubator in the world. Um everything and everything you need is down there. And what and what's something that you notice happening? that uh is being under discussed. Or do you have your uh that uh you know, something that that is just it it's not big yet, but um could be really promising.

Well, I hate to mention the word AIML, but um the fact of the matter is, uh we're really in the beginning stages of how do we use all of our digital data and uh machine learning capabilities to drill wells m more more proficiently and and and effectively in zone. and complete them and produce them. I show you something here. Look at this. If you're using digital technologies and chemical pumps and you can put in a reliable pump,

You can extend your run life on artificial lift by over 20%. That's huge efficiencies. Imagine that you're running a thousand wells in the Permian Basin, right? In the meantime between failures are say 12 months for an average ride pump. and you're able to extend the runtimes by 20, 30 percent. That's huge.

I'm I'm gonna jump ahead to a a tough uh you know, there's always this debate about the lower forty eight and how much inventory it has and what does US oil and gas i. e. shale production look like. ten years from now. What what's your what's your own take on that? And we have all these uh all this innovation happening, all this new use of technology, greater efficiency. Yeah, but there is some

some sort of inventory constraint ish that we have to think about. Like how do you think about the lower forty eight, you know, a decade out? Sure. You know I'm a geologist, so I have to be an optimist, Maynard, by design. You also know that I came out in the 1980s when I spent most of my time with my original employer. packaging up fields and selling them because there was no more oil left in the United States, right? And obviously that narrative proved wrong.

Um, and so when I hear that we're running out of tier one acreage, and I've heard that um for several years now. What I what I find is we're really only scratching the surface here in the lower forty eight and certainly around the world. We've gone from a world of energy scarcity to a world where we'll never consume all the fossil fuels in our lifetime. There's no way we can do it.

So I expect that While some operators have acreage constraints with their current tier one as the as as it's defined today. Uh, what we notice is there's a lot of operators that are drilling in these shell formations manner that are really you can call it expiration or exploitation or step out.

But they're running a lot of technologies today to try to figure out where is that next tier one here in the United States. And so I think we're just going to go find new tier ones as we exploit our current known tier ones. Can I ask you while we're on it, this whole survey is about at some level, the level of customer satisfaction that EMPs have with Service companies.

But the uh I'm interested in the other question which is For for for the same service company, c can you tell meaningful differences between operators? even though they're using the the same surface. Is that a difference that you pick up on? Oh absolutely. Because we serve both the operators and and the oil food service providers. For example

Let's say you're a drilling recontractor, Maynard, and or even a directional drilling service supplier. There may be some operators that really tear up your equipment because by the way that they drill. Right. Very high vibration, lots of torque and and torturosity. And it's just a very violent drilling of the well. Right. And so

I have some oil-field service providers that go, David, I can't afford to serve this particular operator because the way they drill their wells, they tear up my equipment, right? Does that make sense? Um, but one of the things that I think what you're maybe trying to touch on is when you objectively benchmark a market. And what do I have here to show you?

This is for electric submersible pumps, ESPs. I mean, clearly when you get the performance reviews back from the ENP operators, there's absolutely no evidence that all the suppliers are performing the same. There's a very wide band. of performance variants around equipment performance, ESP performance. And when if you dial into the industry average, you can see that in some cases performance is declining for the entire industry main. It's not It's not just one particular supplier, okay?

And when you look at the benchmarking, you can see that it's quite evident not all suppliers perform the same based on the benchmarking from the ENP operators. And the ENP operators have to go do their due diligence to understand the strengths and weaknesses of all these suppliers that can vary by basin.

The reason why we have so many suppliers, one reason is each of these suppliers have some inherent strengths. It could be a performance strength in their equipment, could be a service quality strength. Um, it may be a cost structure, pricing strength. You realize about one-fifth of the US United States land market is driven by price.

amongst some operators that don't drill a lot of wells and they're interested in price, whereas other operators may drill one or two hundred wells and they're interested in drill and in driving the efficiencies to that next level. Because if you save one day a drilling over 200 wells, you just save 200 drilling days. You know, that's enough to drill 20 free wells.

Right. And so it it there's a lot of differences in how the operators go about selecting their suppliers to meet the objectives of their program.

And David, I was um really intrigued by you know, one of the the questions you guys guys asked uh in the survey just around um strategies to achieve digital transformation. I think slide thirty one of yours were that that response is there really intrigued me where You know, not surprisingly, you know, the top two, you know, responses indicated the upstream company building the capabilities in-house, second partnering with the service companies.

But pretty far down the list, I was intrigued, you know, partnering with tech companies outside the industry. And I and you know, our industry's got a reputation for being kind of insular and and you know slower to adopt. I was curious if One you know, I think that's a good thing.

set of responses surprise you and two, you know, what would you expect the underlying trend in this to be like to stay kind of developing the solutions in-house versus you know maybe reaching out to some sectors that you know we may be less familiar with. It's a great question, Jeff, because when we talk to some of these specialty tech companies, uh no disrespect to the end uh to the energy industry.

Oftentimes our industry is way too small for them to want to get involved. A good classic example would be take deep water drill ships. All right. like the generation, you know, six, seven drill ships. Say there's ninety, ninety-five deep water drill ships. Well, there's a there's a need for a lot of digital technology. But the the programmers out in California and Silicon Valley rather write programs and analytics that could serve a hundred million or a billion consumers around the world.

and not, you know, a dozen oil companies that employ these 90 drill ships around the world. And so uh in certain segments, the the major offshore drilling rig equipment providers are are the ones that are going to have to develop these technologies. And the other problem that you have is take ESPs, for example. You know, when you pull an ESP or a mud motor out of the hole.

And and you're trying to tear apart and do your uh your teardown analysis, it's hard to write the code to predict the failure modes and the wear modes if you don't understand the equipment. And and the and the and the specialty providers that are out there, they lack that capability to bring that 360 degree feedback loop.

What we learned in the hydraulic fracturing digital report, which was quite interesting, is The pressure pumpers are viewed by the operators as best equipped for e equipment automation and real-time reporting. But there's this persona that's out there that the third-party software providers are more digitally agile.

To develop the actual digital platforms and to develop some of the advanced analytics, which is kind of insulting to the pressure pumpers, like, oh, you just think of me as being some dumb iron guy.

And so you find the major pressure pumpers beginning to really step it up. I don't know if you attended the SPE conference back in the woodlands a few couple of weeks ago, but it had a really strong digital theme to it. Okay. Um you know you had all types of digital announcements uh taking place and in digital presentations and so What we're finding on the digital front is the oil companies are pretty

Pretty clear that the number one area of benefit that's going to benefit is production optimization, which we find kind of interesting at Kimberlight. Because the production segment's been the slowest to adopt digital and AI, mainly because there's too many platforms. The typical engineer in the Permian Basin goes, David, I have four different platforms to log in to monitor my ESPs.

I have two to three platforms to log into to monitor my rod lift. I have another platform for my chemical provider. And so now I may have six or seven or eight, nine dashboards that I have to log into. to monitor my field and none of them talk to one another.

And so there's a lot of work to do for standardization there. Most of the digital areas that you hear talked about mostly is around drilling the well and completing the well better. But asset integrity is a huge one. All the tanks, pipes, and pumps have to be monitored, both onshore and sub-sea. And there we're using remote technologies and and non-destructive testing methodologies to be able to monitor this without actually having to make a house call out in the middle of the ocean somewhere.

And David, I think another area that uh investors would like to see is consolidation uh in oil services. And it that sounds like a fantastic theme, right? But when I think about, you know, your studies and stuff of that nature, if you think about historically Yeah, firms get together

has the outcome always been positive and or maybe the the better way of asking is when a companies approach a merger, what should it be the things that they look should they be looking at we do something good, we do something bad, someone does something If we put those together we're a better company. How do you how does how do things how have your surveys from a consolidation standpoint, yeah, turned out uh typically?

Yes, uh consolidation desperately needed in the oil field sector. EMP operators are so much farther ahead in consolidation, obviously, as is as we all know. Um a good consolidation in the oil field is where they complement each other. Like recently there was a high pressure gas lift provider that announced the acquisition of an ESP company, right? And so that was very complementary.

But let's say you're gonna one ESP provider is gonna acquire another ESP provider or one mud motor provider is gonna go acquire another mud motor provider. Oftentimes one of those technologies is going to be cannibalized. And so you don't have the synergy so much. And so I think that's a really big impediment for a lot of the consolidation that's needed is there's not as many, there's not as much synergies around the technology for many of these players.

Right. Unless it's a it unless they're adding an adjacent capability for which they don't currently have. Okay. And all too often, a lot of these players have very similar capabilities. And you can only adopt one platform, one supply chain, one well head, one one mud motor. Okay. And that's a real big impediment.

for the consolidation in the oil field that you don't have on the EMP operator side where you're you're merging two oil companies and you're adding acreage, right? And you can you can uh rationalize out the redundancies, right? Here it's like I'm buying another mud motor provider or another ESP provider, but I already have my own ESP and I'm just buying contracts that I could organically go capture on my own. I don't necessarily need to go pay a premium. Um for someone else they consolidate.

Abe, what do you um Canada comes up as a place that US operators may go to. It comes up as a place that, you know, the Canadian companies have a have a lot to do. What what what if anything would you tell us about what's going on in Canada?

Canada's an interesting market. If you go back ten or fifteen years, Maynard, it was thought that as the Chinese were investing in the Canada, that the Chinese oil field service suppliers would really take over Canada, and that really didn't play out. In fact, if anything

Because of, you know, obviously Canada is a a a really beautiful market, but it's really small compared to some of the other markets. And because of some of the policy decisions they've had there over the last decade, it was really an impediment. for activity until just recently where they added some off tape capacity, right?

And so as a consequence, Canada has really kind of consolidated around a lot of the Canadian uh favorites. I don't care if it's for drilling recontracting or for wellheads or cement casing hardware. There's what we call the can uh the local Canadian favorite suppliers up there that begin to take on a disproportionate share of the market share. And a lot of the outsiders, if you will, even though these outsiders may be one of the big four, uh

um have trouble penetrating that that Canadian market. And so the the Canadian market is a is an attractive market between heavy, thermal, as well as unconventional. But policy has really held Canada back as an attractive growth market. And as such, it's really consolidated around the local Canadian favorite suppliers.

I'm I'm curious another another thing we run into a lot, uh David, in the kind of the industrial world, if you will, is is people is the shortage of people and the shortage of trained people and And how that's intersecting with new technologies that can help you automate, um, you know, add a robot, you know, these types of things. Is that something that you're uh picking up on?

I tell you, we run statistical correlations, the likelihood to recommend a supplier. And the number one thing that we see internationally and offshore is this huge demand. for competent and qualified personnel and and good quality, qualified equipment. Um, we take for granted here in Houston. We can go up and down the Interstate 45 North and find just about anything we need, Maynard. um and get connected really quick. But if you're off in Africa or Asia Pacific region or in Latin America region.

it is far more difficult um to gain access to the to the latest technologies that you need to drill and complete your wells.

So what do you think about uh over the next I asked you about the lower forty eight shale inventory? I think the other thing that we're anticipating we're gonna hear Thursday, David, when we talk about exploration, is that quote, exploration is coming back. More people are doing it, more people are

thinking about it, um, because the world's gonna need a lot of oil and gas uh ten years from now. What from your data and from your conversations, what what do you think about the future of exploration? Exp there's always a role for exploration. And uh I mean, I just asked a geologist, so I I gotta believe you're gonna be pretty excited. Well

I love expiration and expiration always plays a role, but when we track expiration versus development wells, we don't really see a huge liftoff. What we see is is secular rotation. What I mean by that is let's say you're a major oil company. And you've committed to a bunch of FIDs and you have all these projects that's consuming cash. But once these projects come online,

like my former employer, they have they're generating huge cash and now they're starting to re-emphasize expiration. They may go drill 10 or 15 expiration wells this year, right? Whereas previously they didn't do that. The problem is the timing across these majors and NOCs is their their cash flows are not in synchronization. And so it tends to cycle in and out.

But what's really helping and and and being more effective in expiration is the seismic technology. I mean gosh, you have 4D seismic and you've got nodal technologies. Um Yeah, all of this is really helping. Also to keep in mind, you know, nearly half of the deep water sub-sea developments are what I consider to be uh tiebacks and brownfield expansions and extensions, right? They're not all greenfilled.

And so remember, you know, what what's the old saying? You go drill for oil where oil exists or go fish where the fish are. I mean, folks realize that they have a um a basin, an oil basin that's working and they're trying to exploit that area because You know, I've seen over the last forty plus years of my career career how I would look at something and didn't think there was any hydrocarbons there.

And then with improved technology, you begin to realize that I missed it. And, you know, and so the companies are getting far more effective in optimizing where to go find the oil. The you mentioned um when you were looking at the um the ratings and the quality of service that that one of the variables is um call it the commercial arrangement.

And so and there's always been this um talk forever about how, you know, EMPs in service, if they if they would quote, partner together more, uh, they might achieve greater productivity than if they if the EMP is always, you know, putting out bids and and uh in a in a in that highly competitive sorta Game. What what do you notice if anything around partnering, if it helps, if it's on the rise, you know, sharing in these productivity uh gains, just t talk to us about that.

A lot of the forward leaning oil and gas operators, Maynard, are very collaborative with their service suppliers. If you see this value map right here and you see this value map trend, everyone's delivering fair value. Pay more, get more. So dependent upon what your project requires as an oil company, oftentimes you need to pay more to get that high temperature capability.

Or maybe it's normal temperature, normal pressure, and you can come down here to get good performance at a lower price point because you don't require those specifications. And so You have to be very careful as an operator. One of the biggest mistakes I see operators make, and no disrespect to anyone in procurement. They chase the lowest price at all cost, and lowest price doesn't deliver best value.

So let's say you really need to pay more to get the right bottom hole assembly with the right MUD motor, MWD, and rotary steerable system so that you can drill that well one or two days faster consistently. Right. That's going to save a tremendous amount of money versus taking lower cost materials that may not allow you to drill with the same level of consistency. of drilling efficiency or completion efficiencies, right?

And so we see a lot of that and we spend a lot of time encouraging the operators and the service providers to improve their level of collaboration to seek to understand which each oil field service company supplier brings. They each have some inherent strengths, but what you need for your projects may not necessarily line up with their strengths or weaknesses.

I think um you know David I was curious, you know, what you're watching you know you know most closely for your potential you know real step function change and recovery rates here in the lower forty eight. I think you know w you uh some of the slides you were showing on the digital showed production optimization was one of the you know prime adoption areas. We you talked a lot about ESPs. Um feels like those are changing recoveries, you know.

Meaningfully, but more on the margin. Is there anything you're watching that that may be an indicator of, you know, I don't know, doubling recoveries, you know, over time? Well, I think it's going to be a combination of technologies. There may not be one singular technology to get you there. And the combination of technologies that I see getting us there.

is like automated geostering, the because you're drilling a 12 or 20,000 foot lateral, what percent of it's actually in the zone that you need to be in, all right, versus the shoulder. Um, and then when you go to complete those frag stages, I would expect the adoption of self-oriented perforating guns in the use of perhaps this new lightweight profit that one major oil company is using.

Will continue to increase the recovery rates. The lightweight profit by the major oil companies using it has reported 20 plus percent recovery rates, right? And oftentimes when you frack a 240-foot frag stage. You maybe you only stimulated 40 feet of it, but through self-oriented perforating cores, you're going to get more uniform stimulation across all 240 feet, not just those 40 feet. And so I you know it

Is it possible to double recovery from where we are today? Absolutely. We've already proven we can triple it. Why can't we just double it? Right. And that's what one major oil company CEO has challenged their organization to do. And I personally believe that through a series of various technologies, both in drilling and completion, in production, because these ESPs are getting better and the high pressure gas lift technologies are advancing, that

it will be achievable. And and so and that's That's another reason why we need more consolidation because what happens if we're able to produce another uh 10 or 20 percent production with 30, 40 percent fewer rigs?

Um, it's going to be another uh pressure point for further consolidation in the oil field. And maybe it's just natural attrition. Old folks like me eventually go out of business and hang up the retired sign, or maybe there's more consolidation that's thoughtful and uh and and synergistic. Yeah, David, we had a a big offshore merger last week between Valeris and uh Transocean.

And we talked a lot about Lamb and talked to Audeback uh International, but maybe maybe talk a little about, you know, sort of maybe offshore, maybe some trends we're seeing there in the offshore market. What's consolidation mean for that, if if anything? It's a great question. That announcement, Mike, I think is just a reaffirmation of the reality of what I was sharing with you over here at the very beginning. That offshore is nice and steady, right? We're running around 90 drill ships or so.

Th there's no catalyst. to grow drill ships by 50%, there's no need to. Um, when I started drilling deep water, you know, when we were drilling deep water wells years ago, it could take nine months to drill a well or even a year. Today they're doing them so fast and efficiently now that you simply don't. you know, as many troll ships as before. And so the consolidation in that announcement, I think, is just the reaffirmation that the deep water long cycle barrels play an incredible

important portion of an oil company's balanced portfolio. They have short cycle unconventional barrels and they have deep water long cycle barrels. But um You know, the the consolidation's needed just because it's not a tremendous amount of growth. Uh the the rigs are becoming more sophisticated and those offshore rigs and become far more automated. Um

And that requires a clean, strong balance sheet to continue to invest in those technologies to bring those leading edge technologies. So it almost speaks to more and more consolidation, particularly in that space.

I know we don't like to use specific names, but I was thinking about names of companies that are coming into oil field service, energy service from Outside and making a contribution to technology, uh, you know, could be digital, could be automation, like are there some names that are entering the business, so to speak, however they're doing it, partnership or otherwise. um that you're hearing good things about or that would surprise the rest of us.

In the digital space, a lot of these companies may not exceptionally, you know, large, right, by traditional big four standards, right? And uh I have tried to go out of my way to not mention names today. I um, but here's a good example of names that that tend to show up. like the Corvas and the Coldboards and the Pelitons and the Wellviews, these types of companies get mentioned, right?

And so there's a whole host of some really small creative uh companies that are out there. Um outfits like, you know, Darcy Partners, for example, um, you know, they track a lot of that stuff. Right. I don't know if you're familiar with them or not. Um you know, they're tracking a lot of these small, really not well known companies. And they're backed by private equity and and and things like that.

Well now you're on to my next question, which is the extent to which investors, be they public investors or private investors, are kind of part of your world, curious about your data, you know, try to try to utilize your data. We we we work a lot with the uh Private equity companies as it relates to buy-side or sell side due diligence for deals and transactions.

We work quite a bit with the larger institutional investors as it relates to uh which service suppliers maybe they should have investments in. When we work with the institutional investment companies, one of the things that we spend time with them on is this observation. of the net promoter score. It's a metric that Fred Weichell developed at Baining Company 25 years ago.

But it it has a very high statistical correlation coefficient to future cash flow and even um margin, the net promoter score. And so If you're an institutional investor and you're looking for which service suppliers are best positioned to have growth. greater than the market. Um when you see your net promoter score pulling away from the rest of the pack, that's usually a very high correlator.

that you're gonna grow faster than market and you're gonna be able to withstand downturns stronger than market because this customer loyalty metric that was developed by Fred Weichel. We've clearly correlated and been able to demonstrate that it correlates to financial performance and competitive positions. And so this is a really new recognition of a of an additional metric. that is being used in the investment community today that wasn't so well known, you know, say just five, 10 years ago.

And and this is fascinating. I'm I'm I'm being simplistic, but but this is basically a a measure of uh for any given company, uh how many of their customers are are touting. the service versus maybe they're just happy but not touting and then who's, you know, saying bad things, so to speak. Um So you have this data you have this data on on all pretty much all the companies we're talking about here?

Yes, we have the largest NPS database in the oil field. And old Fred Weichhound was well up ahead of his time at Baining Company 20, 30 years ago when he developed this very simple metric.

You know, he wrote a book, Maynard, called the The Ultimate Question. The only question you need to ask your customers how likely would they be to recommend you for future work on a scale of zero to ten. And he designated this scale. It took me a while to figure out why he classified ratings of nines and tens as promoters and sevens and eights as passive or indifferent and sixes and belows as detractors because it's not a normal bell-shaped distribution.

But we've done so much research at Kimberlight, we clearly understand what he was thinking. He was really ahead of his time. And it was only in the last really, you know, three, four, five years when we started overlaying our voice of customer analytics with our clients' financials that we saw these extremely strong correlations. And that's when the institutional investor community was like, look, we're always looking for metrics that can help us.

uh predict the future a little bit as to, you know, in a rising market and rising sea level, all boats move up and down. But who's gonna rise faster than the rest and who's not gonna fall as hard, right? And um There's very strong correlations here between having a a high customer loyalty rating that's disproportionately higher than benchmark and being able to really deliver outsized return.

So see David, I I feel like the the whole show we we drilled a one hour uh lateral here and uh in the last four minutes we hit the gusher. with this uh this net promoter score. So can we just ask you and I know we we gotta lose you, but it's such interesting stuff. What percent of the companies that you watch? have a elite net promoter score.

Oh, it's a it's a small share. I um Yeah, we have we we track feedback on well over a thousand oil food service companies, but um I would say you you're looking at maybe less than 10% that really have distinguishing characteristics of of scalable size. Okay. Well, as I say, I think this is uh this was an awfully good place to end. We hate to end.

Um, but uh David from if you replay this, you're pretty optimistic about technology. You're very optimistic about technology. Yes. Um You are forecasting or think we need or anticipate more oil field service. consolidation but you recognize it's hard. Um And even though you

I um my words not yours. You you like exploration and you think we we'll need more of it, but y you may not think we need as much of it as some of the rest of us think because technology always helps us find a way to do more with what we've already got. Yeah, so it's uh I never would have imagined, Maynard, in my forty plus years in this industry, that we can produce as much oil and gas today with as little activity in drilling and completions. It never even would have occurred to me.

I um, you know, it's amazing. All right. Well, David, you're uh this is your third appearance on C O B T. I think it was your best. You just keep getting better and better. You keep getting more and more productive. I g I think I'm just aging like fine wine, Maynard, but I uh

I've always enjoyed I've always enjoyed uh visiting with you and the team there. And so thank you for getting together today as well. Well, it's fantastic. Thank you, everybody. Enjoy Nape Week and get ready. We're talking A and D tomorrow. Thanks all.