DEP Update: Good Morning and Merry Christmas! Hopefully Santa treated everyone well.
No major industry news this week – not a big surprise. Thankfully, there is some exciting DEP news as we are pleased to announce the addition of a new team member. Bill Herbert will be joining DEP in January as our Energy Strategist. Bill spent the last 25+ years at Simmons & Company / Piper Sandler where he spent many years as head of the energy research team. For those who may not know Bill, he focused his research efforts on the oil service sector, but over time, successfully transitioned into offering unique and valuable macro insights as well. That expertise is needed at DEP, so we are thrilled to bring him on. His first epistle will go out next Sunday with our 2023 industry preview.
Oklahoma Recap: Quick trip to Oklahoma earlier this week where we hosted a few meetings as well as conducted a wellsite tour to look at some new equipment – more on that in a moment. As for OKC observations, no major revelations. Service companies remain optimistic and point to solid demand. One land drilling contact reports no major change to its outlook albeit pricing is stabilizing (a frac company said the same thing too). Meetings with two E&P players yield more anecdotes of flat-to-down rig counts. One will hold drilling activity flat while another says it will drop a rig. Again, our leading-edge sample from E&P contacts is small, so no need to make a mountain out of a molehill, but the tone does appear to be changing ever so slightly and that could have implications. Another E&P we visited subsequent to Oklahoma said it will maintain its current rig count into 2023 as that level of rigs is required to maintain production. Worth remembering a number of companies are in a similar situation, a key reason we don’t see any consequential decline forthcoming.
Of note this tour, we had the opportunity to see the new OnPoint Werewolf last mile sand storage/distribution system. This patent pending system is designed to reduce onsite storage; reduce truck traffic and lower CO2 emissions. The design we toured will work with existing box-storage technology. Sand is delivered to the wellsite, offloaded via a belly dump system (~28 tons in trailers in Oklahoma) and then conveyed into the Werewolf storage system. From there, traditional storage boxes are filled on the pad. The benefit is fewer boxes are required, potentially a ~50% reduction. Consequently, truck track is reduced with an initial estimate of over 15% fewer trucks. That, of course, helps lower emissions. The first system is now wrapping up field trials with two pads soon-to-be under its belt. Importantly, customer interest is strong as several multi-year contracts for new systems are already now in place. Additionally, the Werewolf system is expected to be deployed to multiple basins as well. Look for more specific information from the company once the patents are approved, likely in Q1.
DEP Year-In-Review: Each year we like to publish a state-of-the-firm. Two reasons for this. First, our subscribers are effectively our partners. Without you, there would be no DEP, so we believe the right thing to do is to let you know how we are doing and what we plan to do in the coming year. Second, there isn’t much oil and gas news, so the year-end summary is light reading on a day in which we hope everyone is relaxing with their family and a favorite beverage of choice.
As most know, DEP started in the dark days of April 2020, so we haven’t yet hit the three-year anniversary. That will be in another three months. In the early days, business was tough. The country was effectively shut down due to COVID. Wall Street hated traditional energy and many OFS research analysts were getting axed as the banking community and the buyside pivoted towards Energy Transition. Package together a collapsing economy, severe travel restrictions, an effectively bankrupt upstream energy sector and negative energy sentiment and the collective result was the decimation of in-person traditional energy events and conferences. In hindsight, all of this created a great opportunity for DEP.
Today, the DEP team has five employees (John Daniel, Bill Austin, Sean Mitchell, Bob Stanton and Geoff Jay) with a sixth person (Bill Herbert) starting in eight days. One spouse (Courtney Mitchell) is a contract employee while other spouses regularly help out at our events. No divorces yet. Additionally, multiple DEP kids, as well as non-DEP kids, have interned with the firm. We think all are doing well and we are grateful for their help. BTW – we’ll be looking for additional interns this summer (send us resumes if you know someone).
DEP’s growth, of course, is made possible by our generous subscribers and sponsors. Presently, DEP has over 180 corporate subscription clients/sponsors as well as a small and growing number of buyside clients. And while we continue to see more industry folks reaching out to learn more about DEP, we, of course, are like most businesses where some clients have elected to move on. In some cases, this is due to acquisitions (i.e., companies were bought thus can’t subscribe anymore). In other cases, it was nothing more than a business decision to allocate resources differently. We get it and we thank them for their support over the past two years. Net, net, however, the subscriber base is growing, both in terms of the number of clients as well as with select customers transitioning from lower-level subscribers to more consequential clients. In other words, we have evolved from beans and rice in 2020 to a better-balanced diet today with the ability to order wines by the bottle and not by the glass.
A big driver in our growth is due to the DEP events. Notably, we were blessed to have two successful major events – the Thrive Energy Conference and the Permian Basin BBQ Cook-Off. What made these events was a combination of great speakers (i.e., Thrive), great sponsors and of course, the help of our marketing team and friends at Upright Digital Media, notably Josh Lowrey, Mark Immekus and Kevin Courser. Our two smaller events – the Telluride Executive Series and the European Energy Conference at the Gleneagles Resort were also well received. As a result, they are both on the docket in 2023, although we have moved the European Energy Conference to Pebble Beach, a decision which we made based on (i) the ability to host a slightly greater audience; (ii) less travel time and expense for our guests; and (iii) we hate haggis.
For those who have attended our events, we do our best to limit attendance to industry decision makers. We continue to do our very best to avoid the tire kickers and low-end foreign manufacturers. We have no desire to be the biggest, nor do we have any desire to sell individual tickets. We believe that leads to a crappy event. Importantly, we hope our events are viewed as the Masters, not the Phoenix Open. Watch golf and you’ll understand. To the extent we begin to deviate from this, we hope you’ll call us out. Now, in truth, our BBQ will continue to have a NASCAR flair to it, but the size of that event is largely a function of our sponsors who bring employees and customers to the event.
Looking forward, we have a number of events formally on the docket next year. In some cases, we are still locking down dates, but this should happen relatively soon. The working schedule is below.
- Thrive Energy Conference – February 22-23 – Houston
- Permian Basin BBQ Cook-Off – September 27-28 – Midland
- Telluride Executive Series – June 27-29 – Peaks Resort & Spa in Telluride
- The Executive Series at Pebble Beach – August 29-31 – Monterey, California
- London Energy Day – June 12-13 – London (developing schedule / venue soon)
- Permian Basin Quarterly Receptions – January, April, August and November – Midland
- Kingwood Golf Outings – April 10 – Deerwood Country Club in Kingwood, TX
- Fort Worth Steak & Wine Socials – May and October
- OKC Steak & Baseball – July
- Dallas Stars Game – December
- Dallas Happy Hour – May
- Houston Happy Hours – March and October
- DEP Christmas Party – December 7th
- In addition, we’ll do a number of ad hoc hunting and fishing trips to the Big Easy Ranch as well as a number of small group outings to the Houston Astros.
- When we do our field tours, we’ll also squeeze in small group dinners too.
While there is no shortage of dissenting views on rig count trajectory, there is a consensus view that 2023 should be another good year for both the E&P and OFS sector. We find ourselves in consensus as well and are optimistic for the next year. Moreover, most companies are now making money; employee benefits have been restored and wages are improving whether that be through cash compensation, dividend/equity programs or both. This is a good thing which we hope lasts for some time. For all of the companies who have supported the DEP team, we can’t begin to thank you enough. You allowed five old dudes the opportunity to pursue a dream and we can honestly say that we are having the most fun in our careers. As we move into 2023, we will continue to do our best to bring industry decision makers together in fun content driven formats and we hope our weekly notes and events add value to you both personally and professionally. Thank you.
Other Final Observations (brief because it’s Christmas):
- The BKR U.S. land rig count gained +3 rigs w/w to 762 rigs.
- Certarus to be acquired by Superior Plus for C$1.05B or 8.5x 2022E EBITDA
- Calfrac Well Services announced a fleet modernization program whereby it will convert 50 Tier 2 pumps to Tier 4 DGB
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