• November 29, 2018
  • Mark LaCour
  • 0

All right it’s that day that you all been clamoring for, it’s our oil and gas predictions for 2019. We’ve been on this little tour and done this a couple of times with some private groups. Then this came out a few days ago on the podcast. It went out to the podcast audience first, but then we are releasing right after to everybody that follows my blog and watches my YouTube videos. So, let’s just jump right into the predictions for next year, and check out the best dividend paying oil stocks for 2019 as well.

Decline of Field Sales. Where is the Jerky?

Number one, decline of field sales. And you go, “What?” You heard me, decline of field sales. Right now around the world and especially on land in the shale basins, there are these sales people that do nothing but deliver donuts and beef jerky. And don’t hate me, I know you all do way more than that. But what they are really doing is continuing the in-person relationships with the operators. That’s really important. 

That operator out in North Dakota or in West Texas needs to know the vendors he can rely on, and one way to do that is regular contact. And if you bring a gift of food (which the oil and gas industry loves), you help further strengthen those bonds. So that the operator knows that they can trust you and your company if they really need you for something.

What’s happening is historically there’s very limited connectivity out in the field. Now that’s changing because the service providers have realized if there is money to be made by providing connectivity, for all the data sensors that’d been wiring up the oil field with. So this is now bringing connectivity in places that typically did not have connectivity. You combine that with this new younger workforce, which is very happy to have a quick Skype call or Google Hangouts call and now we’re going to see the beginning the field sales change.

Now this isn’t going to happen overnight, it’s going to take twenty years to get there. But, we think 2019 is a very beginning where companies will start pulling their field sales out of the field, and bring them in an office situation. And there’s a lot of benefits. Number one, it’s much safer. Nobody’s going to be out at 4:00 o’clock in the morning driving back roads somewhere. Number two, you have all your people in one place that makes it much easier to train if you have a new product or a new service. Number three, they’re much more effective because not only can they pick each other’s brains in person which is really hard to do remote. And at the same they all can learn it together and start delivering as a team. So, number one for our oil and gas predictions for 2019, decline of field sales.

Upstream Value but Not Super Major

Number two, upstream value in petrochemicals. Now, be very careful here. You have the super majors. There’s five of them; Total, Exxon, BP, Chevron, and what am I missing? Exxon Mobil. They all have upstream part of their business and a downstream part of the business, but that business is run separately. So the upstream part of Exxon Mobil’s business makes money getting crude out the ground, and they sell it on the global market. They don’t give it to their own downstream part of the business. Their downstream part of the business, then buys crude and natural gas on the global market to turn into the products that they make money on.

But there’s something new coming next year, and we think it’s already started. This is where the upstream producers realize they can capture more of that value chain, if they also take those raw hydrocarbons and turn it into products. So you’re seeing companies like Sasol who’s an upstream operator and a NOC out of Africa, come here to the US and they’re in the shale plays producing oil and gas. They have a big concentration on gas, but you know what else they’re doing? They’re building ethylene crackers.

So here’s an upstream operator that’s getting gas off the ground, but it gives its own gas to its own ethylene cracker to produce plastics. We think that’s a fundamental change and something that’s going to continue. So petrochemicals added value to the upstream business is number two in our oil and gas predictions for 2019.

Oil and Gas Predictions for 2019. Microsoft’s New Way

Number three now, don’t laugh at me, the Microsoft business model. If you’re old like me, you remember the old Microsoft where everything was locked down. They got sued by several countries and several governments over having it so locked down that they thought it was non-competitive. And the way Microsoft made money is that they sold access to this locked down world. So you had to have licensing for every version of Word and Excel and PowerPoint and SharePoint whatever that your company had.

That wasn’t a long-term viable strategy in this changing world. What’s happening is Microsoft has learned to do things different. Their Azure platform which is growing like crazy in oil and gas. Over 70% of traffic on it is Linux, a competing product. Office 365 which we use here is free on cellphones and passed up Google Docs for free office software, that’s genius on their part. So they’re learning how to use their competitors to make money inside of their world. That’s going on in oil and gas. It’s actually just starting, so let’s take a service company like Schlumberger. 

Schlumberger, one of their business units you can now rent their tools. Even if you’re a competitor. So in the old days Schlumberger if you had a job for them, fishing, wireline or whatever, they would bid it, it’d be their crews, their tools, their trucks would show up and do the job, come back, and they would bill you. 

Now they’re doing an experiment which we think is going to grow, and now their competitors can rent their tools. So Schlumberger doesn’t have to worry about their people, doesn’t have to be concerned about bidding on the projects, they’re still making money by letting their competitors come in and rent their tools. We think that Microsoft business model is going to continue to grow in oil and gas, this is going to be a game-changer.

Then number four, mergers and acquisitions. Have you seen whats’s happened these last two quarters? Typically the slowest merger and acquisition times during the year is the last two quarters, and it’s off the chart in oil and gas. Look at what happened with the BP picking up all of BHP assets, and there’s a hundred thousand more of them. I have never seen this much money sitting on the sidelines, and especially the upstream operators on land. The only way they can continue grow is consolidation. The only way they can acquire good assets is to acquire another company that has those assets.

So, you’re seeing funny things going where companies merged, but it’s really not a takeover, they trade stock. So, we think 2019 is going to be a tremendous year for M&A activity in the oil and gas. And a big part of our oil and gas predictions for 2019.

Fear – Oil and Gas Predictions for 2019

Then fear of US production. Not to get into politics, but if you look at what our current administration has done renegotiating these trade deals all over the world all different countries, those countries didn’t do it because they were nice. They did it because they were scared. For the first time, the US has the ability to flood the global market if we choose so. We’re not going to do it, do it but if we chose to we can. We could actually out produce OPEC and Russia together. Not today, but next year.

And so, the world is scared of that. And that fear is driving different geopolitical decisions. You look at OPEC and Russia teaming up together for this last almost two years now, that’s not normal. They don’t like each other. The reason they teamed up is they have a common business foe which is us. Honestly, as an American, I sort of like the fact the rest of the world is scared of our production abilities. It’s about time we got there. We’ve always been the biggest consumer and we still are the biggest consumer, but now we’re producing more than we consume, so it’s awesome.

A Trillion Dollars worth of Data

Then data as revenue. All of 2018 I’ve been on this tour, “The Trillion-dollar Data Brawl” where I’ve been talking to companies and organizations about this bunch of data out there. And I think it’s worth a trillion dollars and nobody’s even touching it yet.

Now, I am not talking about the data that is contractually already claimed. So, production data, geoscience, all that stuff between the operations and the service companies they agreed contractually who owns that data. That’s not what I’m talking about, I’m talking about stuff nobody’s thinking about. 

Oil and Gas Predictions for 2019

That warehouse that Halliburton has, there’s some guy out there sweeping that warehouse or cleaning it up. There is data on how long it takes him to do it, how often does he get hurt or take time off. Can you increase the cleaning of the warehouse by having two people versus three versus the cost of that? Who owns that data? Is it Halliburton? It’s their warehouse.  Is it the third-party company they sourced to actually clean the warehouse? Is it their data? Is it that guy that’s pushing the broom? 

Nobody has answers to that. And all that type of data, when did that mud pump go out? How long those truck tires good for? You know where — what’s the quickest route to make sure people are safe when they’re driving out West Texas? Nobody owns that dad and yet it’s super valuable. That’s how Facebook and Google got its start. So, we think you’re going to see that data come back as ways to make money from companies. This could be turned into revenue which is awesome.

Then, supply disruption. If you follow me for a time, you listen to any of the podcast, you know I’m constantly talking about how the US is one of the few countries that can refine heavy complex crude and we prefer it to get a better yield. So, we – the crude that comes from certain places in the world – Canada, Venezuela, in the Middle East, and then we in turn sell our light sweet crude to the rest of world because it’s much easier to refine. They basically just boil it.

Now, what happens if the supply of the complex crude gets a handicap in any way? Look at what’s going on in Canada politically, right? They have the heavy crudes they want to sell it to us because they know it’s better for the world than sell to China, but politically right now they can’t build the pipelines to get it down here. Venezuela is in shams and if you’ve listened to me any length of time you know we call this over three years ago, it’s a shame, but prayers to the people of Venezuela that government gets overthrown as quickly as possible. And look what’s going on the Middle East. 

So, if you’re a US refinery, if you’re a downstream US company and you think there may be a disruption in supply this heavy crude, you have a choice. The choice is you can spend billions of dollars in capex money and retrofit your refineries to process light sweet crude which you know is here because we produce it ourselves, and you get around the import tariffs on imported crude. If you’re the first to do that if you’re like a Valero who tends to be one of the most nimble refineries out there, if you’re a Valero and you retrofit your refineries to process that sweet crude, you’re now ahead of everybody else, but it’s a huge risk. Refineries are never meant to shutdown, they’re meant to make money 24 hours a day seven days a week. 

To retrofit refineries, a tremendous cost a capex cost is billions and billions of dollars and you have to shut the refinery down so you’re not making money on it. Now, imagine that if you’re a company and you did this and all of a sudden that supply restrictions were removed. So now, you have access to inexpensive heavy crude, you’ve now made a major business blunder and your competitors will eat your lunch. So, that supply disruptions will be a major driver for our oil and gas predictions for 2019 one way or the other. 

Then, where is the talent? There’s a talent shortage headed toward oil and gas industry of epic proportions like we’ve never seen if we could hire every mechanical engineer and I’m not picking on mechanical engineers, pick a discipline, pick a pick a county and a project manager anything. But, if we can hire every mechanical engineer that’s graduating in college, there’s not enough of them for our industry. Think about that. Let that sink in.

Then, for the first time in history, young people don’t want to come work in our industry and that’s our fault as an industry. So, it used to be if you were in Africa and once somebody in your family got a job with Chevron, the village would celebrate because this is prosperity for the entire village. This guy is going to have a steady paying job making really good money, health insurance for his family. It was a wonderful thing and people fought over those type of opportunities.[

Now, this new younger generation doesn’t want to come work in our industry. And, like I said it’s our fault. For the last 75 years when anybody says something wrong in the public eye about our industry, we don’t raise our hand and correct it. And then, about a decade ago with the advent of social media, that one person now can get the ear of millions of people. We’d seen it happen. As an industry, we need to change that. As an organization, oil and gas global network is working on that.  We’re not there yet, but we need to start telling the good story of our industry, so that young people want to come work on our industry. And this is an enormous problem.

It’s going to drive some things, right? Some things are kind of cool. This could drive the adaptation of technology because if you don’t have the people you got to still get the job done. It’s going to make our industry get more nimble and leaner. It’s can make our industry look at things we normally wouldn’t look at like flexible work groups. But, still it’s faceless it’s coming at us like a freight train, there’s no solution and it’s going to make a big difference. The companies out there that can recruit and retain talent are going to pull way ahead of the companies that can’t. 

Then, gas rules. It sounds kind of like an eighth grade joke, doesn’t it? But, what I mean is natural gas and obviously. Natural gas cannot be moved around the planet inexpensively yet unlike crude. We’re building all these LNG plants which takes the gas, process it down to liquid so you can stick it on tanker and move it around the world. It’s happening right now. LNG is the fuel of the future. Look at what Exxon and Shell has done in last two years, they basically turn themselves into natural gas companies because they know that’s the fuel of the future.

You look at a lot of advertisement and the stuff that you read on news about the large oil gas companies globally supporting things like carbon capture and carbon tax, that it’s real. It’s not a marketing ploy, it’s real. They really support it.  Now, the reason they support it is the number one way to lower CO2 emissions in the world exponentially is for the world to switch from coal-fired electrical generation to natural gas. So, of course where you buy a natural gas from? Big oil and gas guys. That’s why they support it. It’s a secret, right? 

But, it’s actually better for the planet. We drop emissions 60% immediately by switching from coal to natural gas. Also, almost 70% of the world is fed with fertilizer made from natural gas. Every piece of plastic you see is made from natural gas, right? So nat gas rules, it’s ruling now it’s going to rule the future even more. It’s an awesome thing.

Then finally, for our oil and gas predictions for 2019, new players, right? Now, if you’re watching this and relative within a couple months when we film this, you know that Baker Hughes is on the market again, GE is trying to sell it off.  I think one of the big tech companies are going to buy it not because somebody like Microsoft or SAP or IBM wants to get into fishing or to completion, they want the data. IBM bought the Weather Channel. You think IBM cares about weather? No. They care about the data. 

So, I really believe that somebody outside the oil and gas industry is going to buy a major service company or even build a service offering and come in and they will be an oil and gas service company. You look at Halliburton look at their landmarks graphics, that’s a technology, right? But, we think it was an awful service company. I think we’re going to have new players coming to our industry that we’ve never seen or wouldn’t expect, and something new for our oil and gas predictions for 2019.

This is what I find interesting. Google, Amazon, Salesforce to name a few politically don’t like our industry and they say that publicly. All three of them have a dedicated oil and gas sales teams. I’ve met them all. There’s Google oil right here in Houston. There’s Amazon web services right here in Houston. There’s Salesforce right here in Houston, right? So, those companies that politically don’t like us actually spend money and put resources dedicated to oil and gas. That tells you something. It tells you they know there’s money to be made. So, we’re going to see new players in our industry and I think it’s awesome.

So, really quick we went through our ten predictions for 2019. Do me a favor. If you like this and found – found it valuable, share it with your friends, co-workers, or whatever. And then, if you don’t know, we have the top four podcast in the oil and gas industry. By the time you see this probably be the top five. We got eleven more in the works. So, go to OilandGasGlobalNetwork.com, soon it will be OGGN.com. Check out our existing podcast. There’s bound to be something there that you’ll enjoy. 

Do me a favor, folks. Enjoy a little bit of time off we have the end of this year. Hit 2019 with a bang. And we will see you next time. And checkout our last years predictions here.