If you missed our interview with Alex Rojas (Episode 3 of The Global Energy Leaders Podcast), here is a transcription below.
Ryan Ray: Well, Alex, thank you so much for being on the show today. How are you doing today?
Alex Rojas: Thank you, Ryan. I appreciate it. Very good. I'm very excited to be talking to you and your listeners. Thank you so much for inviting me.
Ryan Ray: The pleasure is all mine. Let's get right into it. The upstream industry, a lot's going on the last two years. We saw the price of oil plummet from 100 all the way down into the 20s and even lower I think at some point. Where is upstream right now? What's going on and what's the talk? Are they comfortable at $45 a barrel or do they need to see prices get a little higher?
Alex Rojas: That's a good question. I really think that depends on which company, or which country, is doing the development of that oil. My experience or my background is I've done some facilities design engineering with a major oil company, ConocoPhillips, mostly in the US, lower 48. That's where my background is. I've done both conventional and unconventional facilities in the States here. Depending on where you're drilling, depending on if you're in North Dakota, if you're in the Permian Basin which is the hottest basin right now, you could have break evens varying $20, $25 all the way up to $100, maybe even more on some of these really old wells. It's a tough challenge and really it is. For any engineers out there still working on upstream and the upstream sector it's a very, very tough place to be right now, but it's also very interesting. If you really, really like a tough challenge, it's how to increase production, drop costs, and deal with a heavy workload because there's been a lot of layoffs, lot of workforce reductions in the upstream sector. I've heard about over 200,000 or more people have been laid off in this sector. It is a very challenging market at this time.
Ryan Ray: You mentioned something there that's quite interesting and maybe a lot of the listeners do know or don't know, but let's kind of break through the different shale plains and why is the Permian the one that everybody's going to right now and the Balkans kind of … I've seen some articles that maybe it's kind of coming back, but the Permian is the one that people are still drilling the most. Why is that?
Alex Rojas: The Permian Basin is a basin that just keeps on giving. You can do a horizontal job, a frac job, or hydraulic fracturing job is what calls it, is basically when you drill down a vertical well and then horizontally drill maybe up to a mile. Once you're in the pay zone, this is in a formation such as the Permian, it could have three pay zones or three liquid producing zones in one horizontal well so you can tap multiple zones, not just one zone like maybe in the Permian. First, that's the number one reason I say it's got rich liquid production. Also, the costs are so much lower if you don't have to transport it all the way from North Dakota all the way down to Houston or some of these Gulf Coast shipping ports where you can offload this liquid. You've got less marketing cost, less pipeline cost, less infrastructure to deal with and it's purely just that. There's infrastructure already there in West Texas and you have a lot of seismic, a lot more data involved with some of these producers have been there for 15, 20 years, and they have the data. They can extract as much oil as possible with the most advanced techniques currently around.I see Permian keep on growing. If you look on a lot of the new projects or the new acquisitions, the M&A activity is all pretty much in the Permian Basin for the US lower 48. It's probably one of those old fields that people forgot about when the oil was $100 and now it's one of the busiest places on earth. It's there. It's right now. Permian Basin's the place to be if you're looking for a job.
Ryan Ray: I've seen a lot of posts on LinkedIn recently, people saying, “Hey, we're looking for folks in the Permian Basin,” even some Eagle Ford stuff too, but maybe the Permian. You mentioned a couple things in your last comment there. You talked about infrastructure and shipping cost. What percentage of this oil that's being taken out of the Balkan or the Permian, or these different shale place, is actually being refined in the States and what percentage is being sent overseas as a more raw, crude oil?
Alex Rojas: I don't have those specific numbers on hand right now, but I could tell you after the US opened the exports to exporting liquids, oil and natural gas liquids to international players, there's been a substantial increase in the amount of liquid oil into the foreign markets. It's no surprise there. It definitely was flooded a bit with WTI price below $50 at the time when that ban was basically cancelled from the US Congress, and now we have definitely a surplus in storage in the lower 48. How do with deal with this surplus is a big question right now. A lot of people talking about it. That's one thing that the Balkan doesn't have access to is it's just a little bit further away from the international markets. You really need to have a strong infrastructure built and that $100 oil, it wasn't worth the money to build that infrastructure. It was just, “Let's go now and let's start pumping this oil and separating it out and selling the gas and oil,” but you use mostly and probably is still mostly used a day is trucks. You just fill up the tank of your truck, those big, 18-wheelers, and bring them to the next shipping terminal, and then finally get them to the international market. What you do with the excess gas is you'd flare it. You wouldn't even put it in a natural gas pipeline. You'd have these huge flares, these flames going 15 feet up in the air. As an environmental standpoint it's a waste. It's not economical. Well, it is economical but it's not environmentally friendly. At these prices now you don't see as much of an issue because what is it now, $44 last Friday? It's definitely been a challenge for that area environmentally.
Ryan Ray: One of the things that you touched on there loosely is compared to the Permian, we've worked in both areas and in the Permian when we go out on a pipeline project or locating a well, whatever it is, you can't hardly walk without stepping over an existing pipeline. If you go to the Balkan, you can't find an existing pipeline. There's a lot of factors. On the Balkan project that we worked on they were looking to build a big pipeline to tie into and it was going to go up a couple hundred miles to these refineries and whatnot. I don't know if they ever actually built out that phase of the project because obviously the price has gone down since then. It's one of those things that we think about, and you're right that there is a lot of stuff in West Texas already there that makes it easier to work in.
Alex Rojas: Definitely.
Ryan Ray: Let's transition a little bit. You mentioned natural gas a little bit and the flare off, and one of the problems that's plagued natural gas since its fall in 2008 is an over supply. We're starting to see prices that are coming back up a little bit and so it looks like it's becoming a little more economical to get back in there. I've heard that even here that there's going to be more rigs in the area to get into some of this dry gas. What are you hearing on that front?
Alex Rojas: I recently heard one of my previous employers, ConocoPhillips, as of last week, this was November 8th or 10th, that they're going to attempt to sell $8 billion worth of gas assets. This includes their producing sites and I heard it includes some of the areas in New Mexico, some of the areas that are heavily in the gas production and potentially in Texas as well. They haven't isolated exactly where these sites are that are going to be sold but big companies are selling their non-core assets. It looks like, from what I can tell, a lot of these players are trying to stick to the shale oil production where you can just turn the spigot or turn the site on and you could have a well start up in about 14 days, which is unheard of. I mean, before it would be maybe years until you could actually get first drop of production, but this new shale play, or shale in general, it's just transformed the whole industry in terms of how long it takes to get a project online, via the break-even cost, the payback time. Currently a new shale play on average is about 1.5 year payback time and it would take about a year potentially lead time, but that's dropping rapidly. As we speak there's companies that can actually do it in a matter of months to actually plan a project and actually just to get their first drop of oil could be 15 days, 14 days. What this challenge is for my company that I currently work for as an EPC and engineering company, is that we have very, very tight deadlines in actually designing a facility if they want it in 30 days. We had to have a project, we had to have all our information in as soon as possible so we can get the final design, design work, the CAD drawings, everything built and set up in a month. That's what we're kind of seeing here is that there's a humongous increase in demand and the workload in terms of projects in the upstream industry. I've definitely been seeing an uptake in my workload and how much time I spend in the office has been going up. It's definitely a big challenge but there's definitely a lot of good, good assets here in US that have low break evens and continue to produce for the future.
Ryan Ray: Do you think we're going to see more of a revitalization of the Haynesville Shale or do you think we're going to see a place like the Eagle Ford where there's a little bit more of a mix of liquids and gas in the play that you've kind of hit?
Alex Rojas: That sort of depends in terms of the company that's doing that. Some companies are specializing in gas. Some are specializing in liquids and just want to get rid of all their gas. It really depends on the company but overall I sort of see kind of a mix potentially one company going for all liquids, 100%, and another company potentially going 80/20 gas so they're trying to focus on gas. Once they have their core specialty, they're going to specialize in one area like a lot of companies are doing right now. They're trying to specialize in one core basin or geographic area and just really stay there and focus all their energy, all their resources in developing their capex budget for just this one play. I think we're going to see more of that. You'll see maybe some consolidation in terms of which companies are going to make it from this cycle. It's been a very, very rigorous cycle here but there hasn't been a whole lot of M&A activity. There's been a few big, major acquisitions, but I still think we're going to still see some more consolidation in the future. Potentially about three years from now we could see more. That's just my prediction.
Ryan Ray: Well, we'll hold you to it.
Alex Rojas: Okay.
Ryan Ray: You know, you mentioned something there about companies focusing on some area and I saw some reports the other day about Chesapeake and I think it was in Oklahoma that they're really trying to maximize … they kind of gave this area a new name even though it was an area that they've already been drilling in, but they're really just trying to maximize the production from that area. Did you hear that report?
Alex Rojas: Yes, the Chesapeake? That's more of a marketing move on Chesapeake's part, finding a very good resource close through their back yard. It's really close. They're not really looking to invest in offshore expensive, a huge platform off the Gulf of Mexico. That's what really I see a lot of companies doing, like Chesapeake that they're going to try to find value right next to their existing assets.
Ryan Ray: One more question and it's not necessarily a one-to-one with upstream but what your hearing about facilities? I've heard there's some talk of retooling some of the facilities in the US and some of these L&G plants to help process some of the gas that is coming out. What are you hearing on the facilities front as far as building new and retooling existing facilities here at home?
Alex Rojas: That's a great question. I'm hearing some things right now. They're definitely retooling, but one thing first. Before you retool or actually implement a plan, you gotta know your cost, right? I've noticed a humongous demand in analytics and data. There's immense demand for data scientists, the IT specialists in terms of aggregating some of these big, big data right now. We have so much data and there's just so much potential in dropping costs and improving reliability as well as efficiencies, that really the driver for these new facilities that are going to be being revamped or retooled. I definitely think there's going to be a lead time. They gotta know all the numbers before they actually implement and execute. It's a huge change from thinking of the past where you'd see, “Let's do it and let's get it done. Whatever it costs, it costs.” Right? Now we're seeing more of a development stage. A rapid development stage of how to handle the costs. For example, BP, they've done a major offshore platform, the Big Dog 2 … sorry Mad Dog. Mad Dog.
Ryan Ray: Close enough.
Alex Rojas: Yeah, close enough. Yeah, the Mad Dog. They actually kind of went over this over in the OTC 2016, the Offshore Technology Conference. It's a really great event to go to if anyone hasn't gone to that. They do it every year so if you have a chance to visit, definitely. What BP was highlighting there was that they dropped their price on that Mad Dog platform that's on the offshore of Gulf Coast, is that the cost has been dropped by 50%. That's huge. 50% and this is in cost of billion. I mean, they're saving a billion or more. If you could do that, you could have a lot of new projects potentially come up.
Ryan Ray: Wow. I haven't heard that. I've heard some talk about that particular rig but I didn't know all those specifics. That's pretty exciting stuff. Let's transition a little bit her into petrochemicals. It's an area that you also work in. First, kind of break down; what is petrochemicals? How does it tie in? Then we'll go from there.
Alex Rojas: Upstream is what we were talking about before, basically exploration and production of hydrocarbons-so oil and natural gas. The oil and natural gas can get shipped into the infrastructure we talked about briefly, which that would be considered the midstream sector. Your big pipeline companies. You have your Kinder Morgans, also smaller companies in the midstream sector.
Ryan Ray: Enterprise.
Alex Rojas: Enterprise, yes.
Alex Rojas: Yeah. You have a lot of companies in that sector and they're just there to transport the fluid, either gas or liquid, through the pipeline to your terminals where they can be sent off to your offshore … I mean, you can sell it to your international market or keep it in the domestic market. Once they ship it, let's say to a storage facility like some big tanks, they can send that to a plant. That's where you're getting in your downstream sector and your petrochemicals side of things. When were talking about this downstream sector, I'd say it's one of the most promising areas now with the current price of oil. From the downstream sector they take this raw product, the oil, the natural gas, and they can break it down. Typically right now what you see in Louisiana and Houston is a lot of these ethane crackers, they call it. What happens is, they send this oil and you basically break the hydrocarbon down into its basic carbon building blocks. Basically you get your methane, ethane, propane, butane, and from there you can build polymers or copolymers such as polyethylene, which is used in practically everything we have. You'll have polyethylene in your water bottles, polyethylene in your car. You have rubber tires that's been used product of oil and gas. Your dashboard on your car's oil and gas. The sneakers you're wearing or your sandals you're wearing, made in oil and gas product. Sometimes even your glasses, some of the frames are even made out of some of the downstream sector's products. What they do is they actually transform that oil or natural gas product into actually something that we actually can use. Detergents, any laundry detergent you use, also a byproduct of oil and gas, and some of the specialty chemicals. Even in the medical field.
Ryan Ray: It's everywhere right?
Alex Rojas: It's everywhere, yes, yes. I just wanted to make sure that this sector, you can make so many different products and they're so specialized so there's so many different types of different plants in that sector that I can talk about. I have most of my experience right now is in the polyethylene, so that's why I always mention that.
Ryan Ray: Let's kind of take a step back because one of the things that the oil and gas industry gets, and sometimes rightfully so, but a lot of times it's just not true, is that they're big, bad, evil people. Every industry's got its bad apples so to speak, but the oil and gas it produces so many good things that's just basic to our lives that I think a lot of people miss that. It says, “Hey, if we just shut down the oil and gas industry, life as we know it would essentially end.” I'm not talking about you couldn't drive your car anymore. I'm talking you can't go to the hospital and get a operation anymore. I don't think people really understand just how integrated, as you were talking about, this down stream sector actually affects our everyday lives.
Alex Rojas: Yes, I couldn't agree more, Ryan. You hit it on the nail right there. It's really not just your gasoline in your car. That's what everyone thinks. “Oil and gas, oh yeah, it's just gas in the car and that's what I'm thinking, and so if we transition to your electric cars, or your biomass, or different types of technologies for your transportation, we won't need oil and gas anymore,” but that is certainly not the case. We will need oil and gas for so many applications. I've kind of mentioned a few but it's definitely true. We need it for any operations. The food we eat takes tons of oil and gas products. The fertilizers, the pesticides, all this takes oil and gas industry to produce.
Ryan Ray: You mentioned a couple things. You talked about electrical. You talked about biomass. The problem is electrical cars, they're coming along and we'll see how far that gets. More power to them if they can pull it off, but biomass, I think that's kind of and industry where we look at it and it sounds a little bit better than what it may be because it has severe limitations. Am I wrong?
Alex Rojas: It definitely does have a lot of limitations. I've done some research in the biomass. What really now is the big next thing is the algae. They can transform CO2, one of the things that are the big, big players in climate change is carbon dioxide, so basically can transform that CO2 byproduct and with properties of its … what's it called? It's scientifically proven that it can actually produce biomass at a high efficiency. My main concern here for biomass is the amount of area of land that needs to be used to produce the amount of fuel that we actually need in the US. The global oil production or energy production is in quads, quadrillions and BTUs. The amount of energy just to produce the amount of, let's say algae, we need to produce for the demand just for the US, it could take the size of Texas. A mass of that size is not feasible at this time. We might see more breakthroughs in science that might show that you could maybe increase the efficiencies but right now it's just not there.
Ryan Ray: Right. Its one of those things that's worth some more exploration but right now it's a little bit more trendy than probably the actual reality of the viability of it is long term.
Alex Rojas: Correct.
Ryan Ray: Anyways, how do you, as someone in the oil and gas industry who works with these petrochemicals, works with the drillers and all that, how do you try to change the perception and say, “Hey look, what we're doing here is a good and noble thing and we want more people to get behind it”?
Alex Rojas: I try to do it in a subtle way. I feel like some of these companies, I don't want to name any names, but they try to push it, shove it down people's throats in a way. They hire some people that they might do a rally or some sort of events and kind of do things, do giveaways or things like that that kind of doesn't seem genuine at times. I mean, it's great that you can give things for certain events or everything, but we really need to show a sense of informing them not just kind of giving away things. I definitely think that's a way to influence people but I feel that there's definitely ways to improve our communication skills with others, just like saying, “What does the oil and gas industry do? It produces all these sorts of different medicines, all these different sorts of products,” and that has not been communicated very clearly by a lot of the companies in the industry. I definitely see a little bit more of a subtle and a slow progression of information. I feel like there's a lot of rush to inform and try to affect people and I just don't see that being effective in the long term.
Ryan Ray: Agreed. We'll let you go with this question. Let's say we have you on a year from today. We're sitting here a year from today, 2017's getting ready to come to a close, what did 2017 look like for the oil and gas industry? Was it a good year? Was it a slow year? Was it more of a roller coaster year? What are you thinking we're going to see for 2017?
Alex Rojas: This is just a projection. I feel like so many experts have so many different opinions, but I definitely see some potential spike down from right now from prices to a lower level. Could be significant, could be a little bit in the 30 range, but definitely could see a definite spike up. My prediction is it's very difficulty to predict what the exact price will be a year from now, but on average I'd say $50 to $60 is my projection. That's just my average right now but it's definitely changing. With the more information I get, I'm kind of developing a model myself try to figure out what the price will be, the forecast, and there's so many inputs OPEC has that meeting end of November this year and that may be a big driver of prices in 2017. Once I have that data, I can give you a better projection but it's kind of up in the air.
Ryan Ray: I appreciate the honesty that your prediction is it's difficult to predict. There is so much wisdom in that statement. The reason is because if you go read a lot of-and these are some good, hard working people who put out some of this stuff-but if you go read some of the predictions, and some of the cause and effect, and where the industry's going, and you go look at it and they may have two factors they list in the article is what they're basing their reasoning and their projections on. You look at that and you go, “There's so much more that has to be considered before you can make this kind of prediction. Maybe you have it and you didn't include it in this article here but these two things, they're just not enough.” It is a fun topic but it's, like you said, it's hard to predict for sure. Alex, thank you so much for coming on. Is there anything that you need to plug? Where can people find you? Anything we didn't cover that you want to hit on right now feel free.
Alex Rojas: Sure. If anyone has any questions or wants to learn more about me, just visit my website. It's www.AlexRojasEnergy.com. You can also follow me on Twitter. I'm always tweeting about the latest updates in the oil and gas industry so feel free to follow me guys. Thank you so much, Ryan, for inviting me again.
Ryan Ray: Oh, Alex, it was my pleasure and we hope to have you on again in the future. Maybe we'll get into 2017 a little bit and we can kind of circle back around and see where things are headed, okay?
Alex Rojas: Okay. Sounds good.