SHALE Magazine Jan/Feb 2018 by SHALE Oil & Gas Business Magazine

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JANUARY/FEBRUARY 2018

LIFESTYLE GUIDE: RESTAURANTS AND FOOD

OIL AND GAS OUTLOOK IN 2018

LEADING GROWTH AT THE PORT OF CORPUS CHRISTI

SOCIAL: STEER EAGLE FORD EXCELLENCE AWARDS

SEAN STRAWBRIDGE APPALACHIAN BASIN SEES GROWTH IN NATURAL GAS PRODUCTION

THE FDA APPROVES THE FIRST DIGITAL PILL

NEW OPPORTUNITIES IN THE NEW YEAR

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CONTENTS FEATURE

U.S. Oil and Gas Production and Price Outlook

COVER STORY

COVER AND TABLE OF CONTENTS PHOTOS BY MICHAEL GIORDANO

INDUSTRY 30 2018 Should Be All About Stability for the Oil Markets

32 Energy Sector Vulnerable to Cyber Threats

34 The Big Apple Benefits From Pennsylvania Shale Gas

36 PESA Provides Value to Its Members 38 Resolved: A Common-Sense Energy Policy

40 South Texas Energy & Economic

Roundtable Hosts Fifth Annual Eagle Ford Excellence Awards

42 LNG Exports to Provide Stability for

BUSINESS

52 Sustainability and Economic Theory 54 People Powering Digital Transformation 56 Three Strategies for Protecting

Companies Against Physical and Cybersecurity Attacks in 2018

58 Sons of Liberty Gun Works Has Heart

LIFESTYLE 62 California: Loop Neighborhood Stores 64 Dallas/Houston: Pappas Bros. Steakhouse 66 New York City: Rustic Table

U.S. Gas Markets

POLICY 48 The FDA Approves the First Digital Pill

SOCIAL

The Port of Corpus Christi has long been the jewel of the Coastal Bend region. With new additions and improvements around the corner, we will see the port and the region spur with economic activity. At the head of the port staff, Sean Strawbridge uses his vast experience and knowledge to encourage growth opportunities.

INDUSTRY

Why You Should Take the Appalachian Basin Seriously

POLICY

Reuse and Recycle Water

BUSINESS

Don’t Pay for the Same Real Estate Twice

LIFESTYLE

Houston: Armandos

SOCIAL

STEER Eagle Ford Excellence Awards

70 WEN Houston 70 SAPA & YPO Midstream Open Golf Tournament JANUARY/FEBRUARY 2018  SHALE MAGAZINE

ADVISORY BOARD VOLUME 5 ISSUE 1 • JANUARY/FEBRUARY 2018

Omar Garcia / Senior Advisor As President and CEO of the South Texas Energy & Economic Roundtable (STEER), Omar Garcia is an expert on business opportunities associated with the Eagle Ford Shale. He works with the oil and gas industry, local officials, community members, regional stakeholders, educational institutions and economic development organizations to ensure that the oil and natural gas industry in South Texas is advancing in a positive way that is beneficial to both the community and the industry. Garcia has more than 12 years of economic development experience, and he spent two years working for Bank of America as Vice President of Business Development for the bank’s treasury management division. He is a certified economic development finance professional through the National Development Council, and he graduated from St. Edward’s University with majors in international business and Spanish. In 2010, Gov. Rick Perry appointed Garcia to the Texas Economic Development Corporation.

shana robinson Shana Robinson is currently the Chief of Sales & Growth, Baptist Health System (BHS) for the Tenet San Antonio Market. Robinson is a graduate of The University of Texas at San Antonio, receiving her Bachelor of Liberal Arts degree. Robinson joined the Baptist Health System in January 2007. Her years of experience in sales, physician relations, business development, community service and marketing have been fundamental to her success in the development and implementation of wellness programs for the Baptist Health System. Robinson’s most recent challenge and success has been the development and initiation of the business-tobusiness programs for BHS, which encompass services such as healthcare screenings for athletes and on-site clinics, which assist participating employers in reducing healthcare costs by providing on-site health services for employees.

Thomas Tunstall, Ph.D. Thomas Tunstall, Ph.D., is the Research Director for the Institute for Economic Development at The University of Texas at San Antonio. Previously, he was a Management Consultant for SME and the Component 1 Team Leader for the Azerbaijan Competitiveness and Trade project. Tunstall also served as an Advisor Relations Executive at ACS and was the founding Cochair for the Texas chapter of the International Association of Outsourcing Professionals. He has published a business book titled Outsourcing and Management (Palgrave, 2007) and was the Technical Editor for Outsourcing for Dummies (Wiley, 2008). Tunstall has consulted in both the public and private sectors. In 2005, he completed a long-term assignment in Afghanistan, where he was Deputy Chief of Party for a central bank modernization project. In 2006, he taught Ph.D. candidates in a business and government seminar at The University of Texas at Dallas.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

KYM BOLADO

CEO / PUBLISHER CHIEF FINANCIAL OFFICER Deana Acosta EDITOR IN CHIEF Lauren Guerra OIL AND GAS ASSOCIATE EDITOR David Blackmon ART DIRECTOR Elisa G Creative COPY EDITOR Katie Buniak VICE PRESIDENT OF SALES & MARKETING Joyce Venema ACCOUNT EXECUTIVES Michelle Mata, Matt Reed, Cheyenne Williams ONLINE CONTENT MANAGER Fernando Guerra SOCIAL MEDIA DIRECTOR Courtney Boedeker CORRESPONDENT WESTERN REGION Raymond Bolado CONTRIBUTING WRITERS Jack Belcher, Leslie Shockley Beyer, David Blackmon, Edgard Capdevielle, Scott Finley, Bernadette Johnson, Bill Keffer, David London, Kelly Warren Moore, Hai Nguyen, David Porter, Tom Shepstone, Jackie Stewart, Thomas Tunstall, Ph.D., Joyce Venema CONTRIBUTING PHOTOGRAPHER Michael Giordano STAFF PHOTOGRAPHER Malcolm Perez EDITORIAL INTERN LeAnna Castro

www.shalemag.com For advertising information, please call 210.240.7188 or email kym@shalemag.com. For editorial comments and suggestions, please email lauren@shalemag.com. SHALE MAGAZINE OFFICE: 5150 Broadway St., Suite 493, San Antonio, Texas 78209 For general inquiries, call 210.240.7188. Copyright © 2018 Shale Magazine. All rights reserved. Reproduction without the expressed written permission of the publisher is prohibited.

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

PUBLISHER’S NOTE

IT’S THE START OF A NEW YEAR, one that by all accounts should be better than last year in oil and gas. We kick it off with an issue dedicated to sharing outlooks and opportunities expected in 2018. SHALE Magazine has solidified some strong partnerships as we move into the new year. We are seeing a return on some of our oldest partnerships and are welcoming new collaborations. We also have a new look with new features in the magazine that will be on full display in our March/April issue. As storytellers for the energy industry, we are looking for companies and people to tell their amazing stories. The past year was filled with stories about great people and companies from all of the United States’ shale plays. I am also very excited to see the amount of interest in our radio show, In the Oil Patch. It’s growing exponentially in listeners and we’ve been able to welcome interesting and exciting

PROUD SPONSORS AND PARTNERS:

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

guests. It’s amazing to see the involvement from our listeners from all employment backgrounds wanting to learn more about oil and gas. We have managed to grow into the most listened to show on Sunday night on 740 AM iHeartRadio in Houston. Our show is now on iTunes, Stitcher, TuneIn and the Google Play Store. We are always looking for new guests to come and talk to us on the radio show. We are definitely in growth mode with our addition of products like SHALE TV and a new job posting board. As we develop these new media platforms, we’ll now offer print, radio, employment boards and video products at SHALE Magazine. We at SHALE are so excited to see what 2018 has in store for us and our brand. I would like to truly thank all of you, our loyal readers and supporters of our brand and mission. Stay tuned, because 2018 is going to be an exciting year for us!

KYM BOLADO

CEO/Publisher of SHALE Magazine kym@shalemag.com

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JANUARY/FEBRUARY 2018  SHALE MAGAZINE

 FEATURE

U.S. Oil and Gas Production and Price Outlook By: Bernadette Johnson

ollowing years of suppressed market conditions, many view 2017 as the comeback year for the U.S. oil and gas industry. In the wake of the crude oil price collapse in 2014, U.S. production for both crude and natural gas flattened, then dropped through 2016. And even though prices for crude continue to hover around $50 per barrel, U.S. producers have tightened their belts and reemerged with lower breakevens, more efficient operations and wells that are bigger than ever. As a result, Drillinginfo is forecasting dramatic growth through 2018 and beyond. Drillinginfo tracks 72 of the most important operators across U.S. unconventional plays. Specifically, the company follows their capital expenditure plans; operational trends (such as drilling and completion costs); lease operating expenses; and merger, acquisition and divestiture activity. This information is paired with Drillinginfo’s detailed production and typecurve data to generate short-term volume forecasts. These forecasts represent the company’s best outlook for production through the end of 2018. Total U.S. crude production is currently forecasted to grow 906,000 barrels per day (BOPD) between December 2017 and December 2018. Meanwhile, gross natural gas production is forecasted to grow 5.14 billion cubic feet per day (Bcf/d) between December 2017 and December 2018. The dramatic increase in production is a result of a sharp increase in rig activity, shorter drill times, bigger wells and relatively low drilling and completion costs. As tracked by Drillinginfo’s Rig Analytics, at the start of December 2017, the rig count stood at 1,083, up from the low of 433 rigs observed in May 2016. Global Crude Prices The growth of U.S. production is also a key driver of global crude prices. Expected to be the marginal supplier going forward, U.S. basin breakevens will establish global prices. U.S. breakevens, adjusted for quality and transportation costs, range between $25 per barrel and $100-plus per barrel, but $50 West Texas Intermediate (WTI) is a key price threshold that allows U.S.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

production to grow. At $60 WTI, the U.S. can increase domestic crude production by more than 750,000 BOPD. As a result of these key price thresholds, combined with trends in demand and storage levels globally, Drillinginfo is currently forecasting WTI prices to average $52 through 2018. Regarding natural gas prices, Drillinginfo is forecasting an average of $3 for Henry Hub prices in 2018. This price is a result of detailed knowledge available to analysts on supply and demand forecasts by sector for power generation, industrial end uses, residential/commercial load, exports to Mexico and LNG exports. Beyond 2018 Looking beyond 2018, U.S. production breakevens, plentiful supply and short cycle response times will keep both crude and natural gas price ranges bound for the foreseeable future. Specifically, the U.S. oil and gas industry’s ability to produce a lot of crude and natural gas at $60 WTI (U.S. crude benchmark price) and $3 Henry Hub (U.S. natural gas benchmark price) will keep global prices from reaching historic peaks again. U.S. unconventional supply has changed the crude and natural gas markets. While numerous basins are influential to overall U.S. production growth, the Permian Basin is unparalleled as the single most important driver of crude growth through 2018. Permian Basin Oil and Gas Forecast The Permian is long known as a legacy conventional basin. Operators are now enjoying the benefits of decades of geologic research, numerous economic stacked pay zones and a friendly business environment for oil and gas. Producers have taken lessons learned from other explored unconventional plays such as the Haynesville, Barnett, Fayetteville, Bakken, Eagle Ford, Marcellus and Utica, and are now applying them in West Texas. Type curves are improving, activity is up and the basin now represents the largest contribution to growing U.S. oil production. More specifically, Drillinginfo tracks 29 individual operators in the Permian Basin, many of which are

members of the Texas Independent Producers & Royalty Owners Association (TIPRO), ranging from large players like Concho Resources, Apache and ExxonMobil (XTO Energy) to up-and-comers such as EP Energy, Matador Resources, Diamondback Energy and Parsley Energy. Currently, Drillinginfo is forecasting the region to grow crude production by 544,000 BOPD between December 2017 and December 2018. Among the producers, ExxonMobil and Parsley Energy are each expected to grow by more than 30,000 BOPD of crude production by December 2018, compared to the same point last year. On the natural gas side, Drillinginfo expects 1.24 Bcf/d in growth between December 2017 and December 2018.

Figure 2

Figure 1

In line with broader U.S. rig trends, the changes in the Permian’s rig count since 2016 have been dramatic. The basin’s rig count reached a low of 129 in May 2016, but has since rebounded to 418. As of the first week in December 2017, Pioneer Natural Resources and ExxonMobil were leading activity with 20 and 19 rigs, respectively, followed by Concho Resources and Parsley Energy at 18 rigs, Apache at 17 rigs, Chevron and Occidental Petroleum Corporation each running 15 rigs, and EOG Resources at 14 rigs. Other operators make up the remaining approximately 280 rigs. Not only is activity up in the region, but each rig is now more productive than it has ever been because producers are able to drill wells faster and have increased the overall intensity of well completions to maximize productivity. These efficiency gains are here to stay and include more proppant injected per lateral foot, extended laterals and multi-bench drilling (drilling multiple formations from one wellbore). The impact of efficiencies on breakeven economics is dramatic. Permian crude breakevens are illustrated in Figure 2 and range between $27.52 for the Delaware Basin Bone Spring formation tier-one assets to $100 for numerous tier-three assets and small basins on the outskirts of the Permian such as the Val Verde and Marathon-Ouachita.

2017 Marks Turning Point Led by production gains from the Permian Basin, 2017 proved to be the right time for a comeback for the U.S. oil and gas industry. Drilling and production efficiencies are at all-time highs, the rig count has increased by 224 percent since the low in May 2016, and the United States is on track to grow production in 2018 and for years to come.

About the author: Bernadette Johnson joined Drillinginfo through the acquisition of products and services from Ponderosa Energy. She serves as Vice President of Market Intelligence for Drillinginfo and is responsible for helping to grow and expand the company’s analytics offerings, building on her work as a founding partner of Ponderosa Energy leading consulting engagement and research efforts. With more than 10 years of experience in the energy industry, Johnson has earned the reputation of industry expert with extensive experience providing crude, natural gas and NGL fundamentals analysis and advisory services to various players in the North American and global energy markets. A regular commentator for and speaker to the energy industry, her specific market expertise spans financial trading, production forecasts, demand forecasts by sector, infrastructure analysis, midstream analysis, storage value analysis and price forecasts.

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

PHOTOS BY MICHAEL GIORDANO

cover story

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

SEAN STRAWBRIDGE LEADING GROWTH AT THE PORT OF CORPUS CHRISTI BY: DAVID BLACKMON

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

It will come as a surprise to many that about half of that daily export volume of crude oil moves through the Port of Corpus Christi; it may surprise even more to learn that the port of Corpus Christi is now the fourth largest port by tonnage in the United States. “That’s really happened over the last decade,” says Sean Strawbridge, the Port’s new Chief Executive Officer. “The port has been around for 91 years, and it was a sleepy little port for a long time, one that was land rich and cash poor. But we’ve had a reversal of fortunes in recent years. We have roughly $50 billion in private industrial development going on in and around the ship channel right now.” That’s a very big number. But if you think Strawbridge might be exaggerating, you’re wrong. Consider the following examples of major investments he’s talking about: • Cheniere Energy’s Corpus Christi LNG facility scheduled to begin operations in 2018 represents a $13 billion capital investment; • Austria-based Voestalpine's hot briquetted iron (HBI) plant, a $1 billion investment that

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF SEAN STRAWBRIDGE

THESE ARE EXCITING TIMES FOR EVERYONE INVOLVED WITH THE PORT OF CORPUS CHRISTI. ON SEPTEMBER 9, 2017, THE PORT OF CORPUS CHRISTI AGREED TO TERMS WITH THE U.S. ARMY CORPS OF ENGINEERS ON A PLAN TO WIDEN AND DEEPEN THE CORPUS CHRISTI SHIP CHANNEL. THIS NEWS BECAME THE CENTERPIECE OF A LONG STRING OF POSITIVE DEVELOPMENTS RELATED TO THE PORT AND ITS FUTURE THAT TOOK PLACE DURING 2017.

The joint project with the Army Corps of Engineers will widen the ship channel to 530 feet, making it wide enough for two-way ship traffic, and deepen it to a depth — 54 feet — that will allow all but the very largest class of super-tankers and cargo ships to not only come into the port, but also leave it after having been fully loaded. With the U.S. oil industry’s rush to expand exports, this will be a major improvement to the port’s service offering. While these larger tankers have to this point been able to enter the port, they’ve not been able to take on full loads because the ship channel’s current depth of 47 feet cannot accommodate their full displacement. While the Port of Corpus Christi began studying the need to deepen and widen the ship channel in 1990, the 2015 decision by Congress and President Barack Obama to reverse the decades-long ban on exports of crude oil produced in the United States lent the project a greater sense of urgency. Since the repeal of the ban went into effect in late 2015, U.S. volumes of crude exports have skyrocketed, from around 300,000 barrels of oil per day (BOPD) to the 1.8 million BOPD estimated by the U.S. Energy Information Administration (EIA) for September 2017.

imports iron ore from overseas mines and improves the purity using U.S. produced natural gas, then reexports the HBI to automotive manufacturers around the world; • Tianjin Pipe Corporation's and their $1.3 billion seamless steel pipe factory; • ExxonMobil and Saudi Arabia Basic Industries Corporation (SABIC) are partnering on the world’s largest ethylene cracker unit, with a price tag of $12 billion; • Howard Energy Partners is investing $150 million in a new oil storage facility, having signed a 30-year lease with the port for the land to house it; • In December, Houston-based Hilcorp and Switzerland-based Vitol announced plans to build a new storage facility at the port as part of a joint crude export project; • The projected cost of the project to deepen and widen the ship channel is $327 million; • The port has plans for more than $1 billion in capital investments over the next 10 years; and

• Magellan Midstream Partners has plans for a 375-mile pipeline that would take up to 350,000 BOPD from Crane to Three Rivers, and then from there either to the Houston Ship Channel or the Port of Corpus Christi; • Plains All American Pipeline is planning a second expansion of its Cactus Pipeline system that would up its capacity from a current 390,000 BOPD to 575,000 BOPD by fall 2019; • Pipeline giant Kinder Morgan has plans for a 430-mile pipeline that would transport up to 1.7 billion cubic feet of Permian natural gas per day from Waha to Corpus Christi. There are other midstream projects underway in addition to those listed here, but you get the picture: The change in export policy, combined with the Port of Corpus Christi’s plans for expansion and major investments in enhanced facilities and services will create a literal revolution in the Texas midstream industry’s capacity to carry oil, natural gas and NGL from the Permian Basin to the southern Texas Gulf Coast.

Strawbridge credits another less-noticeable factor that is currently driving the port’s ability to attract all this new investment: air quality. “We enjoy our air attainment status [under the EPA’s ozone standards],” he says. “Why is that so important? Our air quality is so good here that companies that are making those investments don’t have to buy credits to offset their emissions. We work with them very closely to ensure that attainment status continues, because for us that’s solid gold. Houston doesn’t enjoy that status, Baton Rouge doesn’t enjoy that, Los Angeles doesn’t enjoy that.” Strawbridge had overseen all of this breathtaking and rapid expansion and investment over the last two years from his previous role as the port’s Deputy Executive and COO. He will have an even more visible oversight role moving forward, because in midDecember it was announced that he would replace longtime Executive Director John LaRue, who has led the port’s progress for the last 23 years. LaRue will remain aboard in an advisory role for the next 12 months, but then will start to enjoy some much deserved time off in 2019.

• Corpus Christi’s cross-harbor bridge is being replaced with a new bridge with a 205-foot clearance at a cost of $950 million. But these and the many other major investments being made in and around the port don’t tell the whole story of the growth being created by this burgeoning facility. The Howard Energy Partners storage facility is a good example: It will ultimately be interconnected with a major new pipeline that will carry crude across South Texas to Laredo, and then into northern Mexico. Producers and midstream companies are also looking at the Port of Corpus Christi as an outlet for the constantly growing volumes of oil, natural gas and natural gas liquids (NGL) being produced in the Eagle Ford Shale in South Texas and the Permian Basin in West Texas. The list of projects either already under construction or in the planning stages is breathtaking: • Buckeye Partners is building a line with a capacity to carry 400,000 BOPD from Wink and Midland to Corpus Christi; • A consortium of several companies is building the 650-mile Epic pipeline, which will have the capacity to carry 590,000 BOPD to the port; • Permico Energia is building a 510-mile pipeline that will carry Permian natural gas to Corpus Christi. The $2 billion project includes a fractionator plant situated at the Port of Corpus Christi that will separate out NGLs and transport them via pipeline to the Mont Belvieu NGL facility between Houston and Beaumont;

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

“I’ve been lucky to work with some really great people in my career,” Strawbridge says, “but the leadership John LaRue has shown here in Corpus Christi is truly exceptional.” After a long and very successful career, Strawbridge considers himself fortunate to be in his current situation: “This is really a transition; and the great thing for me is, how many guys get to come into a new position and still have the mentorship and the leadership of the previous leader to lean on? John is a tremendous talent and we’re very fortunate to have him. So, I’m really lucky.” That, as we will see, is a sentiment Strawbridge expresses quite often.

A Long and Varied Career Path Strawbridge began his career as an accountant in the airline industry. After a brief stint there, he got his induction into the

trailer vans were ultimately modified into the shipping containers we see today, and the rest, as they say, is history. “My first job with SeaLand was in Houston,” Strawbridge says, “And that was such a wonderful experience. When you look at the port industry and the maritime industry today, it is littered with ex-SeaLand executives. And that is because SeaLand was such a self-critical organization that really focused on always improving, on process improvement. Early on, I was a manager; and as a manager, your first job, your No. 1 priority, was to prepare your people for advancement. That’s the culture that I was indoctrinated in and it’s served me so well over these years. Whenever I’ve run into old colleagues around the industry, we always laugh and reminisce at the days that we were at this great company called SeaLand. I’m really grateful to have been a part of that — to have had that experience early on has been very valuable, and it has guided me through the rest of my career.”

Long Beach, and Palm Beach, Florida, where he served as Vice President of International Asset Development with the Oxbow Corporation, Strawbridge has accumulated a broad portfolio of training and experience that make him uniquely qualified to fill the large pair of shoes that LaRue, who has led the Port of Corpus Christi for the last 23 years, will ultimately leave behind. But why come to Corpus Christi, and why now? “Well, that’s an interesting story,” he says. “You know, this is a small industry, and we all kind of know each other. It turns out that the same recruiter that put John here 23 years ago, Tim McNamara, called me and said he really wanted me to take a look at this opportunity in Corpus Christi,” he pauses to laugh, “and I said, ‘I haven’t lived in Texas in almost 20 years and Corpus [sounds] a little small to me.’ “So Tim says, ‘You haven’t even looked at it, so you don’t know how big it is or has the potential to be.’ Tim was right. ‘All right I’ll look at it,' [I said].’ So, he sent me the strategic planning, sent me the annual report. I looked at that and then started doing some digging on the Eagle Ford and the Permian, and it certainly piqued my interest.” “Then I had an exchange with John [LaRue] and decided, what the heck, I’ll come out and interview. I had never met John — I had heard a lot about him but never actually met him. So, I called some folks who knew him, and his reputation proved so stellar, I had to come see for myself. Ultimately John was the reason I decided this was an opportunity I wanted to pursue.” The Commission and LaRue must have felt the same, because they made the offer.Sometimes things are just meant to be.

shipping industry when a company called SeaLand Service recruited him. He was immediately hooked. “SeaLand was owned by the CSX Railroad at the time I went to work with them. But it was founded by a man named Malcolm McLean, whom Fortune magazine rates as one of its top 100 industrialists of the 20th century. He’s the man who invented the model for the modern shipping container,” Strawbridge says. Indeed, McLean, who made his first fortune in the long-haul trucking business, is credited for revolutionizing ship transport when, in April 1956, he loaded 58 fully filled trailer vans — later called containers — aboard a refitted tanker ship, the SS Ideal X, and sailed them from Newark, New Jersey, to Houston. Those

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

After nearly 10 years with SeaLand, Strawbridge left to take a position in the investment banking industry and quickly discovered an entirely new and different world. “At the time I thought that every company was like SeaLand,” he says with a laugh. “When I left and went into the investment banking industry, I very quickly realized that it was a completely different culture in investment banking, in the world of high finance. I spent four years in that world, and it serves me well today. But the maritime industry beckoned and I returned to it in late 2002. Everything happens for a reason. I’ve been extremely fortunate.” With a more recent employment history that includes stops in Long Beach, California, where he was Managing Director for the Port of

Strawbridge considers himself fortunate to have landed in Corpus Christi after a life that has seen stops in places like Seattle; Portland, Oregon; San Francisco; Phoenix; Dallas; Houston; and Panama City, Panama; in addition to Long Beach and Palm Beach. “South Texans are just real,” he says. “They make you feel like family from day one. In all of those places that I’ve lived, I’ve never truly felt, believe it or not, like I was ‘home.’ I get here and I feel like I’ve been here, and grew up here and was raised here, from day one, just by the way I was welcomed into this community.” He pauses and chuckles, “That’s a real treat for somebody who spent a lot of time with Wall Streeters, large institutional investors, investment banks and private equity firms, you know, where it’s really about the transaction. People here in South Texas, they’re not what I would call a transactional culture. They are a very collegial culture, they’re a familial culture, and it’s really neat to be a part of the Port of Corpus Christi family and the South Texas Coastal Bend community.” But as friendly as the culture in Corpus

PHOTOS COURTESY OF SEAN STRAWBRIDGE

Feeling Welcome From Day One

Christi is, the city’s laid-back attitude and slow pace of development over the last 40 years present their own set of challenges to the port, which is a large business that currently employs approximately 220 men and women. “Our No. 1 asset is not our ship channel, it’s not our docks, it’s our people,” Strawbridge reflects. “We have a tremendous amount of institutional knowledge that over the next five years is going to walk out the door and go into the next natural phase of their life.” Indeed, more than 40 percent of the port’s workforce will be eligible for retirement in the next five years. The challenge the port is facing is very

similar to the one the oil and gas industry is facing, where a high percentage of the aging workforce will also be retiring over the next five years, in what is becoming commonly referred to as the “Great Shift Change.” Of course, the issue around “Great Shift Change” anywhere is: Who is going to be there to come on for the next “shift”? For the port, as in the oil and gas industry, it’s a really good question: “Today at the port, out of 220 employees we have eight millennials. That’s eight employees under the age of 30,” Strawbridge says. “In Corpus Christi, we’ve got two great educational institutions here —

well, three if you count Texas A&M [University]Kingsville — but in the city itself we have Texas A&M [University] Corpus Christi and Del Mar College. Those schools educate tomorrow’s leaders; they get their degrees and then most choose to move out of Corpus Christi. They move to Austin or San Antonio, Houston or Dallas, or elsewhere for that matter. So, one thing we — meaning everyone in the city and the region — have got to do is to create an environment that makes those young people want to stay right here in Corpus Christi. And I hope that all of us as the region’s leaders, not to mention us as fathers and mothers, will work on that goal together, to create that inviting environment for change and youth.” Under Strawbridge’s leadership, the port is also taking action to ensure some of those young people choose to stay in Corpus Christi to have a career opportunity in port management. Not surprisingly, Strawbridge draws strongly on his decade with SeaLand in his approach to the problem. “As we go about planning to attract a younger demographic, we’ve set the table for creating a culture that will really position the Port of Corpus Christi for success going [into] the next decade,” he says. “I’m a resultsoriented manager, but it can’t be results for results’ sake; it has to be results obtained within the construct of a certain set of core values. “We didn’t have a stated set of values at the port when I arrived, so we’ve gone about creating them. Those values are what we call our SEAPORT values. SEAPORT is an acronym that is easy for our folks to remember and understand. Starting with S JANUARY/FEBRUARY 2018  SHALE MAGAZINE

for safety — because of course safety of our people always comes first — empowerment, accountability, preparedness, optimism, respect and teamwork. Those are the stated organizational values that we have rolled out to our team, not only because we truly believe [in] adherence to those values, but they will hopefully help to create the same kind of trusting yet self-critical work environment that I was able to cut my teeth on when I was with SeaLand. “The gratitude that I have for that experience [at SeaLand] is something that I want to impart on the rest of the organization here. Priorities will always change in any workplace, but these values never change, and they’re about giving people that same kind of job-enriching experience. What you don’t want is people watching the clock and [who] can’t wait to get out of here; you want to create an environment where they can’t wait to get to work, and they’re excited about being here and the work they are engaged in. I believe we are on the right path to achieving that environment. We are in a natural transition right now. We’ve got a very experienced staff — our average age is 50, and our average tenure is over 12 years. The average American worker is 42 and the average tenure is four years, yet we’ve got people who’ve been working here

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nearly 40 years, a lot of 30-year-plus folks and a tremendous amount of 20-plus-year staff. We certainly don’t want those people walking out the door without impacting their knowledge and wisdom and mentoring tomorrow’s leaders. It’s the one thing that keeps me up at night, though the opportunity for tomorrow’s leaders today is very exciting.”

The Energy Port of the Americas When most people hear the word “port,” they think about ships. Ships coming in and out, ships being offloaded and reloaded, big ships, medium-size ships and small ships — in most of our minds, a port is that place where the ships are. But, as previously mentioned, the Port of Corpus Christi is about much more than ships. It’s about storage facilities, refineries, LNG export terminals, pipelines, rail and diversified cargoes. We asked Strawbridge to talk about how the port works and this great diversity of activities that takes place there each and every day. “What makes the port work is the fluidity and the connectivity of the different modalities that goods move. For example, when you look at a container port, what makes a container port work is its connection to roads,

highways and railroads due to the intermodal nature of containers. It’s no different with a port like Corpus Christi, only our ‘roads’ are primarily crude and natural gas pipelines. Rail is also important to us as is evidenced by the $50 million in rail improvements the Port of Corpus Christi has undertaken in the last four years. These investments improve our connectivity to Mexico and the U.S. Midwest for our agriculture customers, as well as new businesses such as [ExxonMobil-SABIC]. “The Intracoastal Waterway, which serves our barge movements, which are approximately 40 percent of our total tonnage, is mission critical. “All ports are waypoints in a supply chain. If your goods are stuck in a supply chain, they’re not passing the cash register. In other words, in a container market, if a container filled with Nike shoes is stuck somewhere in the supply chain, those shoes aren’t on the shelves and ready to be sold. It’s the same concept for us here — only with crude, [natural] gas and petroleum products — our primary function is to keep those supplies moving.” “If those pipelines bring oil or gas here and we don’t have enough storage capacity or enough deep draft channel access or enough docks, that’s a problem. Thus we tend to focus on the areas where we can make a

significant difference. Today, that’s ensuring we deepen the Corpus Christi Ship Channel, the main artery for the region’s commerce. We are a landlord port so we are always looking at developing available land for its highest and best use, keeping in mind a modalityagnostic approach. In other words, whether it’s coming in or out by pipe, by vessel, by rail or by road, we want to make sure that there are no bottlenecks in our system.” It is clear that the port is not just about ships, but transporting petroleum products via ship and barge is the port’s major and most rapidly expanding business. When we noted that Jarl Pedersen, the port’s Chief Commercial Officer, told an audience at a recent conference that more than 70 percent of the crude oil coming into the Port of Corpus Christi is then exported to be refined, Strawbridge was eager to expand on the subject. “We are an energy port, and three or four years ago we decided to start referring to ourselves as “The Energy Port of the Americas,” he says. “That was a very bold step for us to take, but we have since demonstrated that we are indeed the energy port of America. We have become the largest port for the export of U.S.-produced crude, and not by a little but by a lot.” He notes that the EIA recently reported that the U.S. is currently exporting almost 2 million BOPD.

“Talk about that, nearly 2 million barrels, almost half of that goes right out of the Port of Corpus Christi.” The EIA’s projection that the volume of U.S. crude exports will double by 2020 is not at all intimidating to Strawbridge, who says, “We believe that if you looked at it going from 2 million to 4 million barrels per day, this interpolates into nearly double our current production at the Port of Corpus Christi, possibly more.” Robert Duvall’s character in the movie True Grit, Ned Pepper, might call that “bold talk,” but given the Port of Corpus Christi’s demonstrated ability to manage great expansion and change, it would probably be a mistake to doubt Strawbridge. “We’re obviously in a growth mode right now,” Strawbridge continues, “I’ve managed growth, I’ve managed steady state, and I’ve managed decline. I will tell you, the hardest thing to do is manage growth because you don’t know exactly how long it’s going to grow, how far you’re going to go, or how much capital you’re going to need. “But all the signals we’re getting from our customers and from the market today are really pointing toward continuing to invest for our future, and as stewards of these public assets we need to take full advantage of those opportunities when they present themselves. We’re a government agency, and

as a government agency these are public assets. What we want to be and what we aspire to be, and what I think we already are is a shining example of government that works in a time when we so rarely have the opportunity to say that.” “That’s what the Port of Corpus Christi represents today. We fund all these investments from revenues generated through users of the port. While the port does have tax authority, we’ve never exercised that authority in our 91-year history and we have no intention of exercising it at this point. We are going to continue to operate as a business — a for-profit business — but unlike the private companies that distribute [their] profits to [their] shareholders, our profits go right back into the surrounding infrastructure. Our shareholders are the users of the port, and they all benefit from us reinvesting those earnings back into the infrastructure to support their growing businesses.” A government agency with its own taxing authority that has never taxed anyone in 91 years. What a concept.

Building Bridges, Literally One of the most visible investments of the port’s funds over the next few years will

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be the project that recently broke ground that will replace the existing 138-foot-high crossharbor bridge with a new, even higher bridge that will have sufficient clearance (more than 200 feet) to allow the passage of the largest Panama Canal-compliant super-tankers. Set for completion in 2021, it is a major project that is critical to the port’s plans for future growth. It is a project that is near and dear to Strawbridge’s heart, and a project that, without the proactive steps taken by the Port of Corpus Christi Commission, might not have happened. “Well, let me be very clear about that,” he begins, “it’s an extremely important infrastructure project for the region. It’s [close to] a billion-dollar bridge funded by TXDoT, by the Federal Highway Administration [FHWA], and by the Port Authority, which approved $85 million worth of cash and land to be dedicated to the project. Had it not been for the bold actions taken by the Port of Corpus Christi Commission in 2015, that project would likely have disappeared. The Port Commission saved that project, and we’re very proud of that.” The back story: A few years ago, residents of a neighborhood that would have been impacted by the construction project and the right of way for the new bridge filed a civil rights complaint in federal court against the Federal Highway Administration. At that point, a lot of finger-pointing ensued. “Essentially, the feds said, ‘Hey, this is a

state problem,’” Strawbridge chuckles, “And TXDoT said, ‘This is a regional problem.’ When it got to that point, it was essentially made clear to us that if we didn’t resolve that problem here at a local level, that the billion dollars of funding earmarked for the bridge were going to bet reprogrammed elsewhere. Dallas would have loved to have those funds, Austin would have loved to have those dollars, Houston certainly would have grabbed that money. “So, the Port Commission took a radical step to reach an agreement with the neighborhood community ... in the form of a voluntary buyout of over 500 properties. Never been done before anywhere in the country; and the fact that I was able to take that responsibility with the wonderful staff that we have and put that commitment to the actionable program that we have today is just a testament to the overall commitment by the port, by port staff and their recognition of the value of this new bridge to the region. “I came to the Port of Corpus Christi in July of 2015, and it was just a few months later, in October, that the Commission took the decision and reached this momentous agreement with FHWA and TXDoT. To see a port commission take that leadership role really signaled to me that I was in the right place, that this was a pro-growth, but a responsible growth, kind of governance. I’ve

served many boards. I’ve served some good boards, and I’ve served some bad boards. And I will say that I am in the right place right now, because I serve at the pleasure of one of the best boards that I’ve ever been affiliated with. So, it’s just another reason why I feel extremely fortunate that I’ve landed here in Corpus Christi.”

Responding to Hurricane Harvey If you believed the news media reports about the landfall of Hurricane Harvey last August, you would think the city of Corpus Christi got lucky. Most reports claimed it had dodged a bullet, because the eye of the storm crossed into Texas right over the coastal town of Rockport about 20 miles up the coast, putting Corpus on the so-called “dry side” of the storm. But no one in Corpus Christi thought they had dodged a bullet with Harvey, which had very significant impacts on the city. At one point, the storm caused a large drill ship to come loose from its moorings, therefore blocking the entrance to the port for several days. We asked Strawbridge to talk about how the port responded to the challenges the storm created. “I was in the emergency operations center when the storm hit, where we were sheltered

DON’T EV ER WASTE A CHANCE TO

WANDER.

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in place. We had our first responders, our entire police force, our emergency management team and our incident management team all here during the storm. And we were here for five days. I didn’t sleep in my own bed for five days. I’ve never gone through a hurricane before. I’ve done a fair amount of incident management training and have been through a couple of significant incidents.” He laughs, “So I will tell you, this was a new experience. “When I got here in 2015, the port didn’t have an emergency management coordinator, didn’t have a robust emergency management platform. So, having started from where we were two years ago to how we were prepared for Hurricane Harvey, I couldn’t have been more pleased. The team really came together to respond to the demands of that storm. We got the call on that vessel [the drill ship mentioned previously] about 1:30 in the morning and the call was not so much on the ship; it was on the two tugs that had been sunk by the drill ship as the ship broke free from its moorings. “There was no crew on that drill ship — it was being held in place by the two tugs. Our concern, first and foremost, was for the safety of the crews of those two tugs; and we worked in coordination with the Coast Guard to try to stage communication with those crews. When you’re in the middle of a storm,

though, nobody is going to respond. But the good news is, at first daylight the Coast Guard had helicopters out there and we had our boats out there, and those crews were safely removed from those tugs.” When it came to getting the channel cleared, Strawbridge and his team worked closely with their federal partners. “The [Army] Corps of Engineers has responsibility for maintaining the channel, but the United States Coast Guard has responsibility for the security of the channel. So, with the Coast Guard, who has their incident command center set up over at the fairgrounds, we had a port representative at their command center. The reality is that we all have to work together on incidents such as this. The port doesn’t operate in a vacuum. The port is a regional asset, and we rely on all of our partners at the federal, state and local levels. Through what I think was great coordination with all of those partners, we were able to solve that issue, get that drill ship removed from the channel and safely over to Gulf Marine Fabricators, where it could be prepared for its journey to Brownsville to be scrapped. “At the end of the day, that’s where the port, the value of the port, really comes into action. We had a barge fire recently and unfortunately there were two fatalities. I got the call on that incident at 4:30 in the morning when it happened. I was here shortly

thereafter, as was our Director of Operations, and we stayed here making sure that the response teams had everything they needed. “And that’s really my job: to ensure that the professionals that have been hired to do the job that they’ve been hired to do have all the resources they need; otherwise, I stay out of their way and make sure that they’ve got a fresh pot of coffee on.” Andrew Carnegie is quoted as having once said, “No man will make a great leader who wants to do it all himself or get all the credit for doing it.” He could well have been talking about Sean Strawbridge.

About the author: David Blackmon is Associate Editor for Oil and Gas for SHALE Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles, the last 22 years engaged in public policy issues at the state and national levels. Contact David Blackmon at david.blackmon@shalemag.com.

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INDUSTRY

Why You Should Take the Appalachian Basin Seriously By: Jackie Stewart

or years, shale development in the Appalachian Basin has been routinely — and erroneously — met with skepticism. Anti-fracing activists and naysayers from national and regional media outlets have, at times, been quick to discount both the Marcellus and Utica shales with headlines like “Shale Boom? What Happened?” “Ohio’s Utica Shale Boom Is Not Guaranteed” and others implying the plays would be a “bust.” Frankly, given the decades of job loss and devastation from manufacturing and other industries in the region, it’s not surprising there has been a certain level of skepticism over the prospect of long-term shale development in Pennsylvania, West Virginia and Ohio. But as numerous recent reports have made clear, those doubts are unfounded. The fact is the Appalachian Basin’s Marcellus and Utica shales are propelling U.S. natural gas development to new heights and should be taken seriously. In fact, that’s exactly what a recent report from the Energy Information Administration (EIA) highlighted. In the report, the EIA described how the Appalachian Basin has been driving the growth of natural gas in the United States since 2012. And not just by a small amount — the basin has increased natural gas production by more than 14 billion cubic feet per day (Bcf/d) since 2012, growing from

7.8 Bcf/d in 2012 to an incredible 23.8 Bcf/d in 2017. No other region of the country has seen the level of growth in natural gas production that the Appalachian Basin has experienced over the last five years. But how much gas is that really? The wells in the Appalachian Basin produce enough gas every single day to run 85,680 televisions nonstop for a century, provide electricity to 578,697 houses for a year, take a crosscountry road trip over 2 million times and travel to the moon and back 13,304 times! Yes, the little engine that could is not just proving the critics wrong, but as Deloitte recently explained, it is completely blowing their doubts out of the water as not only a top producer of natural gas nationally, but globally as well. If the Appalachian Basin were a country, today only the United States and Russia would produce more natural gas. It’s a sign of how far the basin has come since the development of the Marcellus Shale began a little more than a decade ago. And from what we can tell, this is only the beginning, yet already it’s having major positive impacts on the tri-state area. The significance of shale development in this region is a big deal for many reasons. For one, it’s having immediate benefits on local communities throughout the region in the form of higher tax revenues, improved

roads and lower consumer bills. Having an ample supply of natural gas feedstock is attracting manufacturers to return to the Rust Belt, even helping to bring steel manufacturing back to the region. Serious talks are underway to build an Appalachian storage hub for natural gas liquids that would make the region even more attractive to manufacturers. Further, the abundance of shale is inspiring unheard-of investment in the region for long-term, job-creating projects. We’re talking not one, but several ethane cracker plants could soon be coming to the tri-state area. That’s truly incredible given these types of plants haven’t been built outside of the Gulf of Mexico in decades. Appalachia is also already receiving investment dollars for other major projects. For instance, plans are in the works for more than $23 billion worth of new federally regulated pipelines, and more than $21 billion for new natural gas-fired power plants that are helping to lower carbon emissions in the region. When President Trump visited China in November and discussed potential for Chinese investment in the U.S., it was not the traditional oilrich states that interested investors. No, the biggest recipient of the total $250 billion discussed is slated to come to the Appalachian Basin. West Virginia is in the process of securing $83.7 billion in investments for shale development and related chemical manufacturing. Another reason why the Appalachian Basin should be taken seriously is the incredible political influence the region continues to have on energy policy and political outcomes, given that both Ohio and Pennsylvania are major political battleground states with significant economies of scale and sectors of influence. Successful, long-term development in this region of the country — driven by shale — could have sweeping impacts on the upcoming midterm and gubernatorial elections, and even the next presidential election. We’ve already seen the impact this development had on the immediate past presidential election, which wasn’t even focused on the promise of shale development bringing the region back from the brink of economic collapse. In fact, shale was only marginally brought up by politicians making their way through swing states. It was certainly not a central talking point, as it wasn’t a sexy enough issue nationwide to overcome the politics that were at the forefront for other energy sources. However, while politicians have been debating how to save certain energy industries, oil and natural gas operators in West Virginia, Pennsylvania and Ohio have been quietly leading the nation in natural gas production. And, in doing so, it has been shale (and only shale) that has helped to save communities along the Ohio River with virtually no pomp and circumstance. All of these reasons demonstrate that shale development in Appalachia is here to stay and is now a major player on the national and global stage. After years of litigating the Appalachian Basin, the jury is out — it’s time to take the Marcellus and Utica shales seriously.

About the author: Jackie Stewart is a Senior Director in FTI Consulting’s Strategic Communications segment. She is also part of the segment’s Public Affairs practice and Energy and Natural Resources industry practice. Based in Ohio, she is also Field Director for Energy in Depth. Stewart has more than a decade of experience in government and community relations, public policy and event management.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

INDUSTRY

2018 Should Be All About Stability for the Oil Markets

s we move into 2018, the factors that determine future crude oil prices are setting up almost exactly as they did going into 2017. The single biggest puzzle piece went into place on November 30, when OPEC and Russia agreed to extend their joint export limitation agreement through the end of 2018. That move alone will have a tremendous stabilizing effect on the oil markets. But before we look at other factors that will influence oil prices for the year, let’s review where we were a year ago, and what happened during 2017 that led us to this point. As we entered 2017, the price for WTI hovered in the $53 per barrel (BBL) range. OPEC had begun to implement its new export limitation agreement, and market signals — other than oil inventories in the U.S., which remained persistently high — were generally bullish. As a result of the strengthening price for crude that took place throughout the fourth quarter of 2016, the large independent corporate producers who drill the overwhelming majority of shale wells in the

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U.S. put strong drilling budgets in place for the first half of 2017. As they began to execute on those budgets starting in January, the U.S. rig count began to rise rapidly. By the end of February, U.S. producers had activated about 200 additional drilling rigs, and they added another 100 by the end of April. As I wrote at the time for Forbes.com, producers who had held back their drilling plans as the crude price collapsed from 2014 through 2016 could not wait to get back to drilling at the first sign of stronger prices. Of course, all that drilling of U.S. shale wells very predictably had an impact on the crude price; and that impact was to move it steadily back down to around $44/BBL by April, which is the month when these corporate producers typically plan their drilling budgets for the second half of the year. The upstream industry has always been and always will be pricesensitive. Thus, the significantly lower crude price in April 2016 led inevitably to scaleddown drilling budgets being implemented for the second half of 2017.

On June 19, I wrote a piece for Forbes.com in which I said the following: “The mid-year review processes ... are now coming to conclusions, and as a result of those reviews, we can expect the domestic rig count to level off and even perhaps decline slightly over the second half of 2017. Indeed, should the price for WTI fall below the $40/bbl level for any significant period of weeks, as some analysts are projecting, the rig count could fall fairly significantly, by ~100 rigs or slightly more. But the appetite within the mid-size and large independent producers to keep drilling remains strong after two solid years of drilling almost nothing other than leasehold obligations, so we should not expect a huge dip in the rig count and the job-losses that would entail. We should also expect to see the large monthly increases in overall U.S. oil production begin to tail off during the second half of this year.” And that’s exactly what happened. The Baker Hughes oil rig count, which had reached above 760 during the first half of 2017, leveled off starting in July; and then slowly declined to around 730 in early November. Drilling activity remained fairly strong, but not as strong as during the first half of the year, enabling overall U.S. production to continue rising at a slower pace as well. In the meantime, OPEC countries’ compliance with the export limitation agreement steadily increased as the year progressed; and by October, market analysts were starting to reach a general consensus that the global crude oil market had finally re-balanced after three years of a persistent glut of supply. This re-balancing of the market in turn has led to reductions in crude oil inventories not just in the U.S. but all over the world. In early November, reports of crude in floating storage were even beginning to fall, a strong indicator that the global glut had been resolved. The end result of all that activity, combined with the extension of the OPEC-Russia export limitation agreement, was a steadily rising crude price throughout the fourth quarter of 2017. As we enter 2018, most analysts are

ARTEMEGOROV/BIGSTOCK.COM

By: David Blackmon

generally bullish on the prospects for stronger crude prices to endure throughout the year. But, you might ask, won’t U.S. shale producers just respond to this stronger price picture exactly as they did in 2017, with stronger drilling budgets and more and more newly activated drilling rigs? The answer to that question is most likely yes, but not exactly. I know that may sound confusing, so let me clarify. Yes, we should expect shale drillers to respond to this stronger price picture as they did a year ago. Upstream companies will always respond to higher prices with more drilling. That is, after all, what they are in business to do. But we should expect that response to be somewhat muted this year, due to a couple of significant factors: Factor 1: Lower tension level. We have to remember that as we went into 2017, most producing companies were experiencing an intense pent-up internal desire to start drilling wells again, after having gone through 30 months of slashing drilling budgets in response to what had felt like an unending decline in crude prices. This pent-up desire to drill wells likely led to drilling budgets for the first half of 2017 that were higher than advisable or necessary for many of these companies. Factor 2: Renewed focus on enhancing investor returns. As we entered 2017, companies were under tremendous pressure from creditors and the markets to begin increasing production and reserves again after the previous two years. This was another big reason why we saw a 40 percent increase in the number of active rigs during the first 10 weeks of the year. But as we moved into the third quarter of 2017, management teams at corporate producers found themselves under pressure to shift focus from increasing production to enhancing returns to investors. As a result, we saw more and more companies begin to shift capital away from drilling wells and into things like stock buy-back programs. This was a major driver of the declining rig count during August and September, and why that rig count moved only slightly upward as oil prices rose dramatically during October and November. So, in other words, the difference we can expect between the first half of 2017 and that of 2018 is one of magnitude. Yes, shale producers’ drilling budgets will rise in 2018, but not as much as they did in early 2017. Yes, the rig count and drilling pace will increase during the first few months of this year, but not at the same rate they did in the first quarter of 2017. And yes, this increased drilling activity in the U.S. will inevitably place downward pressure on the price for crude, but not the same level of pressure we saw in early 2017. Bottom line, expect 2018 to follow a similar progression as we saw in 2017, but in a significantly more stable way. That should be good news for everyone.

About the author: David Blackmon is the Associate Editor for Oil and Gas for SHALE Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles, the last 22 years engaged in public policy issues at the state and national levels. Contact David Blackmon at david.blackmon@shalemag.com.

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INDUSTRY

Energy Sector Vulnerable to Cyber Threats By: Edgard Capdevielle

Cyber Threats in the Sector Continue to Rise Cyber threats to critical operational technology systems can create devastating consequences for the physical world, resulting in equipment failure, power outages, or even fires and explosions within affected plants. A survey conducted by SANS found that companies feel their control systems are more threatened than a year ago. Twenty-four percent of respondents had moved from a moderate or low threat-level perception to high or even severe/critical levels. Respondents ranked external threats as the top threat vector (61 percent), internal or unintentional threats as second (42 percent), and malware spreading across the infrastructure indiscriminately as third (41 percent). The survey also found that security for ICS had not improved in various areas and many

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

high-priority problems identified in past surveys were still prevalent. Critical infrastructure owners, hardware vendors, information security experts and government officials need to work together to create industry security programs that improve cyber resiliency and ultimately keep everyone safe. Securing Industrial Control Systems While the energy industry has made significant improvements to cybersecurity systems, the combination of rapidly advancing, digitally connected industrial components and an escalating threat landscape proves there is still more work to be done to protect the safety and productivity of these operations. When it comes to oil and gas plants, reliability and workforce safety are of the highest importance. To ensure that these areas are kept secure, cybersecurity teams need to consider how new advanced technologies can help them take a step toward safer and more reliable critical infrastructure. For example, solutions are now available that use machine learning and artificial intelligence to quickly learn and model the large, heterogeneous ICS environment used to run energy plants. These developments help overcome the challenges of dealing with the complexities of these systems, which make it virtually impossible for humans to manually track and identify signs of compromise or irregularities left behind by cyber attackers or unintentional threats. These powerful solutions can monitor networks in real time and rapidly detect any changes from baseline behavior, thus facilitating containment and remediation efforts. Machine learning automatically discovers, in real time, the industrial network, including its components, connections and topology. Machine learning is then supplemented with advanced learning capabilities (artificial intelligence) to develop process and security profiles, mapping relationships and changes. The powerful combination of machine learning and artificial intelligence offers operational efficiency benefits by consolidating high volumes of alerts into context-aware incidents. Indeed, completing this work manually

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ndustrial control systems (ICS) are a vital part of the country’s critical infrastructure as they facilitate essential services within energy plants — including oil and gas. Like many other sectors, critical infrastructure is increasing its reliance on smart devices and automation, and this exposes organizations’ infrastructure to new threats and vulnerabilities. A successful attack on ICS components can have an enormous impact, causing operational shutdowns and damaged equipment or property, and possibly putting workforce safety at risk. Planned attacks are one of the greatest threats, accented by high-profile cases like Dragonfly, Stuxnet and the 2015 and 2016 attacks on the Ukrainian power grid. However, it’s not just malicious individuals who cause outages; as many cyber threats, from weak passwords to open ports (whether caused intentionally or the result of unintentional mistakes), can negatively impact productivity. To protect reliability, ICS operators need to stay up-to-date with both cybersecurity challenges and the methods available to monitor and mitigate threats.

would not only be time-consuming, but also the results would be error-prone. By baselining devices on the network and monitoring how they impact process behavior, any malfunctions, misconfigurations and irregularities can be quickly spotted, preventing frustrating service disruptions and even expensive repairs or loss of revenue. This intelligence can also speed up investigations of incidents to contain attacks before significant damage can occur, without needing to add additional skilled staff, which is particularly difficult, considering the current shortage of cyber skills in the job market. Oil and gas organizations help make up the backbone of today’s economy, and the rise of digitalization in this sector means leaving them exposed is not an option. Even though the oil and gas industry has been more progressive and proactive about cybersecurity than other sectors, there is still significant room for improvement. Innovation and implementation of advanced cybersecurity technologies, such as machine learning and artificial intelligence, are important steps toward safe and reliable critical infrastructure. By establishing a baseline of ICS network communications and conducting active monitoring for anomalies, anything that detracts from expected behavioral patterns can be flagged and addressed before significant damage has occurred.

About the author: Edgard Capdevielle has an extensive background in cybersecurity and the industrial arena, giving him unique insight into the complex challenges the sector faces. As CEO of Nozomi Networks, Capdevielle has a front-row seat to the cybersecurity challenges facing infrastructure operators around the globe and the role technology innovation is playing to protect critical systems from escalating threats. He is a proven thought leader in the security space and is often invited to share his perspective in panel discussions and as a keynote speaker. His insights and views have been cited by media, and he has published a number of articles globally.

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Prior to joining Nozomi Networks, Capdevielle held positions with Imperva, Data Domain and EMC. He has an MBA from the University of California, Berkeley and a bachelor’s degree in computer science and electrical engineering from Vanderbilt University. For more information on cybersecurity solutions for industrial control networks, call 800-314-6114 or visit www.nozominetworks.com.

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JANUARY/FEBRUARY 2018  SHALE MAGAZINE

INDUSTRY

The Big Apple Benefits From Pennsylvania Shale Gas By: Tom Shepstone, Principal at Shepstone Management Company Inc.

ew York City residents worry a lot about that urban air they breathe. Several years ago they started addressing the problem. The NYC Clean Heat program was employed in cleaning up Big Apple air and they’ve done it, thanks to fracing and the pipelines that deliver Marcellus Shale gas from Pennsylvania. New York City is dependent on natural gas; some 81 percent of the Con Edison supply came from Pennsylvania shale gas in 2015. In June 2017, the Energy Committee of the New York Building Congress issued a report titled Electricity Outlook: Powering New York City’s Future that unequivocally articulated the need for more pipelines to deliver that gas to the city: “New pipeline capacity for natural gas with direct connection to New York City and Westchester County will be necessary to provide sufficient gas supplies to meet the expected growth in demand. FERC [the Federal Energy Regulatory Commission] should promptly approve the recent application for Transco’s [Williams’] Northeast Supply Enhancement project. In addition, the State and City should work together to convene a working group of key stakeholders, including utilities and natural gas suppliers, to develop a strategy for the planning and approval of new natural gas pipelines directly into New York City.” The Mayor’s office also noted the success of NYC’s program to convert buildings burning heavy heating oil to “cleaner burning fuel” (the politically correct code for natural gas produced by fracing). It now plans a second stage of the effort, which originally focused on converting boilers using No. 6 oil, and will change the emphasis to conversion of boilers burning No. 4 oil: “The conversion program began under the Bloomberg Administration and as all 5,300 buildings have now switched to a cleaner

New York City is dependent on natural gas; some 81 percent of the Con Edison supply came from Pennsylvania shale gas in 2015 burning fuel, there has been a substantial reduction in air pollution, which models show will prevent 210 premature deaths and 540 hospitalizations each year. Neighborhoods with the highest density of boiler conversions — such as northern Manhattan, northern Queens, and the South Bronx — saw the greatest improvement in air quality with the greatest proportion of health benefits occurring in vulnerable, high poverty areas. In addition, the heating oil conversions have reduced citywide greenhouse gas (GHG) emissions by an estimated 800,000 metric tons of carbon dioxide equivalent ... Building on the success of NYC Clean Heat and DEP’s heating oil regulations, in September 2015, the City launched the NYC Retrofit Accelerator ... helping building owners convert off of No. 4 heavy heating oil. ... [It] is expected to reduce citywide GHG emissions by almost one million metric tons and save New Yorkers $350 million in utility costs annually by 2025.” We can clearly expect emissions to

further decline going forward, once again due to fracing and those pipelines delivering Marcellus Shale gas to the city. Finally, a report from the Urban Green Council tells us that, between 2010 and 2015, buildings studied cut their energy use by more than 10 percent and their total greenhouse gas emissions by almost 14 percent: “By 2015, those buildings had reduced their heavy fuel energy use by 92 percent. Buildings switching away from those fuel oils replaced them with natural gas or else fuel oil numbers 2 and 4. And though natural gas use in these buildings nearly tripled over the six years, overall energy use dropped — partly due to efficiencies afforded by new equipment and building improvements.” Williams’ proposed Northeast Supply Enhancement project and other existing and proposed pipelines will help supply Pennsylvania shale gas to continue the progress, improving the health of all New Yorkers. Finally, notice where the biggest benefits go — to the highest poverty areas where there is a ton of public housing served with aging and temporary boilers. Those boilers, in addition to being carbon dioxide and smog manufacturing devices, are noisy and expensive to operate. We’ll likely see much of this public housing converted to natural gas to the everlasting benefit of residents, taxpayers and the environment. Given NYC’s ever-growing consumption of natural gas, the limits of existing pipeline infrastructure and the great benefits to the poor, making pipeline infrastructure improvements that will deliver more natural gas to the city is critical. That’s what the Northeast Supply Enhancement project and others like it are all about, even if the beneficiaries sometimes choke on the words “natural gas” and “fracing.”

About the author: Tom Shepstone is the owner of Shepstone Management Company Inc., a planning and research consulting firm located in northeastern Pennsylvania. He has advised many counties in both New York state and Pennsylvania, as well as other states, on economic development strategies, especially as they relate to rural and agricultural areas. He is also the publisher of NaturalGasNow.org, a blog focused on the same objective.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

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INDUSTRY

PESA Provides Value to Its Members By: Leslie Shockley Beyer, PESA President

he Petroleum Equipment & Services Association (PESA) is the national trade association representing 200 companies that provide the services, technology, equipment and expertise necessary to safely and efficiently explore and produce oil and natural gas. Serving as the unified voice for the sector, and advocating for and supporting the sector’s achievements in job creation, technological innovation and economic stability, PESA seeks opportunities to further empower its members and support this vital sector. The organization’s ongoing work is embodied in its mantra: “Train, Elevate, Network,” which translates into a broad range of programs and services focused on workforce development, advocacy and business intelligence. In 2018, PESA will continue to add opportunities in support of these principles. The association’s workforce development and training programs have been a valuable resource to its members, particularly during the challenging times of the last couple of years when most companies were hard-pressed to prioritize resources for training. In 2017, PESA conducted more than 70 seminars, training programs and leadership forums; and the schedule for 2018 is even more robust. The workforce development programs are designed to cultivate talent, strengthening skills and competitiveness. Another priority for PESA is to elevate how the oilfield service sector is perceived. The organization engages with policymakers on legislation and regulations that impact the safety and vitality of the energy industry. As federal and state agencies move forward in implementing the administration’s agenda, PESA is increasing awareness of the issues that impact our sector and promoting education in the disciplines that drive the competitiveness of our workforce. A valuable service that underpins all PESA events, programs and activities is the opportunity to network across the supply chain with key customers and industry thought leaders. In addition to building relationships with colleagues and clients, events are focused on keeping members up-to-date with trends and issues impacting the industry. In order to expand the business intelligence offered to the sector, PESA has identified targeted regional domestic and global locations, creating group settings where members can address region-specific issues through an influential industry group, engage in best-practice sharing within antitrust compliance and receive sector-specific industry intelligence. Domestically, the PESA districts are the Gulf Coast, Mid-Continent/ Rockies, Northeast and West TX/South TX. In 2017, regional district meetings were held in Midland and Odessa, Texas; Oklahoma City; and

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SHALE MAGAZINE  JANUARY/FEBRUARY 2018

Lafayette, Louisiana. In 2018, PESA will continue to grow in West Texas and the Mid-Continent regions, adding events in Midland and Denver, as well as expanding the Northeast district with a meeting in Pittsburgh. Regional District Chairmen promote PESA as a resource in their districts, building strategic relationships with regional stakeholders as appropriate, and hold membership meetings with executive-level speakers from leading exploration and production companies. Utilizing a regional district growth model to scale for success in targeted international locations, the association implemented a phased approach with strategic intent for global growth starting with the Mexico market. PESA also hosted a Middle East Regional District Meeting in Abu Dhabi, United Arab Emirates, on Nov. 14, bringing in an operator executive and U.S. diplomatic officials. In 2018, the association will continue to identify ways to serve members in Mexico, develop a Middle East Steering Committee and add a meeting in Asia. PESA exists and prospers because it offers specific benefits to its members that cannot be realized individually — it has done this successfully for more than eight decades and will continue to do so in the years ahead. Companies across the oilfield service, supply and manufacturing sector see real value from PESA and know the association is working to strengthen both individual companies and the entire sector. PESA is confident that with the right focus, continued innovation and a commitment to working together, we can successfully navigate the challenges we face now and in the future.

For more information about PESA, visit www.pesa.org.

Serving as the unified voice for the sector, and advocating for and supporting the sector’s achievements in job creation, technological innovation and economic stability, PESA seeks opportunities to further empower its members and support this vital sector

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INDUSTRY

Resolved: A Common-Sense Energy Policy By: Bill Keffer

H In 2002, the Texas House of Representatives elected a Republican majority for the first time since Reconstruction (i.e., 130 years!)

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

appy New Year! It’s 2018 — and it’s almost a miracle that we made it here. Let’s face it; 2017 was a year like no other in recent history. Donald Trump promised to bring disruption to the establishment modus operandi that has prevailed in Washington, D.C., for decades. If on no other point, surely Americans of all political stripes can agree that his administration has delivered on that promise. The deeper question is whether, after the dust settles, the disruption will have resulted in net progress or net loss. There are those who defend each and every decision and tweet he has made; there are those who would have him impeached and removed from office yesterday; and there are those who wish that the pursuit of prudent policy didn’t always have to be accompanied by constant editorial, if not outright inflammatory and obnoxious, commentary more befitting a labor-union boss playing late-night poker with pals, rather than the latest occupant of the office previously held by Washington, Jefferson, Lincoln, Coolidge, Eisenhower and Reagan. In 2002, the Texas House of Representatives elected a Republican majority for the first time since Reconstruction (i.e., 130 years!). That also happened to be my freshman term as a state representative from northeast Dallas. A Republican majority meant the election of a Republican Speaker of the House for the first time in that same very, very long time. Displacing Texas Democrats from being in charge of the Texas House was extremely difficult for those Democrat House members to accept; being in charge of the House and an ambitious legislative agenda for the first time in more than a century was an equally unfamiliar and difficult challenge for House Republicans. In short, it was a tectonic disruption in what had become a predictable status quo. There were those who had been living and waiting for such an opportunity; and there were those who did everything in their power to block the

Republican agenda — even by running away from Austin, Texas, to Ardmore, Oklahoma, and Albuquerque, New Mexico, to break quorum and prevent any and all legislative business from being conducted. The Democrats actually tried to disrupt the Republican disrupters. They failed in the short term; the tragedy is that, in many ways, the Republican disrupters have failed in the longer term. There are potentially salutary benefits to be realized from political disruption. But, like fire, when misused or uncontrolled, political disruption can do a lot of damage. No one can credibly provide historical commentary on a moment in history when we are still in that moment, so it remains to be seen, at a much later date, whether the Trump disruption (call it the “distrumption”) will have resulted in a healthier America or something else. Of course, any presidency is multifaceted, and this presidency is no different. On energy policy, it would be difficult to know how the Trump administration could have done much more in 12 months to reverse the burdensome regulatory trends that the Obama administration had been pursuing for the previous eight years. Not only has the message been aggressive and constant, but an impressive number of tangible steps have been taken to implement that message. The initial shock from realizing that a politician proclaiming pro-energy policies was really elected — and is now actually following through on those proclamations — has inspired me to compile an energy wish list, which might advance from its usual place in the “fantasy” category to something closer to “within the realm of possibility.” So, in the spirit of the new year, here are some energy-related resolutions for President Trump to post on the Oval Office bulletin board: 1. Open the Arctic National Wildlife Refuge (ANWR) to oil and gas exploration and development. This controversy has been going on for almost 30 years. In 1989, a bill to

do just that was on its way to enactment into law — and then the Exxon Valdez decided to inconveniently alter the course of history. Because of that event, there was no more discussion on ANWR, as if to say that one oil spill had forever rendered ANWR off limits to development. In the meantime, oil production in Alaska has declined, the Trans-Alaska Pipeline is operating at dangerously low capacity, and Alaskans are starting to fear for their economic health. National, state and local Alaskan government officials are virtually unanimous in supporting opening ANWR to oil development.

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2. Open the eastern Gulf of Mexico, the Atlantic coast, the Pacific coast and the rest of the Alaskan coast to oil and gas development. These areas have historically been off limits to development, in response to demands by environmentalists (and wealthy political donors with expensive ocean-view estates) to keep the horizon pristine and free of unsightly oil-production platforms. By the way, these same so-called environmentalists seem to be equally opposed to offshore wind farms. Apparently, they’re all for the benefits of energy — they just want it generated somewhere else. 3. Fast-track approval, and ensure the protection, of all LNGexport facilities, oil refineries and interstate pipelines. The U.S. now produces the most oil and natural gas in the world. We are on our way to becoming a net exporting nation for oil and natural gas. A global market is thirsting for our abundant and affordable reserves. The more we are able to fill that role for other countries, the more successful we will be in using our natural resources as a geopolitical asset. Not only will we diminish our dependence on countries that have been erratic, if not hostile, toward us, but we will be able to help our allies to be less dependent on those countries, as well. 4. Let the market determine preferred energy sources. Despite the repeated efforts of our elite class to impose uneconomic energy sources on us by spending tax dollars to excess while attempting to choke off energy sources that are unquestionably more abundant, affordable and powerful, the unalterable laws of economics cannot be denied. Free-thinking people will never choose an uneconomic option. Let all energy sources stand on their own, without artificial tax subsidies or cost distortions. The new year is the traditional time to take stock of where you are and where you would like to go in the next 12 months. U.S. energy policy, for far too long, has usually been a caricature of how to snatch defeat from the jaws of victory. We have more than enough natural resources and are the clear leader in energy technology. But do we have the common sense and selfconfidence to pursue and achieve American energy dominance? Well, that might require a little more distrumption.

About the author: Bill Keffer is a contributing columnist to SHALE Magazine. He teaches at the Texas Tech University School of Law and continues to consult. He served in the Texas Legislature from 2003 to 2007.

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INDUSTRY

South Texas Energy & Economic Roundtable Hosts Fifth Annual Eagle Ford Excellence Awards Special to SHALE

beyond in emergency response and continued support in the region. The keynote address was provided by energy analyst and consultant David Blackmon, who has enjoyed a 38-year career in the oil and gas industry. Blackmon has spent the past 25 years in the public policy arena, managing regulatory and legislative issues for various companies. He is Associate Editor for Oil and Gas at SHALE, a contributor on energy-related matters at Forbes.com and a feature writer for World Oil magazine. Judges for the 2017 Eagle Ford Excellence Awards were Dan Titerle, San Antonio Water System; Thomas Tunstall, Ph.D., The University of Texas at San Antonio; and George Wilborn, CPS Energy. Recipients of the 2017 Eagle Ford Excellence Awards: Safety Performance For companies or organizations with less than 250 employees: Tierra Lease Service LLC For companies or organizations with more than 250 employees: Sun Coast Resources Community and Social Investment For companies or organizations with less than 250 employees: Energy Waste For companies or organizations with more than 250 employees: Voestalpine Texas LLC Environmental Stewardship For companies or organizations with less than 250 employees: R360 Environmental Solutions For companies or organizations with more than 250 employees: Halliburton Impact Award Falls City Education Foundation San Antonio River Authority

The South Texas Energy & Economic Roundtable (STEER) is the leading Eagle Ford Shale resource in the region and is the primary coordinator for communication and public advocacy surrounding the oil and natural gas industry in South Texas. STEER serves as the bridge connecting the industry and communities throughout South Texas to ensure positive collaboration and communication surrounding the activities associated with energy production in the Eagle Ford Shale. For more information about STEER, visit www.steer.com.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF STEER

he winners of STEER’s fifth annual Eagle Ford Excellence Awards have been announced. This year’s winners are Voestalpine Texas LLC, Energy Waste, Halliburton, R360 Environmental Solutions, Sun Coast Resources, Tierra Lease Service LLC, Falls City Education Foundation and San Antonio River Authority. STEER has the distinct pleasure of honoring these innovative and generous companies year after year for their work in protecting the environment, making safety a top priority and giving back to the communities in which they live and work. Through the ups and downs of the oil and gas industry in the past few years, it’s important to pause and honor companies that have remained focused on safety, environmental protection and community involvement. It’s important, particularly in times like this, to persevere and stay true to your core principles. The companies honored at the Eagle Ford Excellence Awards ceremony encompass these values as much as STEER. This awards ceremony provides both oil and gas companies and their contractors with an opportunity to be acknowledged for their efforts in the areas of environmental stewardship, safety performance, and community and social investment. Award winners demonstrate innovation within the industry, make safety their largest priority and benefit the greater South Texas region through workforce development and education. This year, STEER also honored those who have shown exemplary work and support of the South Texas and Coastal Bend region in the aftermath of Hurricane Harvey. Cheniere Energy, Port of Corpus Christi, Ingleside Texas Chamber of Commerce and Port Aransas Chamber of Commerce went above and

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

INDUSTRY

LNG Exports to Provide Stability for U.S. Gas Markets By: Jack Belcher

t’s no secret that U.S. natural gas production, led by the shale boom, is at record highs. In fact, gas production is currently running more than 5 billion cubic feet per day (Bcf/d) higher than it was a year ago. The U.S. is now the world’s largest natural gas producer, accounting for almost one-fifth of global output. But despite the increase in natural gas usage for power generation, manufacturing and chemicals in recent years, demand for gas in the U.S. is relatively flat and will remain so in the coming years. Those two forces, robust production and flat demand, don’t bode well for prices. The solution for U.S. producers is exports. The U.S. has actually been exporting LNG for decades. In 1969, Phillips Petroleum Co. began exporting gas produced in the Cook Inlet region of Alaska to Japan via its Kenai LNG plant. Those exports were fairly constant, with more than 1,300 shipments, until recent years. For the country at large, however, importing LNG was certainly the story for decades, with regasification facilities at Everett, Massachusetts; Cove Point, Maryland; Elba Island, Georgia; and locations in Louisiana and Texas serving to provide fuel for peak shaving. However, in the early 2000s a greater share of U.S. electricity generation capacity moved to natural gas-fired units, creating concerns about access to adequate baseline electricity generation. At the same time, North American gas

production began to decline. Imported natural gas was seen as critical to future U.S. energy needs. More than 30 LNG regasification facilities were on the drawing board or in some stage of planning. Policymakers feared that the U.S. was vulnerable to not only a cartel of oil exporters, but also a cartel of gas exporters. The advent of the Barnett Shale play and the shale revolution changed everything. U.S. gas supply grew at an enormous rate, putting downward pressure on prices. Some of this supply was utilized to support new manufacturing projects and chemical plants. Several pipeline projects were commenced to bring U.S. gas to Mexico for power generation and use in its manufacturing sector. And companies began to look at LNG exports as another option. In a few short years, the U.S. went from looking at dozens of LNG import/ regasification facilities to potentially dozens of export/liquefaction facilities. Some facilities that had been importing LNG were now applying for permits to export it. They began a long and complex process for receiving authorization from the Federal Energy Regulatory Commission (FERC) and the Department of Energy, with export permits for non-free trade agreement countries being the most difficult to obtain. As companies sought permits for dozens of projects, a queue developed at the Department of Energy during the Obama administration that served as a bottleneck for permit issuance.

The U.S. has actually been exporting LNG for decades 42

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

One of the earliest applicants for an export license was Cheniere Energy, which applied for an export permit for its Sabine Pass liquefaction facility (Cameron Parish, Louisiana) in September 2010 and received its final approval in September 2012. The facility, currently operating three LNG trains, will eventually have six trains operating, each capable of producing 4.5 million tonnes per annum. This ushered in a new era of LNG exports. Cheniere’s first cargo left Sabine Pass on February 24, 2016, and landed in Brazil. Since then, Cheniere has shipped more than 210 cargoes containing more than 750 trillion BTUs to 25 countries across the globe. The arrival of the Trump administration ushered in a strong endorsement of energy export projects, which is a central element of the energy dominance effort. The administration has been pursuing ways in which it can improve the permitting process and is actively working with foreign governments to create export opportunities. It sees LNG exports, along with crude oil, refined products and chemicals exports, as a way to immediately address the U.S. trade deficit. In early November, U.S. crude oil exports hit an all-time high at 2.13 million barrels per day. China, India and South Korea are seen as the largest potential buyers of U.S. LNG, and President Trump and Chinese President Xi Jinping announced a trade agreement on Trump’s trip to China in November. Japan is also a big potential buyer and an interested investor in U.S. LNG capacity and related infrastructure. There will certainly be other potential suitors. According to the International Energy Agency, global gas demand is going to increase by 1.6 percent annually for the next five years. All of these factors are making an impact on geopolitics, as the U.S. becomes competitive with Middle Eastern gas for global markets

and with Russia for gas sales to Europe. LNG has now been delivered behind the former Iron Curtain to Poland and Lithuania. U.S. cargoes are even going to the Middle East. What seemed impossible a few years ago is now true: The U.S. is now competing with the Middle East in the global gas export market. At the same time, this trend is entirely dependent on a continued low-cost supply of U.S. natural gas production from shale plays and other sources. The U.S. is currently the third largest LNG producer, behind Qatar and Australia. However, the economic advantage of U.S. natural gas, which can be produced for as low as $1/MMBTU, coupled with increased political uncertainty in the Middle East, bodes well for the future of U.S. LNG. It is highly likely that the U.S. will become the world’s largest LNG exporter in the not-toodistant future. In fact, the Energy Information Administration predicts that by the end of 2021, at least four more export terminals will be in operation capable of delivering more the 9 trillion cubic feet per year. There are currently 11 projects under construction, with six approved and awaiting construction. When the first wave of LNG export facilities are completed, the U.S. will be capable of exporting about 12 percent of its natural gas production. If all of the facilities that are being planned were built, they would have the capacity to meet 100 percent of current global LNG demand, making it highly unlikely they will be built. In order to support the surge in growth, LNG producers are going to need to find new and creative ways to finance projects and sell their product. Traditionally, LNG projects have been largely financed by the buyers who have willingly entered into a long-term contract of up to 30 years. That situation is changing. Future projects will require more risk assumed by the producer and will hinge on a mixture of shorter-term contracts and a growing spot market. Currently, about 5 percent of LNG is sold on a spot basis or short-term contract. Many analysts are doubtful that the market will support a significant spot market. The next big shoe to drop is Dominion Energy’s Cove Point LNG facility near Lusby, Maryland, which was scheduled to begin producing LNG for exports as 2017 came to a close. The facility, which was originally an LNG import facility but is now fitted and

The arrival of the Trump administration ushered in a strong endorsement of energy export projects, which is a central element of the energy dominance effort

licensed for export, is connected to natural gas produced in the Marcellus Shale. Cove Point will provide Marcellus gas with an important export market for decades to come. Several LNG facilities at various stages of development on the Gulf Coast will serve a similar purpose, providing a relief valve for U.S. natural gas production and an important mechanism for ensuring future growth of U.S. shale plays.

About the author: Jack Belcher is Executive Vice President of HBW Resources and consults for energy and transportation clients on government relations, regulatory affairs, situational risk management, coalition building and stakeholder relations. He is also Managing Director of the National Ocean Policy Coalition. Previously, he was Staff Director for the U.S. House of Representatives Subcommittee on Energy and Mineral Resources.

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JANUARY/FEBRUARY 2018  SHALE MAGAZINE

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

POLICY

Reuse and Recycle Water By: David Porter

The tremendous population growth of the last 50 years and the arid nature of much of the state are major reasons Texans are concerned about water. If Texas is going to continue to be a good place to live, we must have adequate, clean water. A partial solution is recycling produced water. Produced water is brought to the surface in association with hydrocarbon production. This water must be separated from the hydrocarbons and disposed of in some manner. Much of the time it is pumped back into the ground. Often it is used in waterflooding or to maintain pressure in a reservoir or other activities designed to produce more hydrocarbons. Sometimes it is just put down a saltwater disposal (SWD) well. Every barrel of produced water that would have gone down an SWD that is recycled and put to a beneficial reuse is one less barrel of water used from the existing water resources of Texas. We need to encourage water recycling by ensuring that governments write regulations as a goal to be achieved. For example, if we want to use recycled water for a certain beneficial use, it should be allowed as long as the recycled water meets the specifications for use in that type of application. If regulations are written to require certain technologies and processes rather than end results, you run the risk of having rules that are obsolete within a short period of time. An important lesson I learned while I was on the Railroad Commission of Texas came when we were

rewriting the recycling regulations. We had many complaints that our old recycling regulations promoted obsolete technologies, cost the industry unnecessary expense and delivered less than optimal results. After months of work and consultation with industry and other interested parties, we came up with new recycling rules. One of the most important things I learned going through that process is that recycling is not the goal or the end of the process. Beneficial reuse of the recycled product (water) is the end goal. If we are going to reuse produced water, we need permitted beneficial uses of the water. In order to have permitted beneficial uses of produced water, we must have more

experiments like the 2015 activity conducted at the Texas A&M AgriLife Research Station in Pecos, Texas, where recycled produced water was used to irrigate cotton. From my personal experience with the project, I can say that it was difficult to bring all the industrial and governmental groups together to make the project work. They only grew a few acres of cotton. The cotton grown was not put to any end use. There were severe limits to the amount of recycled produced water they were allowed to use to irrigate the cotton. In fact, the cotton was irrigated only partially by recycled produced water. There was a control patch close by that was irrigated following normal practices at the station. The ground and water at both the test and control acres were tested before, during and after the experiment. While we should make sure the health of people and the safety of the land and water is not compromised by these activities, it is important that beneficial reuse of water be allowed if it is found safe. This can only be confirmed if experiments like the one at Pecos are encouraged and allowed by governmental agencies.

We need to encourage water recycling by ensuring that governments write regulations as a goal to be achieved

About the author: David Porter has served as a Railroad Commissioner (2011–17) and Chairman (2015–16), as well as Vice Chairman of the Interstate Oil and Gas Compact Commission (2016). Prior to service on the Commission, Porter spent 30 years as a CPA working with oil and gas producers, service companies and royalty owners in Midland, Texas. Since leaving the Commission, Porter works as a consultant for oil and gas companies. He also serves as Chairman of the 98th Meridian Foundation, a nonprofit concerned with water, energy and land issues.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

POLICY

The FDA Approves the First Digital Pill WHAT IN THE WORLD IS THAT? By: Kelly Warren Moore

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

that is encapsulated in the pill. Undetectable to the human eye, this chip transmits a signal to a patch that the patient applies FOR ILLUSTRATIVE PURPOSES ONLY. to their torso (think of a nicotine patch as an example), and that patch in turn transmits a signal to a device or devices of the patient’s choosing. Not only can the patient check their smartphone application to answer the question, “Did I take my pill this morning?” with the simple touch of a finger, but doctors, trusted family members, friends or counselors can also get updates (with the patient’s permission, of course) as to whether or not the patient is taking the medication. Alerts can be configured to let them know when it appears that a dose or doses have been missed, which can in turn alert them to the potential for trouble and need for intervention before the full-blown panic of a crisis occurs. This new formulation is expensive, and exponentially (at least for the time being) more expensive than the “analog” version of the medication. The case has been and will continue to be made, however, that the cost of noncompliance is much greater than just the cost of the prescription filled but never taken. Noncompliance creates massive expense to society at large when its impact results in loss of productivity, loss of income, loss of opportunity and increased cost of treatment. It can also involve massive taxpayer burden, as some of these patients end up in jail or as permanent fixtures on welfare rolls because they are unable to THE PROTEUS DISCOVER DIGITAL MEDICINE SOLUTION. NOT ABILIFY MYCITE SYSTEM.

PHOTOS COURTESY OF PROTEUS DIGITAL HEALTH

n November, the FDA announced that it had approved the first digital pill, which had been developed in a partnership between Otsuka Pharmaceuticals and Proteus Digital Health. What in the world is a digital pill, you might ask, and why is that something to get excited about? Or, is this just one more way for “them” — whoever “they” might be — to keep tabs on us in another intrusive, personal way? Otsuka markets an antipsychotic medication called Abilify in many strengths and formulations. Abilify (generic name: aripiprazole) is prescribed for people who have been diagnosed with schizophrenia, bipolar disorder or depression. Antipsychotic medications treat the delusional thoughts that are often the most dangerous and frightening aspects of mental illness. These thoughts can range from thinking that a person has “superpowers” or other delusions of grandeur, to hallucinations such as hearing one or multiple audible (to the patient) voices, often telling them things like they have to perform certain tasks or risk bad luck or disaster, or that they need to do harm to themselves or to others in order to save themselves, loved ones, or even the world. Delusional thinking is devastating for the individual, and for caregivers. Often, after other symptoms of depression, bipolar disorder or other maladies are well-controlled, the patient begins to understand that even if they are still having delusional thoughts, they can’t admit them to their counselor or psychiatrist, because then everyone starts to “freak out.” As a result, delusional thinking doesn’t become noticeable to others until it is creating acute problems that are endangering the life of the patient or others — up to and including things like violent and erratic behavior or substance abuse, which can result in arrests and incarceration, or, in the worst cases, suicide or overdose. Anyone who cares for someone with these afflictions knows all too well the worry, fear, pain and destruction caused by those who cycle in and out of compliance with their medications that keep them between the guardrails of life. And one can understand why the idea of a digital pill (in this case, Abilify MyCite) that can be PROTEUS INGESTIBLE SENSOR TO BE “traced” when it comes into contact with EMBEDDED IN stomach fluid, could bring welcome and MEDICATION. reliable answers to the question, “Are you NOT FINAL PACKAGING. taking your medicine as prescribed?” The technology that allows this breakthrough is a tiny, digestible microchip

remain stable and keep themselves employed or in school, and safe from harming themselves or others. It’s easy to understand why this development is so exciting, but it’s equally easy to understand why others who are already weary of tracking keystrokes and Facebook posts or mapping technology might be averse to it. This technology will be showing up in many other disease treatments in addition to mental illness. Cholesterol or blood pressure medication, diabetes medication, even birth control pills could soon include this traceable chip, potentially allowing any entity with an interest (which any government-funded healthcare system or private insurance company certainly has) to understand more about whether patients are maintaining their end of the healthcare bargain by taking their medications to prevent disease progression and reduce costs of hospitalization or other specialized care. Will there be penalties after sustained medication noncompliance leads to multiple hospitalizations or doctor visits? Will more expensive or advanced treatments be reserved for those who have demonstrated that they have reliably followed the doctor’s orders in the past and be denied to those who haven’t? These concerns are valid, they will no doubt be debated endlessly as this new frontier continues to advance and evolve. But for now, those who understand all too well what a literal lifesaver this technology could be are excited and cautiously optimistic that the associated risks, in cases where compliance is critical, are far outweighed by the benefit of knowing that the patient is taking the medication as it has been prescribed. In a future article, I’ll tackle the very real question of whether this technology and others like it will ever make it to the majority of patients most in need, given the severe shortage of and limited access most people have to mental health practitioners and the difficulty of navigating the mental healthcare system in our country (even when a patient thinks they have a generous insurance plan). That’s another critical concern as our nation begins to address the opioid abuse epidemic, and its impact on our healthcare system, our economy and our national security.

This technology will be showing up in many other disease treatments in addition to mental illness

About the author: Kelly Warren Moore has sold clinical research and development software solutions to the pharmaceutical and biotech industry for the past several years. She previously spent 20 years in business development for the pharmaceutical research and development field, focusing on multi-study, global clinical programs. She has a Bachelor of Arts degree in economics from The University of Texas at Austin. Any opinions expressed in this article are strictly her own and are not meant to represent those of any employer, client or organization with whom she is affiliated.

connect. share ideas. discuss. SHALE Oil & Gas Business Magazine is an industry publication that showcases the significance of the South Texas petroleum and energy markets. SHALE’s mission is to promote economic growth and business opportunity that connect regional businesses with oil and gas companies. It supports market growth through promoting industry education and policy, and it’s content includes particular insight into the Eagle Ford Shale development and the businesses involved. Shale’s distribution includes industry leaders and businesses, services workers and entrepreneurs.

http://www.linkedin.com/company/ shale-oil-&-gas-business-magazine JANUARY/FEBRUARY 2018  SHALE MAGAZINE

BUSINESS

Don’t Pay for the Same Real Estate Twice By: Scott Finley

f you liked doing business in 2017, it appears that you will love doing business in 2018. Kiplinger is among those with a rosy forecast; citing data from the Bureau of Economic Analysis at the U.S. Department of Commerce, the business publisher says we can look forward to a rise in growth to 2.6 percent in 2018. In case you missed it, 2017 held steady at a 2.2 percent run. Who’s spending what and where in 2018? Kiplinger says to look for a hike in business construction, as well as increased equipment and inventory buys. Now, with all that information at hand, consider a quote generally attributed to Gen. George S. Patton. The colorful commander is said to have remarked,“I don’t like paying for the same real estate twice.” For Patton, of course, he was talking about not wanting to spend on troops and resources to recapture an area he already overtook. How does that apply to your business? Let’s say your business plan for 2018 involves physical growth. You’re going to bury fiber-optic lines, other telecom lines, pipelines to carry product, electrical cables and the like. You already know the costs involved: the cost of materials, right of way, actual excavation, testing — the list goes on. Perhaps you think that the word “list” should be spelled with a dollar sign, like this: “LI$T.” Why would you want to pay for it all over again? The answer is, you wouldn’t. Ever. “In the ground and done,” that’s your motto. Unfortunately, one errant backhoe dig in the vicinity of your buried treasure can result in a line being cut, broken, punctured, scraped, torn or otherwise mutilated enough to require being taken out of service and repaired. That’s why the phone number 811 exists. Think of it as 911 for your buried lines; after all, it's in the same FCC-mandated family of toll-free numbers that includes 211, 411, etc. Just as 911 is used nationwide for emergencies, 811 connects callers to the nearest 811 locate center, no matter which state. The call to 811 is free, as is the subsequent underground utility locating service — and in Texas it’s also the law. With few exceptions, any digging below a depth of 16 inches in Texas using mechanical

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equipment requires a call to 811 first. The reason is the Texas OneCall law, which can be found in the Utilities Code Title 5, Chapter 251. Texas811 is the nation’s largest free-standing 811 call center. It currently handles about 3 million incoming underground locate requests a year. You might think that’s plenty to protect the underground infrastructure, but it’s not. According to data collected by the Common Ground Alliance, a stakeholder-run organization dedicated to protecting underground facility lines and the people who dig near them, an underground utility line is damaged once every six minutes nationwide because there was no call made to 811 for a line locate before excavation — but that simple, free call to 811 reduces the likelihood of damage to 1 percent. When 811 is called, the locate center takes the proposed dig information and informs utility and pipeline owners in the immediate area that they need to mark their buried line location with paint or flags. Forty-eight hours (excluding weekends and holidays, unless it is an emergency situation) are allowed for this process to take place, with the clock starting as soon as the call ends. For example, a call placed at 2 p.m. on Friday would require the line to be located by 2 p.m. on Tuesday. A locate request placed at 2 p.m. on Monday would require the

Texas811 is the nation’s largest freestanding 811 call center line to be marked by 2 p.m. on Wednesday. The theme of this issue of SHALE is “New year, new opportunities.” Business analysts agree that you’re going to have plenty of opportunities in 2018. Do yourself and your business a favor — make sure your employees, contractors and subcontractors know to call 811 to get underground facilities flagged before excavation. Because paying for the same real estate twice is just bad business practice, no matter what business you’re in. Need more information? Visit www.texas811.org. Not in Texas? There’s an 811 call center in your state. The complete nationwide lineup is available at www.call811. com, and, as in Texas, it’s a free service and one your company should be aware of and use as needed.

About the author: Scott Finley is the Media and Public Relations Manager for Texas811. He can be reached at scottfinley@texas811.org.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

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BUSINESS

Sustainability and Economic Theory By: Thomas Tunstall, Ph.D.

eoclassical economic theory, which has come to dominate public policymaking, has also oversimplified the world greatly. As a prime example, neoclassical theory reduces the factors of production to labor and capital. If you remember from Economics 101, it used to be land, labor and capital. Indeed the classical — as opposed to neoclassical — economists as far back as Adam Smith considered land to be perhaps the most important factor of production. Land was something far too important to assume away with elegant equations. As we move through the 21st century, it will become important for economic theory to go back to its roots to rediscover the value of land, aka natural capital and ecosystem services. This is not a trivial point. Neoclassical economic theory now unwittingly informs our understanding of the world. Shrouded in complex math equations, economics has become a sort of black box that unfortunately does a poor job of guiding sustainable policy. Hopefully that will start to change as more interdisciplinary and comprehensive approaches to public policy are clearly becoming necessary. Land and the physical world do in fact matter to theory. Unfortunately, most economists haven’t kept up with the times. Land, or more generally natural capital, figured prominently in the thinking of classical economists such as Adam Smith and David Ricardo. However, starting in the 19th century, land was de-emphasized in favor of labor and capital as areas of primary focus. Even today, mainstream economic training does not require study of the properties of natural capital and ecosystem services. Perhaps ironically, the most important environmental issue the world will face in the future is not the availability of nonrenewable natural resources. Rather it is more likely to be the environmental sink. That is, the ability of the earth to absorb waste and regenerate renewable resources. Sabine O’Hara, Dean and Director of Landgrant Programs for the College of Agriculture, Urban Sustainability and Environmental Sciences at the University of the District of Columbia, argues that production functions, which most government economists live and die by, are largely irrelevant outside societal, physical and environmental contexts. Too often the economy is interpreted as its own world, which overlaps

only periodically with society and the environment, as depicted in Figure 1. Figure 1. Partial Sustainability

Economy

Society

Environment

Source: O’Hara, Sabine. 2015. “From Sources to Sinks: Changing the Rules of Production Theory,” World Future Review. 6(4): 448-454. In fact, the economic system is driven by societal choices and the ability of the environment to provide, as indicated in Figure 2. The economy is nested within natural and man-made systems. What becomes clear is that economic theory currently leaves a lot of stuff out of the picture. One only needs to point out that many economic-like activities occur outside of the purely economic sector. These include volunteer work and services families provide for themselves, such as child care. Not everything we do shows up as GDP, yet non-market activity is utterly invisible to current economic models.

About the author: Thomas Tunstall, Ph.D., is the Senior Research Director at The University of Texas at San Antonio Institute for Economic Development. He was the principal investigator for numerous economic and community development studies. He has published peerreviewed articles on shale oil and gas, and has written op-ed articles on the topic for The Wall Street Journal. Dr. Tunstall holds a Ph.D. in political economy and an M.B.A. from The University of Texas at Dallas, as well as a B.B.A. from The University of Texas at Austin.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

Figure 2. Sustainability

As we move through the 21st century, it will become important for economic theory to go back to its roots to rediscover the value of land, aka natural capital and ecosystem services

Environment

Society

Economy

Source: Kakovitch, Thomas S. and Sabine O’Hara. 2013. Physics and the New Economy. Amherst, MA: HRD Press. At the same time, the things we tend to think of as free — viable ecosystems and functioning environmental sinks — are the essential drivers for a functioning economy and society. While much emphasis has been placed on finite nonrenewable resources, recent events such as the shale oil and gas revolution suggest that renewable resources may be what we

should be worried about. Renewable resources rely on two things. First, they cannot be overharvested. Second, renewable resources depend on the environmental sink to process waste. Economists call this second factor externalities — and mostly assume them away (for simplicity). The implications of this alternative perspective on economic theory can be quite far-reaching. The world has witnessed political situations that start as an environmental effect, such as the Syrian drought, but then escalate into civil war prompted by the lack of food, loss of livelihoods and poor governance. Environmental issues are likely to drive future social upheaval as well. As such, early

warning indicators for ecosystem services will be more crucial to understand than ever before. Of course, early warning indicators are of little use if no one heeds them, and so far economists have been of little help. In the absence of critical scrutiny from economists, neoclassical economic theory continues to take the human race down an unsustainable path by giving short shrift to externalities. Full life cycle accounting that measures the real costs of excessive harvesting, and the discharge of unrecycled waste back into the environment, remains nothing more than an interesting debate. It will be up to society’s stakeholders to put the economists straight.

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BUSINESS

People Powering Digital Transformation By: Hai Nguyen

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

Of the many challenges that businesses face in determining what will be needed to sustainably transform — strategy, operations and processes, technology and data, and people — arguably the most challenging are the organizational and people-related aspects. If you’re working with an existing culture, people must unlearn the old processes, thinking, values and behaviors. Consider some organizational challenges you may face and how you can approach them:

whether it’s safe to proceed or if you need to retreat and reevaluate.

• Is the culture set to enable the strategy? Cultures oftentimes turn a dynamic strategy into concrete blocks. Consider the following when approaching your organization’s digital culture:

- It takes all levels of leadership to establish, communicate and drive the transformation strategy and evaluate progress, whether it’s the board of directors needed to recheck the core of the business and balance the need for action or change into digital, the COO who needs to establish a new operating model, or the Chief Data Officer who needs to bolster and exploit data for the company’s shifting strategy.

- Core values: This may be an optimal time to redefine the core values of the organization to align with the transformation.

- Ensure that leadership understands the digital transformation. Leaders must be digitally savvy and able to connect new technologies to the business value. Build a program to raise their awareness of the changes and continually revisit the program to ensure the new thinking and behaviors are sustained.

- Change as a journey: Find ways to open up the culture to the change that lies ahead. Recognize that everyone will be at different points on the change journey, but challenge and invite them to contribute and fuel the transformation. Each person should be able to identify their role in enabling the strategy. - Cultural acceptance: Track the acceptance of changes within your organization. The results will reveal

• Can the culture handle new ways of thinking and working? Create a culture of openness to new ideas, mindsets, people and services from external companies and people you may not have even known existed. Create an understanding within your organization that competing on the same playing field as your competitors may take new kinds of talent and disciplines, smart machines, open innovation, gamification, agile methodology, etc. • Is the leadership ready to help drive the transformation? All levels of leadership have roles to set the direction and model the behaviors that drive digital transformation. Here are a few ways to establish a leadership model that will help your organization take the next step on the digital journey:

- All leadership must be able to clearly articulate the transformation to the organization. This helps separate the reality from the hype, and the clear opportunity from the vagueness and uncertainty of a changing landscape. - Leaders must model the behaviors needed for a culture that enables the digital strategy. - Consider new leadership positions, such as a Chief Digital Officer, to accelerate the development of the digital strategy, or a Chief Data Officer to ensure the best data is available to drive business decisions. • Is your organization’s capability up to speed to enable the

PHOTONPHOTO/BIGSTOCK.COM

hese days, “digital transformation” is an increasingly popular phrase in the business world, and it is challenging organizations to carefully consider how to retool their strategies. Digital transformation doesn’t simply mean to digitize information or move services from manual/analog into a digital format. Rather, digital transformations are an entirely new step change enabled by disruptive technologies. For example, the Internet of Things provides exponential growth of data to mine and empowers smart devices, and autonomous vehicles are shifting the car purchasing habits of consumers. By another name, these are business transformations that are digital at heart, and they require businesses to rethink and change the core of their operations, marketing, services and products. They can create new industries and drive customers into new markets. If businesses apply disruptive technologies strategically, they have the opportunity to transform, lead or, at least, keep pace with others within their industry. If not, they will have to play catch-up to a digital strategy that someone else has defined, or worse, fade into the business landscape. Companies are currently experiencing a growing sense of urgency to develop and enact digital transformation strategies that will spring them into their next chapter.

transformation? This doesn’t simply mean IT infrastructure or operations; it also means the core competencies that are needed for a new digital era. And don’t forget the following people-related aspects of a solid technology platform that will support a true digital transformation: - Core competencies must be augmented so that everyone is fluent in both business and technology. New integral components now required are cloud and mobility, cybersecurity, and analytics and data science. - Right-size the agility and responsiveness of your organization. An investment to rebuild technology as a core competency is required if your organization has been IT cost-managed. - As you are building new competencies and changing the organization, be sure not to create new silos. - Find the right talent to build these core competencies, and let them flourish as highperforming, outcome-based teams. This

will complement and encourage an open culture based on mutual respect, rather than an organizational line of reporting. They will bring different sets of thinking and diverse experience to the table. When embarking on a digital transformation, many organizations focus solely on the latest technological advances, bleeding edge innovations or an increased focus on research and development. While these are all important areas of emphasis, it is equally important to remember that a true digital transformation must be approached as a change effort. And as with any change effort, the organizational aspects of culture, leadership and core competencies cannot be ignored. For it is an organization’s people who will ultimately advance this type of transformation, or decide that the status quo is sufficient. Does this sound familiar? Enaxis Consulting is a specialized consulting firm focused on being a trusted advisor for digital enablement of business. With offices in Houston and Dallas, the company has an extensive client roster of Fortune 100 and

500 clients. Enaxis’ specialized consultants help minimize the cost and time associated with transformative changes in the business of IT. For more information, visit www. enaxisconsulting.com.

Digital transformation doesn’t simply mean to digitize information or move services from manual/analog into a digital format

About the author: Hai Nguyen is a Manager at Enaxis Consulting, where she leads behavior change management, communications and training initiatives for IT implementations. Nguyen has more than 18 years of experience with project management, technical writing, business process development and strategic communications.

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

BUSINESS

Three Strategies for Protecting Companies Against Physical and Cybersecurity Attacks in 2018 By: David London to create progressively more disruptive cyber and physical security consequences, the need for effective security risk management programs is more important than ever. Although it is impossible to eliminate risks, there are critical steps that energy companies can implement to mitigate the damage and liability caused by a security breach, such as leveraging a proven security risk management consulting methodology to drive effective security planning. This type of modular diagnostic planning enables companies to design and implement effective physical and cyber risk security programs through a continuous cycle of assessment, mitigation and monitoring. 1. Assessment: Effective security programs should begin with a comprehensive analysis of assets, facilities and processes that are critically important to the organization. Once identified, the next step is to assess the probability, or level of threat, likely to impact these crown jewels, by flagging the threat actors, motivations and vectors relevant to the business. 2. Mitigation: Next, build out an effective security program by validating the effectiveness of existing measures that address the gaps identified in the risk assessment. If needed, develop and institute

new processes and procedures to alleviate any identified unresolved risks found in the assessment. 3. Monitoring: The evolving nature of risk requires security programs to be continuously monitored — via audits, penetration testing and special investigations — to ensure ongoing effectiveness. In today’s high-risk landscape, too many enterprises equate compliance programs with effective security, resulting in investments and decisions that leave the enterprise vulnerable to attack and related liability. By focusing security on assets that matter most and programs that are risk-based, intuitive and trusted, companies will be better positioned to withstand the next security breach.

About the author: David London is a Senior Director at The Chertoff Group, where he focuses on cyber risk management, incidentresponse planning and cyber simulations. As a member of the security services practice area, London works with clients to assess, mitigate and monitor their enterprise’s most pressing cybersecurity risks. He also advises senior decision-makers on how to prioritize investments in both a security and business context. Prior to joining The Chertoff Group, London spent nine years at Booz Allen Hamilton designing and facilitating cybersecurity exercises for government and commercial clients. London received a Master of Business Administration from George Washington University and a Bachelor of Business Administration from Emory University. He is a Certified Information Systems Security Professional and Project Management Professional.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

4IVERS/BIGSTOCK.COM

he Department of Homeland Security and FBI recently issued a public warning stating that sophisticated threat actors have been targeting U.S. energy and other critical infrastructure entities since May 2017. The ongoing, multiphase campaign appears to use unwitting third parties to stage the attack, and then pivot to the intended critical infrastructure target. This campaign has reportedly infiltrated multiple critical infrastructure entities in the U.S. and around the world. While operational impacts resulting from this campaign have not been observed, potential impacts range from cyber espionage to the disruption of energy systems. This attack is just the latest in a long string of high-profile security breaches that have rocked the energy community in recent years. The December 2015 sabotage of the Ukrainian power grid is considered the first known disruption of grid operations through cyber means. In 2016 alone, data breaches cost energy and utilities companies an estimated $7.35 million per incident. Furthermore, a number of industries in addition to the energy and utilities sector are vulnerable to cyber attacks. In 2016, Forbes listed the top five industries susceptible to cyber threats as healthcare, manufacturing, financial services, government and transportation. Needless to say, many of our critical infrastructure industries are being targeted. As malicious actors evolve their capabilities

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

BUSINESS

Sons of Liberty Gun Works Has Heart

magine being able to make a living doing what you love. Mike Mihalski of Sons of Liberty Gun Works gets to do just that. Founded in 2012 by two lifelong firearms enthusiasts and one U.S. Navy SEAL, Sons of Liberty Gun Works is the modernday entrepreneur’s American dream come to life. Sons of Liberty Gun Works isn’t your average firearms company; they’re known throughout the country for building products that they believe in so firmly that they give every product a lifetime warranty. They don’t just craft firearms for the occasional firearms enthusiast; they supply high-quality firearms to members of the military and law enforcement agencies who protect American citizens on a daily basis. The company not only makes their own quality product, they also do repairs, special orders, training on the AR platform and consult with various entities throughout the U.S., making them a force to be reckoned with. Every employee at Sons of Liberty Gun Works is hand-picked, trained thoroughly and deemed an expert in their craft, and most are veterans. When asked why the company hires veterans, Mihalski says veterans can be counted on to come to work and don’t need to be micromanaged to accomplish the company’s mission. In one day, each of the 15 employees can build 60 rifles to precise detail while ensuring every product goes through a rigorous firing test to maintain the standard the company is known for. This meticulous process is just one of the many things that sets Sons of Liberty Gun Works above the rest. Marketing is a key strategy for the business, and it has attributed greatly to its success. Mihalski learned the importance of building a following on social media during the infancy of Sons of Liberty Gun Works, and it has paid off — they have more than 74,000 followers on Facebook alone. Receiving most of their business through social media and recommendations from customers, they have had virtually no returns on products for performance reasons. Mihalski’s marketing strategy includes building a brand of clothing and accessories that celebrities, politicians and everyday Americans are buying at a rapid rate (which is also contributing to their popularity). Mihalski started Sons of Liberty Gun Works with the last $7,000 he had in his pocket and a vision for the quality firearms he wanted to make. In 2017 alone, the company purchased $3 million in machines in order to start manufacturing their own parts, which will only help boost them above the competition even further. In 2017, Sons of Liberty Gun Works is set to see several million dollars in revenue surpassing their original goals. The company’s profits are not only used to further advance their endeavors, but they also use their revenue to give back to the community. When Hurricane Harvey hit Texas, Mihalski was watching the news reports about the devastating impact the storm had on his fellow

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Texans. “I saw this group of elderly people in a nursing home, surrounded by water, and I knew I had to do something,” he says. That’s an understatement of what happened next. Mihalski called on his customers, friends of customers, and the various social media platforms that made his company successful to obtain three helicopters to assist in the efforts throughout the Houston area. When he and the team arrived on the ground in Houston, there were five helicopters and six fixed-wing aircraft that had been sent to help him in his humanitarian efforts. The organization and their friends assisted local and state authorities with any task that needed to be completed to make sure these fellow Texans in distress received what they needed. Sons of Liberty Gun Works’ philanthropic efforts didn’t end with Hurricane Harvey relief efforts; helping out is an everyday way of life for this company. They assist first responders when their families face crises, partner with the Navy SEAL Foundation and assist local San Antonians when needed. In the day that I spent with Mihalski, he received countless emails from customers about people they know that are in need. Every company, whether big or small, should learn from Sons of Liberty Gun Works — a company can be successful and still maintain a philanthropic heart, which helps make our world a better place to live.

For more information on Sons of Liberty Gun Works, visit www.sonsoflibertygunworks.com or check them out on your favorite social media site.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF SONS OF LIBERTY GUN WORKS

By: Joyce Venema

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Houston: Armandos Special to SHALE

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Armandos is located at 2630 Westheimer Road, Houston. For more information, call 713-520-1738 or visit www.armandosrestaurant.com. To learn more about Armandos’ catering options, visit www.armandoscaters.com.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF ARMANDOS

ince 1978, Armando Palacios’ longtime eatery — fashioned after 1920s Mexico City — has been consistently packed with friends, regulars, celebrities and local socialites who love the famous fresh lime juice margaritas, delicious queso flameado and signature fajitas. Located in the heart of River Oaks, this is the “it” place for fine dining and modern Mexican cuisine in Houston. Designed by Palacios and his wife, Cinda, Armandos is decorated with beautiful antique mirrors, an intricate sunburst latticework ceiling and rich red draperies offset by crisp, white table linens. The restaurant also houses a collection of authentic Mexican pottery and cookware showcased in dark, custom wood cabinets. The warm decor and lighting perfectly set the mood for multi-sensory culinary excellence. From guacamole to quesadillas, ceviche to chipotle crabcakes, Armandos offers delicious appetizers to entice your taste buds. The entree list features a grand assortment of sumptuous enchiladas, from rich lobster and savory spinach to plentiful rib-eye. The authentic tacos al carbon, carne guisada and fajita choices of shrimp, chicken or beef are always popular. While the elegant seafood dishes, such as Chilean sea bass and the fresh grilled red snapper are perfect to pair with a buttery chardonnay from the restaurant’s diverse wine list. To end the meal, Armandos offers classic Mexican delights, such as sopaipillas, tres leches and fun twists like the sumptuous chocolate banana pastry. For events beyond the restaurant, Armandos has a specialized department offering full-service catering. In 2007, Armandos Caters launched its first gourmet taco truck of their growing fleet. The gourmet taco trucks, fully equipped with top-of-the-line appliances, polished chrome accents and custom red paint, arrive in style at your event bringing tacos and Mexican specialties, signature margaritas and professional service. From breakfast tacos and corporate salsa breaks to full-blown catered functions, Armandos Caters reinvents catering with stylish gourmet taco trucks for events big or small. In 2010, Armandos Caters launched corporate delivery, which includes both specialty Tex-Mex cuisine in bulk and Fit Tex-Mex — balanced, healthy, individually packaged meals. Fit Tex-Mex incorporates the restaurant’s classic Tex-Mex recipes with a healthy twist. All meals are analyzed by a registered dietitian. Armandos also offers boxed lunches and catering for weddings and rehearsals, corporate events, conventions, holiday parties, graduations and more.

Located in the heart of River Oaks, Armandos is the “it” place for fine dining and modern Mexican cuisine in Houston

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

California: Loop Neighborhood Stores Special to SHALE

oop Neighborhood stores set out to disrupt the conventional image of convenience stores that we are used to. The brand was created out of a desire to redefine consumer expectations after looking at the landscape of convenience stores and determining what was missing. Most stores were really only offering products targeting the male audience, so Loop was created with females and millennial customers in mind.Â As soon as you take a few steps into a Loop store, you can see how it is different from other convenience stores. Incorporating many of the typical convenience store products, the brand takes it one step further by including fresh and better-quality products, in turn making it a one-stop shop for everyone who walks in. Partnering with the same suppliers as leading grocery stores enables Loop to have fresh, daily deliveries resulting in much higher-quality products. Loop customers can

SHALE MAGAZINE ď &#x201C; JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF LOOP NEIGHBORHOOD STORES

LIFESTYLE

find smoothies, fruits and veggies, sushi, a soup bar, and a frozen yogurt stand. The company understands that just because you like convenience, doesn’t mean you want to skimp on the types of foods and drinks you’re getting in a hurry. In addition to fresher products, Loop offers items that more specifically target its female and millennial customer base, like a wine boutique, gift cards and bath salts. Loop strives to take the traditional convenience store to the next level of convenience. So, while it still offers the usual snacks, drinks and beer, Loop puts in the extra effort to make it even more enjoyable. For example, instead of just doughnuts, stores have fresh pastries delivered each day. “The best thing about Loop is that there is truly something for everyone; it’s no longer just focused on the male consumer anymore,” says company President Varish Goyal. “It’s a whole experience for our customers from the moment they walk through the door to the moment they leave. We have noticed that people are taking their time wandering the aisle and enjoying the experience of the store rather than heading straight to the aisle they know they need [to visit] and leaving.” Inside and out, the design of the 25 Loop stores (so far), located in Northern California’s Bay Area, is very clean and sharp. A cafe with comfortable seating and free Wi-Fi entices customers to stay awhile, and there are water bowls for customers' dogs to hang out, too. Goyal knew the overall perception of convenience stores needed to change in order to create Loop and redefine the stigma around the concept. It was more than just renovating the stores to make them look pretty; Goyal needed to change the stores from the inside out. Loop stores are part of the Fremont, California-based AU Energy/Vintners Distributors, which was founded in 1978. It was during the following two decades that the family business began developing a strategy for offering area residents healthier, easier options — resulting in the Loop concept. Since the first Loop location opened in Santa Clara, California, the idea of healthier choices has paid off in more in-store sales. In 2015, Loop executives announced they had made a commitment to Partnership for a Healthier America, an organization devoted to working with the private sector to ensure the health of the nation’s youth by combating childhood obesity. As the current locations continue to see success, Loop is looking to build more stores, but for smaller spaces. The company is working on a new store design that would encompass 1,200–1,500 square feet, targeting neighborhood communities where commercial-zoned lots are often

Loop understands that just because you like convenience, doesn’t mean you want to skimp on the types of foods and drinks you’re getting in a hurry smaller. Though the operational sites might be smaller, they will provide the company with the opportunity to grow the retail brand. A normal Loop site is more than 2,500 square feet. And Loop continues to gain traction, especially as AU Energy has integrated new technological strategies to entice new customers. The convenience retailer’s approach for continuing to build its brand now involves initiatives incorporating social media and customer loyalty, which include its emergent Loop loyalty program, Loop Back. Customers can enroll in the loyalty program to earn points for everyday purchases. These points can be redeemed at any Loop in-store kiosk, or customers can choose a coupon from the app. Loop is eager to keep growing and spreading the word about its new and improved convenience stores. The company hopes to continue serving its community with high-quality convenience.

For more information, visit dev.loopneighborhood.com.

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

LIFESTYLE

Dallas/ Houston: Pappas Bros. Steakhouse Special to SHALE

The Meat Pappas Bros. Steakhouse is known first and foremost for its quality steaks and meats. The restaurant employs full-time in-house butchers to cut top-quality prime beef and lamb. However, what truly sets the steaks apart is the unique in-house dry-aging process. The meat is placed in a humidity-controlled freezer for a minimum of 28 days; and as the moisture in the meat evaporates, the beef stays tender and juicy while developing a nuttier flavor. The classic seasoning, made up of a simple blend of kosher salt, black pepper and butter, is designed to truly bring out the natural flavors of the meat. The steaks are then seared on Montague broilers to get just enough brown crust to seal in and intensify the delicious dry-aged flavor.

The cozy yet sophisticated accommodations at Pappas Bros. Steakhouse are suitable for a variety of events, whether it be a family gathering, small business dinner, wedding rehearsal or a large party

The Wine and Bar Pappas Bros. Steakhouse’s award-winning wine list boasts more than 3,900 distinct wines, including selections from every fine wine-producing region around the world. By maintaining relationships with international purveyors, the restaurant’s wine team has

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF PAPPA BROS.

appas Bros. Steakhouse is the premier steakhouse in Texas with three locations between Dallas and Houston. customers' dogsf the “Top Five Steaks in America” by the Food Network (for its out-of-this-world New York Strip Steak), Pappas Bros. Steakhouse is widely recognized as one of the highest quality restaurants in the nation.

access to many hard-to-get specialty wines. The steakhouse prides itself on having access to the most approachable, friendly and knowledgeable Sommeliers in the industry. Each Sommelier at Pappas Bros. Steakhouse is certified, and half of them have earned either Master or Advanced Certificates. These talented professionals love sharing their passion for wine, whether they are guiding a wine enthusiast to a new vintage or helping a wine novice find pairings they will love. The Houston Galleria location has received Wine Spectator’s coveted Grand Award since 2010, and the Dallas location has won since 2011. Additionally, the Houston Downtown location, which opened its doors in November 2015, was awarded the Best of Award of Excellence in 2016 and 2017. The beverage program at Pappas Bros. Steakhouse also includes vintage spirits, inventive artisan cocktails, choice beers and all the makings needed to craft the perfect drink. The steakhouse’s cocktails are globally inspired and combine curated spirits, fresh ingredients and house-made syrups for unmatched quality in every sip. Private Dining The cozy yet sophisticated accommodations at Pappas Bros. Steakhouse are suitable for a variety of events, whether it be a family

gathering, small business dinner, wedding rehearsal or large party. Both Houston locations offer private dining options, including The Wine Room, with an intimate atmosphere that also serves as a working wine cellar; The Lounge, a distinguished space with dark leather couches and cabinets and shelves filled with vintage wines from the award-winning collection; and The Dining Car and The Train Car. Pappas Bros. Steakhouse is open Monday through Thursday from 5 to 10 p.m. and Friday and Saturday from 5 to 11 p.m. The cocktail lounge opens at 4 p.m. daily. Pappas Bros. Steakhouse Houston Downtown is located at 1200 McKinney St., and the Houston Galleria steakhouse is located at 5839 Westheimer Road.

For more information, visit www.pappasbros.com.

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

LIFESTYLE

New York City: Rustic Table Special to SHALE

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Email rustictablenyc@gmail.com or visit www.rustictablenyc.com for more information about the restaurant and menu.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

PHOTOS COURTESY OF RUSTIC TABLE

onsider a quick and quaint dining experience: farm-style dishes carefully crafted to fit a healthy yet interesting, inviting and intimate experience. The premise is small and seats about 30 people at a time. The atmosphere may feel somewhere in the realm of a market, in and out, so you are ready to go on with your day. “It was scary when we started. We really wanted to go along with something fresh and different. We had no idea whether or not it would work,” say Rustic Table owners Jordan Hadani and Guy Weizmann. Having owned and worked at B Cup Cafe, a West Village institution for more than 10 years, Weizmann’s focus is centered around coffee. “I wanted a fine espresso experience, to offer our take on the perfect blend,” he says. “We partnered with some local guys in Queens, who source super high-quality beans from Colombia. We came up with a blend [that] is somewhere between the pungent-bitter traditional Italian espresso and the fine espresso culture of the West Coast.” The coffee offered is straight and to the point, no choice of sizes, just the traditional European coffee experience. “We started here, us four, my mum, myself, my partner and his wife,” Hadani explains. “We tried ideas for a couple of days, and then we thought to combine chickpeas, slow-cooked brisket, eggs and tahini. We called it the ‘Early Lunch.’ People [have] loved it ever since!” Rustic Table offers a new take on food in the westernmost part of Hell’s Kitchen: Mediterranean with a bit of Italian, some French pastries, North African food characteristics and some Ashkenazi soups in the winter. The tables and seats are made of reclaimed wood and threaded pipes, all adhering to the rustic look.

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STEER Eagle Ford Excellence Awards

PHOTOS COURTESY OF SHALE

The South Texas Energy & Economic Roundtable (STEER) hosted its fifth annual Eagle Ford Excellence Awards on Dec. 5 at the Pearl Stables. This year’s winners included Voestalpine Texas LLC, Energy Waste, Halliburton, R360 Environmental Solutions, Sun Coast Resources, Tierra Lease Service LLC, Falls City Education Foundation and San Antonio River Authority. SHALE and STEER together took an opportunity to highlight the work done by Cheniere Energy, Port of Corpus Christi, Ingleside Texas Chamber of Commerce and Port Aransas Chamber of Commerce following Hurricane Harvey in the Coastal Bend region as well. David Blackmon, SHALE Oil and Gas Associate Editor, was the keynote speaker at this event.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

JANUARY/FEBRUARY 2018  SHALE MAGAZINE

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wen houston

PHOTOS COURTESY OF SHALE

On Dec. 12, WEN Houston gathered to enjoy taste pairings of chocolate and wine at Cacao & Cardamom in Houston. Guests enjoyed a taste adventure as the tour included wines and chocolates of various origins and flavors. The sponsor of this event was Opportune.

SAPA & YPO Midstream Open Golf Tournament

PHOTOS COURTESY OF SHALE

SHALE joined the San Antonio Pipeliners Association and Young Presidents’ Organization on Nov. 17 at the Hyatt Regency Hill Country Resort and Spa for their Midstream Open Golf Tournament.

SHALE MAGAZINE  JANUARY/FEBRUARY 2018

Delivering insight into the development of the Eagle Ford Shale and Permian Basin plays and the businesses affected

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AN ENTREPRENEUR IN THE BUSINESS OF GIVING STATE OF ENERGY SAN ANTONIO FEATURES GREAT SPEAKERS

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THE INFLUENTIAL LEADER:

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2016 FUTURE OF THE REGION SOUTH TEXAS BALANCE AND DIFFUSION OF POWER: THE 10TH AMENDMENT

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EXPERIENCE THE OLD WEST IN SAN ANTONIO

ANNUAL WOMEN’S EDITION

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CONFIDENT, COMPETENT AND CREDIBLE

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MAKE 2017 HEALTHY

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NAVIGATING NEW TERRITORY: BLUEBONNET DISTRIBUTING

CONOCOPHILLIPS’ CHARITABLE GRANTS SPAN THE EAGLE FORD SUPPORTING ENTREPRENEURSHIP IN THE ENERGY SECTOR

JOHN WALKER SCOUTING FOR SUCCESS

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SPURRING ENERGY EDUCATION DAY WITH STEER AND SPURS CONOCOPHILLIPS AND HALLIBURTON COMMUNITY PROGRAMS ENERGY INDEPENDENCE FROM OPEC NATIONS TEXAS RRC WELCOMES A NEW EXECUTIVE DIRECTOR

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THE HUMANIST: ALEX EPSTEIN | DISPUTE RESOLUTION IN LATIN AMERICA

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OTHER SERVICES OFFERED BY SHALE MAGAZINE Branding / Web Production / Search Engine Optimization / Ad Design / Social Media Video Production / Public Relations / Email Marketing / Campaign Strategy / Direct Mail SHALE Magazine is a statewide industry publication that showcases the significance of the South Texas petroleum and energy market. SHALE’s mission is to promote economic growth and business opportunities that connect regional businesses with oil and gas companies. The publication supports market growth through promoting industry education JANUARY/FEBRUARY 2018 affected.  SHALE MAGAZINE and policy, and its content includes particular insight into the development of the Eagle Ford Shale and Permian Basin plays and the businesses

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