Q&A

Innovex Downhole Solutions

What's it been like to be in the fossil fuel industry? What are the challenges that you face and how has it been facing growing environmentalism and the pushback against fossil fuels in recent years?

First, I would say what I like about the oil and gas industry is that it's it's highly innovative. We get to work all over the world and work on some of the biggest, most challenging problems and it's a lot of fun. We're not encumbered. It's not an industry maybe such as aerospace or medical where there's a ton of bureaucracy and governmental approvals for a lot of things We have to obviously operate safely and professionally, but it's in an environment that's very fast-paced, very quick to try to find solutions when we have problems. So you get a lot of issues that pop up where customers say 'hey, I just had a problem with this well we have $1,000,000 a day rig sitting on top of that well and we need a solution to go down and pull this thing out of the hole or go rerun something different' and we get involved in a lot of those different problem solving and solution sets and that's really what I love about the business. We get to tackle big problems and get to play with big toys. So that's a lot of fun. I also like the fact that it's so international and so diverse in terms of the places we work and the people we work with. I've I think I've had the opportunity to visit like 40 different countries, lived in, lived in the Middle East and it just have a lot of friends from all over the world and have really got to see the world in a way that I think most folks don't get to. So like, that's another thing that I love about the industry. What has happened, and I've seen it over the last 25 years of my career when I first got into the business, there was a big concern about peak oil and peak oil supply The big thing that we worried about was this idea that we had found the best oil reserves on the planet and humanity was facing impending doom because we weren't gonna be able to produce enough oil. I saw that as an opportunity in the sense that, hey, it is tough for the world. But if we can help fix that problem, it will be a big opportunity for the oil and gas industry to thrive. And that's, in fact, what happened is we unlock deep water and we've got more out of our existing reserves. So being a part of that has been really fascinating. But we have seen this dramatic turn over the last, in particular, over the last four or five years, really over the last two or three, at least in the US, where I think people will said hey, we know we really need oil and gas there are some concerns about the impact on climate But it was, let's say, less relevant to the conversation. And I think over the last two years in particular, I would say I would put it at during COVID is when the conversation really changed where people thought, OK, oil and gas is really optional, we don't need it anymore. We can rapidly transition away from it. And I think over the last year, we have seen the folly of that way of thinking. I probably like being a little bit contrarian. So I like being on the side where I'm in the minority, where the majority of people are telling me what we're doing is wrong and and I feel very strongly that what we do is good for the world, so I kind of like being in that position inherently, at least, probably just how my personality works. But the thing that I've has struck me in the last couple of years is how that idea that fossil fuels are bad for the world has filtered into our industry and you have so many industry leaders and so many industry participants who share that view and that's what really has surprised me and honestly kind of maybe I'm a little bit distraught over. So a couple of years ago where we had a viral post about North Face refusing to sell their jackets because we're in the oil and gas industry. I wrote a letter to The North Face and posted it online. Got a lot of traction in the industry and a little bit more broadly. The primary reason I did that was because I wanted my employees at Innovex to understand that what we do is super valuable for the world and not have this view that hey, well, you know what we do day-to-day is kind of bad because we're in the oil and gas business and I'm like, no, that's 100% wrong. What we do - the humanity could not survive and thrive without us. And we I think if we as employees and participants in the industry have that view, that what we do is critical. It just it's so important to people's mindset and the culture and what you're trying to do that people think that what they're doing is valuable for the world. So that's probably the biggest part that I've struggled with that I've seen in the last few years that I've really tried to fight back against is our own industry getting to the point where we are conflicted about the good that we do for the world.

So, as you mentioned previously, that since COVID there's been a lot of traction in terms of activities going on to reduce sort of the oil and gas industry production? There's also been a rise in environmental, social and governance factors being incorporated into investment decisions or companies' corporate strategies and. And so how do you think companies in your field are sort of responding to this and and just your thoughts on that really.

Yeah. So that that's an interesting topic. I think the the ESG concept in principle makes sense, in the sense that we as humans and as an industry and a specific company should be focused on what we're doing to be good stewards of the environment, to improve society around us and that we need to have good governance of our businesses to derive value for everybody

So, like, in principle that makes a lot of sense. What it appears to me that ESG has become a shorthand for declaring a net zero target by some date 30 years in the future. So I think if you look at that part of it, I really struggle with the idea of every company having to somehow genuflect at the altar of net zero and set some goal so far out that none of us - I mean some of us won't even be alive when these things are hit. But certainly the leaders who are putting out these CO2 goals for their company will not be the leader of the company at the time that happens. It just strikes me as disingenuous and kind of cynical to put out these targets that you're not gonna be able to hit And then I would say that whole idea of net zero by a certain date I think is just folly for the world I feel like there will come a day when there is a lower cost, more reliable, cleaner, lower CO2 energy source and source for everything else that fossil fuels do for us besides energy. But that day is not today. And until that day comes, what fossil fuels do for the world is just irreplaceable, and if we go to net-zero by 2030 or 2040 or 2050 without a replacement for most of the fossil fuel use cases, it's not that we're just gonna suffer. It's like the vast majority of us will not make it as a species on the planet. So I think it's actually really destructive and cynical to put out these net-zero targets. So that's my view of ESG. But the idea that we should get back to the basics of taking care of the environment, looking out for the societies in which we operate and having good governance, those things all make sense and are things that companies probably should focus on a bit more than we have, historically.

So recently in the past year or so, there's been quite a lot of volatility in oil prices. So how has your your company and just the oil and gas industry in general been responding to that compared to years previous to the COVID-19 pandemic?

I think if you look prior to COVID, we had a lot of short cycle supply in the US in particular that was very good at responding to a short term signals, which I think was good for keeping a lid on global commodity pricing but bad for the oil and gas industry - because we just over invested capital to respond to short term price upticks and all we did is drive the price back down. Really up into the five or six years before COVID and then certainly through COVID, we invested way too much and there was just a string of bankruptcies across the industry. I think there was like $160 billion of bankruptcies in the US alone in the US shale patch because of this over-investment. Coming out of COVID, things have ramped back up, activities come back. The single easiest way to kind of measure US activities through the US rig count, not a perfect barometer of activity, but pretty decent. And if you look at that, you can see things have come back a lot and actually right now probably the US rig count is pretty close to what it was pre covid So things have come back a fair bit It has been a little bit constrained versus where it has been would have otherwise been for a couple of different reasons. I think the two big ones are our industry destroyed so much capital from like 2010 to 2020 that investors really got washed out during COVID and just said we're not going back to the industry and they combine that with the second factor, which was this really strong climate, ESG, whatever you want to call it, that really reached a fever pitch during COVID. I think has since crested and come back down again. But those two factors combined, it was very easy for a lot of different investors up and down the industry who basically said 'Hey, we didn't make any money and everybody hates investing in oil and gas, so you know, voila, we'll just not invest in oil and gas and we'll lose less money and people might dislike us less.' So I think that's why a lot of investors pulled out of investing. So we have grown production since COVID, but not to the same extent we probably otherwise would have if not for those two factors Now the other thing that's happening in the US is, I believe that we have run through the very best of the best acreage in the places like West Texas and North Dakota, where a lot of the oil production in the US came over the last decade. And so if you look at like activity levels today, pretty similar pre-COVID levels, we're not growing production the same way we did before, not because companies don't want to, but because they're acreage isn't as good or there's other factors. There's a whole variety of other factors kind of impacting well productivity. So well productivity has actually come down a little bit as well. So all of those things are kind of working together to kind of constrain US activity and then when you look international, some places have come back more rapidly like Latin America has really ramped back up and I guess that activity in Latin America is as strong as it was, probably something similar in the UK. West Africa has been slower to respond. And then the Middle East hasn't come back as strong yet, which is a little bit surprising to me. But I think in the next year or two you'll see really robust growth in places like Saudi and UAE. You're already starting to see that come back.