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QuickHit: How ready is the military to face COVID-19 and its challenges?

In this QuickHit episode, we’re joined by Tate Nurkin to talk about the state of the military in COVID-19 pandemic. Tate is one of the world’s top defense and security experts, who has been in the security field for the past 20-25 years. He works for US defense and intelligence communities, allies, and partners in China and the Indo-Pacific, helping with defense technology to improve the future of military capabilities globally.

 

In our previous QuickHit episodes we covered the oil & gas industry:

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

Tony: One of the key things that I’m curious about is the impact of COVID on militaries and their readiness. We’re not hearing a lot about that. Are you seeing anything there? Do you have any worries? Is that something that will last a few months or years into the future?

 

Tate: There are definitely some short-term implications for militaries and readiness is at the top of the list.

 

We saw a fair amount of media coverage of the situation on the USS Theodore Roosevelt, which actually was a pretty big deal. Over a thousand members of that 5,000-person crew were diagnosed with COVID 19. One passed away.

 

Those incidences are happening, not just with the Theodore Roosevelt. It’s happened on another US Navy ship and it’s happened on a French aircraft carrier. Just like cruise ships, these ships are places where you’re very contained and in close contact with other people who may be carrying the disease. It’s easy for the disease to spread.

 

We’ve also seen it with the Taiwanese Navy. Taiwan did a fantastic job containing the crisis, but they have friendship fleet missions that go to the South Pacific. The most recent one came back from Palau. A bunch of sailors who came off that mission were diagnosed after they had gone out into Taiwan and mingled around.

 

These are big issues. These ships, predominantly ship forces deployed throughout the world, must strike a balance between keeping people safe during peacetime, and also making sure that there’s operational readiness. It’s something that not just the US military has struggled with today.

 

 

Tony: Do you see that we’re going to be contending with this for years? Or do you think we’ll get over this in a matter of months or say a year or so?

 

 

Tate: I would put the time frame for the readiness challenge to be slightly shorter, 18 months maybe. It depends on how long, how many waves there are of outbreaks.

 

I certainly anticipate a second wave globally at least. I think that’s a shorter-term challenge and one that’s a little bit more manageable if you can come up with the right processes and procedures for what precautions to take. But it’s not just with deployed troops, but also with sheriffs working inside the Pentagon or civilians that are also supporting the defense enterprise.

 

There are longer-term challenges though. Some of what we’ve seen are militaries thinking about the new missions that they have to undertake. In the short term, this is supporting COVID-19 response and the longer term, refugee monitoring, border security, etc.. They’re outside of the direct defense sector and more in the security sector. But there are some new missions that the militaries will have to grapple with and a new, different sense of preparedness that will have to be dealt with.

 

 

Tony: In terms of things to grapple with, I’m just wondering about things like social unrest. We’ve seen a lot of economic fallout from this as people have to sit on the sidelines for months, as the industries have stopped, as things like deflation have set in with wages… There are not just the social aspects of being isolated, but the economic impacts also. What I wonder about is social unrest. Is that something that we really don’t need to worry about? Or is that something that you take seriously?

 

 

Tate: I tend to try and navigate the spectrum between alarmism and dismissiveness. In this case, some finding somewhere in between, but maybe on the side closer to the alarmism. This is a big deal. There will be spatial and economic repercussions and some states won’t be particularly well equipped to handle those. Whether it’s overturning of regimes or just extraordinary societal and political pressure on regimes.

 

Asia is a good place to start. Some will be more resilient than others. But this is a big challenge for defense and security communities and for political establishments for sure. Reshoring supply chains, including the defense supply chain, will just amplify some of those pressures.

 

 

Tony: Amplify the pressures in the manufacturing countries today, so the Asian countries?

 

 

Tate: Some of the Asian countries. Japan, for example, has $2.2 billion that were built into it. Most recent supplemental budget for reshoring supply chains out of China. Some of the others will get to Southeast Asia, some will go back to Japan. But the reshuffling of supply chains and the defense supply chain is not immune to that at all. This is something to keep an eye on for both defense readiness and for political stability issues.

 

 

Tony: In terms of that separation of supply chains, it almost sounds like it’s the opposite of the EU spirit. The EU came together with the Coal and Steel Union, then integrated manufacturing. The theory was, as they became integrated, there was less likelihood of conflict in Europe. Am I exaggerating? Is it the opposite of the EU theory and maybe something that you see dangerous over a 5, 10, 15, 20-year horizon? Is it near-term or longer-term? Where do you see conflict happening?

 

 

Tate: Returning to that defense supply chain as somewhat of an analog for the broader challenge. A couple of years ago, the administration commissioned a report on weakness in the US Defense supply chain. And one of the big findings was that the US Defense supply chain was over-relying on the competitor, which is China. Some chemicals that go in some ammunition and other materials are largely sourced out of China.

 

The answer here is to re-shore some critical supply chains. We’ve learned that with the medical supplies most recently. Part of the solution is to find your trusted partners and also to stick with them. And some of that can be regional.

 

One of the challenges coming out of COVID 19 is a geopolitical one, and it’s meeting the challenge of China on a lot of levels. And for the US, retreating back towards autarky might not be the right answer. We need to find the things that we absolutely have to have. Find the partners that we can trust, and try to engage them so that you have some partners to deal with, this is much broader challenge.

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QuickHit: Oil companies will either shut-in or cut back, layoffs not done yet

We continue discussing oil companies this week with Tracy Shuchart, who is a portfolio manager and considered as one of the leading experts on crude trading. Tony Nash asked who is trading oil these days, why the oil went negative, and when can we see a bit of recovery for the industry? Most importantly, will layoffs continue, and at what pace?

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Hi everyone. This is Tony with Complete Intelligence. We’re here doing a QuickHit, which is one of our quick discussions. Today, we are talking with Tracy Shuchart, who is a portfolio manager with a private equity fund and she is one of the foremost experts on crude trading. We’ve had a number of conversations with her already, and we’re really lucky to get a little bit of her time today.

 

Tracy, just a few days ago, I was talking with Vandana Hari, who was formerly a Research Scholar at Platts and knows everything about energy. She was telling me that there are three to four months of crude oil supply, and that’s the imbalance that we have in markets right now. That’s why we see WTI at less than 20 and these really difficult price hurdles for people to get over. Can you tell us who’s trading crude oil right now? Is it mom and pops? Is it professionals? What does that look like? And also, what will have to happen for those prices to rise, generally?

 

 

TS: Right. Right now, the USO had to get on the prep-month contracts.  

 

TN: Sorry, just to clarify for people who aren’t trading ETF’s. USO is a broadly traded energy ETF, and they’ve had a lot of problems with the structure of the futures that they trade. So they’ve had to push back the futures that they trade from the front month, which is the nearest month that’s traded to further back in a channel in hopes that the value of crude oil in the further of months trades higher than the current one. So they’ve done a lot of reconfiguration over the last few weeks. So sorry. I just wanted to explain that.

 

 

TS: That’s okay. They’re out of the front month. Bank of China just had a big problem when oil prices went negative. They had a lot of money in the front months. They’re out.

 

Most retail brokers are not allowing regular retail to be traded in the front couple months actually. All that you have trading front months are the big funds, anybody who’s been hedging and then maybe a bank or two. But it’s definitely not retail that’s in there, and there are a lot of big players now that are not in there.

 

When we get towards expiration, the problem is that most of the funds are pretty short and most of the hedgers are pretty short, and the banks are on the opposite side of that trade. But when we come to expiration, what I’m worried

about again is we’re going to have a no-bid scenario. We’re going to have that vacuum once again. You’re not going to have any natural buyers there.

 

 

TN: Okay. So the WTI traded in the US goes negative, but the WTI traded in London on the ICE doesn’t go negative.

 

 

TS: They just decided not to let that contract go negative. The difference between the contracts is the CME Group contract is physically deliverable, right? And ICE contract is a cash-settled contract. So they’re not going negative, but CME allowed this contract to go negative.

 

And they actually put out a notice about five days before that they were going to start letting some contracts go negative. This wasn’t a total surprise, as soon as I saw that, I thought it was going to go negative.

 

 

TN: Both you and I have told stories about how we had friends who wanted to trade. Like I had a couple of friends who wanted to triple long Crude ETF a week and a half before it went negative, and I said, “please, please don’t do that.” So grateful that neither of them did that because it could have been terrible.

 

So how do we clear this? We’ve got three-four months of oil just sitting around?

 

 

TS: If you talk to most of the big trading houses in Switzerland like Vitol, Trafigura, etc., basically their base case scenario, and they’re physical traders, their BEST scenario is it’ll be September before we get some sort of hints of a balance left.

 

So what is going to happen? There are either two things. We’re going to fill up storage, and then producers literally won’t have to shut it. There’s nowhere to put it, so they literally have to do what I call forced shut-ins. If you don’t want to shut-in, the market is going to force you to do that. That scenario is going to happen. Or we’re going to get a scenario where people decide to voluntarily cut back. Just look at the backend like CLR, Continental Resources just did that. They shut in about 30 percent of their production on the back end, and I think there’s about thirty-five to forty percent now that’s shut-in. And there are some other basins where that’s happening as well, in the Permian, etc.

 

 

TN: So that’s mostly people in the field they’ll probably let go. Will we see people at headquarters? Those CEOs or only those workers in the field?

 

 

TS: I think you’re going to see a broad range of layoffs. It’s already happening. You’ve already seen companies lay off a bunch of people… Halliburton’s laid off. Everybody’s laying off people. And they’re not just laying off field workers as they’re shutting rigs down, they’re cutting back on their office help, too.

 

And with the shutdown, it’s even more worrisome because maybe they figure out that, “we definitely don’t need this many people,” and all these people working remotely.

 

I don’t think that the layoffs are done yet. We’ve only had a couple of months of low oil prices. If this continues for another 3-4 months, we’re definitely in trouble.

 

 

TN: So is this time different? I mean if we were to stop today, and let’s say things come back to 30 bucks tomorrow, which they won’t. But if it stopped today, would the oil and gas industry look at this go, “Thank God we dodged that bullet, again?” Do they just go back to normal like nothing happened? Or if it were to stop today, would they say “Gosh, we really need to kind of reform who we are. Focus on productivity and become a modern business?” How long does it take for them to really make those realizations?

 

 

TS: I think what’s going to have to happen, which may not happen, is the money runs out, right?

 

So first, you had to ride the shale boom. All these banks throwing money on it. After 2016, things were easing up. So private equity guys got in there, and they threw a bunch of money at it. Basically, these guys are going to keep doing what they’re doing as long as they have a source of equity and a source of capital thrown at them all the time. As soon as that dries up, then they’ll be forced to delete and go out of business. We’re already seeing that happen. We’ve had over 200 bankruptcies just in the last four years alone, and this year we’re starting high. So they’re either going to go out of business — Chapter 7s, not 11s. And the thing is that with the big guys, like Chevron and Exxon that just entered into the Permian, they’re just waiting to chomp on some stranded assets.

 

So again, what it’s going to take is the money’s got to dry up or they go out of business. That’s the only way I really see them changing.

 

 

TN: Yeah and we’re just at the beginning, which is really hard to take because it’s tough. So Tracy I’d love to talk for a long, long time, you know that. But we’ve got to keep these short, so thanks so much for your time. I really appreciate your insights. We’ll come back to you again in another couple of weeks just to see where things are. I’m hoping things change. But I’m not certain that they will. So, we’ll be back in a couple of weeks and just see how things are.

 

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QuickHit: There’s no going back for O&G sector jobs

In this week’s QuickHit episode, we have Vandana Hari, CEO and founder of Vanda Insights. She has 25 years of experience in the oil and gas and we asked what she expects to see happening in the near future. Will the oil industry recover, and when? Will bankruptcies and layoffs in big oil firms continue? And what can these companies and the government do to prevent the worst from happening?

 

We also discussed the oil and gas industry in the previous QuickHit episode on what companies can do right now to win post-COVID.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: Today we’re joined by Vandana Hari of Vanda Insights. She is one of the top energy market experts in the world. Can you tell us a little bit about your firm and what you do?

 

VH: I have been looking at the oil markets for 25 years now. I started my firm Vanda Insights, which provides global oil markets macro analysis about 4 years ago. Prior to that, I worked with Platts, which is a very well-known name in energy commodities. I looked at the pricing of crude, refined products and various other energy commodities. I covered news and analysis.

 

TN: Great. So it’s obvious why you’re here. Crude markets are in crisis. The big, big question is how long are we in this kind of sub $20, sub $30 zone? Generally, what’s your expectation for the length of that super depressed pricing?

 

VH: It’s certainly not going to be a v-shaped recovery. As we speak Brent, a benchmark crude, is trading around $22 to $23 a barrel. US WTI, another benchmark, is trading around $12 or $13 dollars a barrel. Now where do I see these going?

 

As we look out into May, and I’m taking into consideration a couple of factors there. One is that we are starting to see gradual reopening of the economy in Europe, the worst-hit countries Italy, Spain, France, Germany, and then we have the US and as we were discussing offline, Texas is looking to reopen. Some of the other US states are going to reopen as well. The oil markets will have a very close eye on these re-openings because they have the answer to demand revival. We are coming out of an unforeseen, unprecedented trough in global oil demand close to 30%–30 million barrels per day–of global oil demand has been destroyed. How does this go into May?

 

I’m expecting a very extremely slow gradual revival. There may be a bit of an impetus and upward boost to oil prices from a gradual reopening. Nothing like what we are seeing in the stock markets, though. I think that’s where stocks and stock markets and oil are going to decouple and have already started to decouple from what I can see.

 

The other element is going to be supply. So OPEC and non-OPEC alliance of 23 members. 20 out of those 23 have committed to reducing production collectively by about 9.7 million barrels per day for May and June. Now typically, that sort of an announcement, which happened back on the 12th of April would have in itself boosted oil prices. But this one didn’t. Now clearly it is seen as too little too late. Nonetheless, it will start mopping up some surplus. It’s just that it will again be very slow in giving any sort of positive signals to oil because remember, oil has to work through nearly three months of oversupply and an overhang. So the glut is going to take its time to disappear.

 

TN: It’s a demand problem, right? It’s a supply problem, but you do have lack of demand from the government shutdowns, and then there is supply continuing to come online. All of this issue, it makes me wonder bout the shale companies. I’m curious about shale and kind of privately held independent oil companies. But I also want to learn a little bit about NOCs, the national oil companies. If you don’t mind telling us, what is your view on shale? And how do you expect the NOC’s to fare after this? Do you think they’ll thrive? Do you think they’ll cut the fat? Do you think they’ll change at all, or do you think they’ll just continue to lumber along as they have for the past whatever 70 years?

 

VH: The one characteristic of this crisis is that the pain in the oil sector is being felt and will continue to be felt across the spectrum, all the way, from oil production to refining to logistics. And we can talk about logistics in a little bit as well, because that’s doing quite well now because of storage demand.

 

However, the pain is going to be felt all the way down to refining and retail. It’s also going to be spread across geographies. It’s going to be spread across the size and nature of companies, whether you are an oil major or an independent or an NOC.

 

Let’s talk about shale first. It’s not just the OPEC, non-OPEC enforced mandated cuts, but I am expecting to see major decline starting to happen in North America, in Brazil and perhaps in other places like the North Sea as well. What happens in the US is going to be key because it’s the biggest oil producer, thanks to the shale boom. Shale contributes nearly 80% of US oil production. What happens to shale is also going to hold the key to US energy independence in the future.

 

I also look at a couple of very key metrics in the shale patch. One is the weekly rig count that I monitor from Baker Hughes. The other one is a weekly count of the fracturing fleet. So in the hydraulic fracturing, it is far more jaw-dropping decline in numbers that have seen. 70% drop in the frat fleets currently versus the start of this year.

 

What all of that tells me, and we’ve done some number crunching of our own, is we expect to see close to a million barrels per day of decline in June going up to 2 million barrels per day in July. That’s something that the oil market is not quite factoring in yet. Let’s remember that shale bounced back phenomenally after the 2014-16 downturn. That’s the impression that the market has. That shale may be down on its knees, but it will bounce back. But this time, I think it’s going to be very, very different. It’s going to be nothing like a bounce back.

 

As far as national oil companies are concerned, I look at them quite closely sitting here in Asia, they are a breed in themselves. A lot of them are lumbering giants, very slow to change. Most of them are directly controlled by the government or have majority state ownership.

 

Now, one of the things that I have noticed that is going in favor of the NOC’s, especially in Asia–countries like India, China, even places in Southeast Asia–is that they have a captive, domestic, fast-growing market. These NOCs also tend to be vertically integrated, so and more often than not, Asia is a net importer of crude. They have giant refining operations and relatively less upstream or oil and gas production operations.

 

Refining is also getting hit in the current downturn. What we see refiners doing, which includes these NOCs of course, are they’re cutting back out. Port refining margins are terrible. They have gone into negative for a lot of the major products. How will the NOCs survive this? I think they come out of this with a great deal of financial strain. We have to see to what extent they get government support. Some of the NOCs, unfortunately, especially in countries like Indonesia, also struggle with fuel subsidies. So those might fare even worse in the recovery mode. Overall, I think another transition that’s going to take hold for NOCs is the investment in technology: to be more efficient whether you’re producing or refining or retailing oil. And to be more environmentally-friendly with products.

 

TN: Do you think they’ll be more productive? Do you think they’ll invest in technology? Just across the board with oil and gas companies in general. Do you think they’ll actually invest in productivity or do you think they’ll just kind of hold their breath and buckle down like they have always done? Can they afford to do that this time?

 

VH: So when it comes to technology, specifically for cleaner energy, it tends to be driven more by regulation than by market forces or by just companies one day waking up and deciding “Hey, I’m going to be more environmentally friendly.” It just doesn’t happen that way, and that’s certainly true for NOCs. I think oil majors are under a slightly different kind of dynamic. We’ve seen, for instance, only in recent weeks, BP and Shell double-down on their commitment towards greener, cleaner energy. Of course, their feet are being held to the fire by their shareholders.

 

NOCs are in a very different environment. I think a lot will depend on to what extent governments in Asia re-commit themselves to the Paris Agreement, and are part of the global drive towards cleaner energy. We have seen in recent years visible, tangible air pollution has been a major concern in cities all the way from Delhi to Beijing.

 

TN: As we as we stop under COVID, you know, air quality has improved dramatically, right?

 

VH: Yes indeed. You have to think when people go back to the new normal, and they are out and about and the pollution levels increase, what will that do in terms of pressure on these companies? So overall, I think the pressure from the environment will remain, to adopt new technologies, to move towards cleaner fuels.

 

Pressure from oil prices to be more efficient may be the case for NOCs. I see that a little bit less, and they’ll have to just pick and choose basically, right? But your big question, where does the money come from? I think that remains a major, major issue. Will they be able to raise money? So we’ve seen in the latest crisis, a few oil companies that are well-regarded, oil majors have tapped banks and raised loans. What I would personally love to see is for these NOCs to come out there a little more aggressively, because after all, they will be back in favor, thanks to the captive market. So I’d love to see them raise money with bonds, bank loans, or whatever, because they will need money from outside. There certainly won’t be enough to dip into their pockets.

 

TN: Yeah. The national accounts from any of these countries can’t really handle it. So that’s a great point.

 

We’re running long, but I don’t want to stop this conversation. So normally, I’d cut this off. But let me ask you one last question, okay? I live in Houston, Texas, and oil and gas town. We’ve seen some layoffs. But we actually haven’t seen a lot yet. You don’t live here so, you know, you can give us an unbiased view of the energy sector. What do you expect, and it’s not just Houston, of course, it’s the energy sector globally. Are we at the midpoint of energy layoffs, are we early, are we late? I mean, how bad do you expect it to get?

 

VH: I think we are probably at the beginning of it. So we have started seeing bankruptcies in the shale sector. Well, to be clear, the bankruptcies in the shale sector accelerated even in 2019. Shareholders and lenders have been becoming disenchanted with the sector for a while. But I do expect bankruptcies to set a record unfortunately in 2020, perhaps spilling over into 2021 as well.

 

But when I look at the US energy sector, I’m also paying attention to a lot of news about the US government making a lot of noise about wanting to help the energy sector. So whether it be, opening up the Strategic Petroleum Reserve, allowing producers to store oil there or to giving them loans from the Fed’s Main Street Lending program. All of that, remains to be seen, and we’ve heard some ideas about banning or putting tariffs on OPEC crude and so on, which probably won’t happen. But I think some of these other measures will happen.

 

My concern is that for most companies, it will probably be too little too late. So I do expect a huge consolidation, and unfortunately a lot of layoffs. People will just have to reinvent themselves, learn new skills, because there may be no going back to oil sector jobs.

 

TN: I think you’re right. I think it’s a generational change. I think it’s a really tough time, and you know these people, it’s nothing they deserve, it’s nothing they’ve even done. But it’s just a very tough global situation where supply outweighs demand. It’s that simple.

 

So Vandana, this has been amazing. I haven’t done any of these interviews that are this long. I’m so grateful to get this much of your time. Thanks you and I’m hoping maybe we can revisit with you in a few months see where things are and take stock of what the future holds?

 

VH: It’s been my pleasure, Tony and I’d love to do this again and thank you to our viewers who’ve stayed with us all the way to the end. I hope it has been worth it.

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QuickHit: 2 Things Oil & Gas Companies Need to Do Right Now to Win Post Pandemic

This week’s QuickHit, Tony Nash speaks with Geoffrey Cann, a digital transformation expert for oil & gas companies, about what he considers as “the worst downturn” for the industry. What should these companies do in a time like this to emerge as a winner?

 

Watch the previous QuickHit episode on how healthy are banks in this COVID-19 era with Dave Mayo, CEO and Founder of FedFis.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

TN: Hi, everybody. This is Tony Nash with Complete Intelligence. This is one of our QuickHits, which is a quick 5-minute discussion about a very timely topic.

 

Today we’re sitting with Geoffrey Cann. Geoffrey Cann is a Canadian author and oil industry expert and talks about technology and the oil and gas sector.

 

So Geoffrey, thanks so much for being with us today. Do you mind just taking 30 seconds and letting us know a little bit more about you?

 

GC: Oh, sure. Thank you so much, Tony, and thank you for inviting me to join your QuickHit program.

 

So my background, I was a partner with Deloitte in the management consulting area for the better part of 20 years, 30 years altogether. I had an early career with Imperial Oil and I’ve spent most of my career helping oil and gas companies when they face critical challenges.

 

These days, the challenge I was focusing on prior to the pandemic was the adoption of digital innovation into oil and gas because the industry does lag in this adoption curve and yet the technology offers tremendous potential to the sector. I see my mission, and it still doesn’t change just because of the pandemic, as the adoption of digital innovations to assist the industry and to resolve some of its most intractable problems. That’s what I do.

 

 

TN: Wow. Sounds impressive. I’m looking at the downturn in oil and gas and the downturn in prices. There have been big layoffs and cost savings efforts and these sorts of things with oil and gas firms. And, typically, a pullback is an opportunity for the industry to re-evaluate itself and try to figure out the way ahead. Are we there with oil and gas? Do we expect major changes, and as we emerge from the current pullback, how do we expect oil and gas to emerge? We expect more technology to be there. Do we expect more efficiency in productivity? Are there other changes that we expect as we come out of this?

 

 

GC: I’m pessimistic about the prospects for oil and gas and it’s driven by this collapse and available capital and cash flow to the industry.

 

When the industry hits this kind of survival mode, there’s a standard playbook that you dust off. And that playbook includes trimming your capital, canceling projects, downsizing staff, closing facilities, squeezing the supply chain, trimming the dividend. Anything that is considered an investment in the future is put on hold until the industry can get back on its feet.

 

And this is the worst downturn. I’ve lived through six of these. This is the worst I’ve seen.

 

Certainly sharpest, fastest, and deepest and coupled it with the over excess production in the industry. When the industry comes out of the other end of the pandemic, what we’re going to see the industry do is devote its capital to putting its feet back on the ground and getting back into its normal rhythm. But what that means is all the changes that our potential out there are likely to have been set aside in the interim.

 

 

TN: If you were to have your way, and if you were running all the oil companies, and they were to make some changes in this time, what would those changes be? What would some of those key changes be?

 

 

GC: There is a gap between what other industries have discovered, learned, and are adopting, and where oil and gas is at. That gap is, first, needs to be addressed by raising the understanding and the capability and the capacity in oil and gas to deal with the possibilities presented by these technologies. And so there’s task number one that oil and gas companies can absolutely do even during a downturn. Just train people and get them across the newer concepts or newer ideas.

 

A second possibility is to embrace the foundational elements that have proven to be the key success factor for so many other industries. One of those would be cloud computing. The adoption of cloud-based infrastructure, moving data into the cloud, is not costly, it generates an immediate payback because cloud infrastructure is so cheap, and it puts the company into a solid position for when the normal day-to-day running of it gets back in gear, the investments it may have been making an in digital innovation can all now be brought back into stride because this foundational technology will be in place.

 

So those are the two things that I would do: Get people ready for the journey ahead and put one of these foundational steps in place to get ready.

 

 

TN: Those are really enabling technologies, right? They’re not substitutional. They still need people, they still need engineering skills. It’s really just enabling them to do more, right?

 

 

GC: Correct, yeah. And covering off that gap incapacity is the key thing. Somewhere down the road, there will be the adoption of artificial intelligence and machine learning tools to improve the performance of the business. Those are coming and they’re coming very quickly. We’re not there yet. The job is where the industry needs to move forward, and as I see those are the two steps.

 

 

TN: Do you see this as kind of a generational thing? Is this five-ten years away? Or is it an iterative thing where you see it changing bit by bit for each year? How do you see this on the technology side for them?

 

 

GC: Well, in my book, I actually sketched out a way to think about this problem. And I call it the fuse in the bang. The fuses, if you think about Bugs Bunny cartoons. Bugs Bunny and it would be a comically large keg of gunpowder. It’ll be jammed into the back of your Yosemite Sam. As they go racing off, they leave a trail of gunpowder and Bugs would just drop a match in it. It always ended in a comically large but not very terminal explosion. So imagine that the length of fuse, that trail of gunpowder is how much time we’ve got and the size of the keg of gunpowder is how big the impact is going to be. In my book, I could actually go through some ways to think about this.

 

But you have to think about it in these terms, oil and gas is principally a brownfield operations business. In other words, most of the assets predate the Internet Age and they’re continuing to run and they run 24/7, they’re extremely hard to change, and so as a result, the idea that we can quickly jam innovation into these plants is just nonsense. It’s not going to work. So it’s going to take quite a long time.

 

The generation is on two fronts. One is the technology is legacy and therefore it has generational barriers to adoption of change. We also have a workforce, which is tightly coupled to that infrastructure and it also has struggles to cope with change. So we have to come across these two generational shifts that have to happen and they basically have to happen at the same time.

 

 

TN: Very interesting. Geoffrey, I wish we could go on for another hour. There’s so many directions we can take from here. So, thanks much for your time. It’s been really great talking to you and I hope we can revisit this maybe in a couple of months to see where the industry is, how far we’ve come along, just with the downturn of first and second quarter, look later in the year just to see where things are and if we’re in a bit of a better place.

 

 

GC: It’d be great fun because this is, you know, as I’d like to tell people, this is not the time to actually leave or ignore the industry. It’s when it goes through these great troughs like this, this is where exciting things happen, so pay attention.

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QuickHit: How healthy are banks in this COVID-19 era?

 

This week’s QuickHit episode, Tony Nash talked with Dave Mayo, CEO and Founder of FedFis, and an expert on banking, finance, and Fintech. This episode looks at US financial institutions like banks and how they are faring during the Coronavirus pandemic. Will new financial technologies help streamline the process of providing services like loans to medium and small businesses?

 

Watch the previous QuickHit episode on the Status of Global Supply Chain in Time of Coronavirus with the president of Secure Global Logistics, George Booth.

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

Show Notes

 

TN: Hi, everybody. This is Tony Nash. I’m the founder and CEO of Complete Intelligence. This is our Quick Hit where we talk to industry experts about issues in markets and in industries.

 

Today we’re with Dave Mayo. Dave is the founder and CEO of FedFis based in Texas. Dave, thanks for joining us, I really appreciate it.

 

Can you tell us a little bit about FedFis? And then I’d really love to jump into how you’re helping out the financial services sector.

 

DM: Sure. We’re a unique company. We sit as a layer above banking, we call FI fintech, and then fintech. From the banking side obviously, we are a data company and provider and intelligence. From the FI fintech side, those would be the vendors to the institutions like their core mobile offering. And then FinTech, that’s the new stuff, right? That’s the sexy stuff, like the Chime and the SoFis and those types of companies that used to be alt banking and now they’re joined back to banking again. So we help all of those different layers in one way or another through a data set that we have and intelligence.

 

TN: With everything going on in the wake of Coronavirus, there’s been a lot of talk about fiscal stimulus coming out of D.C. and stimulus through the Fed and other things. What is the health of the banking sector from your perspective? Because back in 2008 the banking sector was the worry, right? Is that the worry now? Is that something we should be worried about?

 

DM: I think our banking industry is based on a level of faith. It always has been, right? Now that said, this is a completely different situation. Banks are very well-capitalized. Banks are not the cause of the problem. We don’t have a systemic banking problem or issue. We’re very, very healthy right now. When you talk about a stimulus being put into the economy, the more money flows in and out, the more people spend and buy and purchase, the better things are. That’s just the way the banking industry is built.

 

TN: How do you see banking and FinTech really helping? Obviously we know how they help big companies with big placements and debt and these sorts of things. But how do you see them helping small and mid-sized companies with this economic gulf that we have right now, where the economy’s effectively been turned off for a period of time, which is a bit weird? How do you see, what you’re doing, and banks generally, really helping out there on the smaller and midsize level?

 

DM: I think there’s a big gap in education in our country when it comes to banking. People are like, “I don’t like banks” or “I like banks.” When there are the big banks, the big four: the B of A, Wells Fargo, Chase, Citi. And then we have community banks.

 

Community bankers all across the country, they’re the life of our banking system. They’re the heartbeat. It’s actually a lower touch point for consumers and FinTech with the dramatic decline in a number of community institutions that has really opened up this opportunity for a FinTech. And the reason being is it’s a direct touch point.

 

So if you were to say “I want to use my mobile device” or “I want to use my online to do banking without having to actually drive to an institution and deal with all their policies and all of the things that go with it,” it’s a faster connection point. And I think we’re probably going to see a lot of that in these business loans the PPP loans through the stimulus plan.

 

TN: How do we actually execute that from the Treasury to the small business owner or to the individual that needs help? So, do you think that some of these FinTechs are kind of non-banks? I mean, would you consider them kind of non-banks within this system? Do you think they’ll be able to do this stuff faster? And I don’t mean this as a negative to banks. Banks are highly regulated. Do you think some of these FinTechs will be able to do some of this stuff faster?

 

DM: It depends on which way you look at it. Because here’s the deal: so when we talk about banking and then we talked about FI FinTech and then FinTech. So a bank is a chartered institution and FI FinTech is a technology arm of that like online banking, mobile banking. A FinTech is something that looks like a bank, talks like a bank, but it doesn’t have a charter. It’s not really a bank. So they have to partner with an existing bank to charter. So there’s a bank behind every FinTech company. So when you think of Chime and companies like that, there’s an actual bank behind that company that’s doing the regulatory side of this to protect consumers.

 

TN: You guys track a lot of data around banking and real estate and consumer stuff and industry stuff. Are you seeing any data that’s really talking about or raising your worries about the velocity of money about how quickly people are spending? Are you seeing that data? If it’s worrying you, when does that worry end for you? Do you see us going back in to say a quasi-normal situation within the next two months or something?

 

DM: Predicting the future I’ve never really been a big proponent of. That’s your business. But for us, what we look at are key components.

 

One way to measure things right now is to look at a mortgage note on a 15 or a 30. What is the spread between, what we would call in the old days, prime and what is the asking rate on that loan So you’re generally looking at above 3 percent. And as long as you’re looking at that, that’s a strong indication that there’s a lot of refis going on right now. And so the spread is there. That’s an adequate spread for banks to make money. There’s a huge volume of it going on. And as long as we see that volume and people continue to go to the bank, cash their checks, direct deposit always helps.

 

When we use our debit cards, when we go out and do the things that we do. Changing our mechanism of spending money whether it’s through Amazon as opposed to going through the mall doesn’t change the fact that you’re still spending money. Those are all positive things.

 

But I think the one thing we want to keep an eye on is the volume of lending. Everyone in a situation like this is going to have a tendency to kind of climb up a little bit. And, as long as that continues to flow, and one of the primary things that I’d be looking at is refis and other lending types of loan, etc.

 

TN: Are there any specific indicators you’re looking at on the commercial side to see if people are climbing up?

 

DM: I don’t really see anything from that perspective. I don’t think people are running out there right now at a time like this. It’s fairly obvious. You wouldn’t want to run out and start a new construction project or something like that. Those are gonna have an impact. There’s no way around it, but there again that’s what stimulus is there to offset.

 

Right now, I would say we’ve got a very healthy banking system. We’re coming out of a very healthy economy and so what’s our time frame of a bounce-back is it going to be a v-bottom or is it going to be spread out? I think it’ll be a little more spread out than a V-bottom and I think they’ll probably be multiple cycles of this that go on to some degree.

 

But starting from a really healthy position in our banking system and in our economy, this will pass. And when it does, here’s the thing I think is so interesting, unprecedented levels of stimulus and, the old saying you don’t fight the Fed, right? So does the market go up and we have a stimulated economy? Of course it does. And with this level of pent-up demand and stimulus, will there be a bounce back? Yeah, there’ll be a bounce back. The question is how huge will it be and how fast?

 

TN: That’s great Dave. It’s a huge source of optimism. Thank you so much for that and I really appreciate that you’ve taken the time to join us today. So really appreciate your time and and thanks very much for, for all that you’ve shared with us today. I really appreciate it.

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QuickHit: Status of Global Supply Chain in Time of Coronavirus

In this week’s QuickHit episode, Tony Nash speaks with George Booth, the President of Secure Global Logistics. SGL is a complete logistics company with global and domestic services. We dig deeper into the status of global supply chains within this era of Coronavirus or COVID-19 and learn how companies move things across the globe, and what that is looking like right now.

 

Last week’s Quick Hit episode was about how SMEs are affected by the global pandemic and pieces of advice from an expert on the best course of action. Watch it here.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes:

 

TN: Hi, this is Tony Nash with Complete Intelligence. This is our weekly Quick Hit that we publish each week. We’ve got George Booth, President of Secure Global Logistics in Houston, Texas.

 

We’re really interested to understand George’s view on the impact of Coronavirus on global logistics, supply chains, and trade. And what the impact is on the volume, timing and magnitude of trade. George, first could you tell us just a real quick overview of SGL? Then let’s get into some of the topics.

 

GB: Yes, good morning, Tony. Good to be here. The SGL is a complete logistics company. We do a full suite of global and domestic logistics, including import, customs brokerage, exports by air and sea and domestic by air and road. We also do 3PL logistics, so full warehousing, packing and getting ready for export.

 

TN: Perfect. That’s great George. Thanks very much. And I really appreciate you taking the time to talk. I know there’s a lot going on as shippers and the other folks try to figure out how to get goods to destination with the disruption of the supply chain. Can you help us understand, what are you seeing in terms of volumes for your clients?

 

GB: Yeah. Well, interestingly, the volumes haven’t dropped off yet. We would expect that to happen almost immediately. Shut down hasn’t started to happen here. It hasn’t happened yet. I think we’ve been slightly helped with a buffer by China coming back online.

 

In January and February, we took a real hit from our customers that import from China. That’s when they just shut down and factories were closed. We saw nothing coming in, but that’s now picking back up.

 

For example, we have a customer who does a monthly freight out of China. That hadn’t happened in like two months, and this week we’re moving 21 ton of freight out of China. And he said, “Get it here fast.” They want to get the product on the market and sell it.

 

We haven’t seen a drop off yet. We’re also seeing a big spike in freight this past week, and even yesterday, as a lot of clients are preparing for a shutdown. So they’re trying to get that product moving and maybe converting from sea freight, ocean freight to air freight to get it moving and to get to the destination before the shutdown happens.

 

TN: OK. So volume has been pretty consistent. What about, you know, as we’ve seen, say, the crude price, because I understand some of your clients are big gas firms.  With the crude price declining as it happens, what impact has that had on shipping rates? And what is the typical relationship of crude price and shipping rates?

 

GB: Well, this is really interesting. I’ve been in the shipping industry for all of my career of about 25 years. And this is the first time we’re not seeing a direct correlation between lower oil price and low freight rates.

 

That’s been really challenging, our clients are suffering from a lower price, but we have had to present them with much higher rates from the carriers and particularly air freight.

 

The air freight in the past, when the oil price was down, the freight rates go down with it. And then when they go up, you see a big spike included fuel surcharges. But because of capacity issues, air freight has now become almost the highest bidder scenario.

 

Some airlines are selling to the highest bidder. We are seeing freight rates in some cases 10 times what they normally ask. Something would have paid a dollar fifty per kilo in the past, we’re now seeing going for up fifteen dollars.

 

I’ve seen a lot of lack of flexibility from the air freight carriers, as well. While in the past you might have booked it, and the factory wasn’t quite ready or it wasn’t ready to export. You’d still book it into the next day with no charge for lost slots.

 

If you don’t show up with your freight, they’ve been really clear, which, again, from a supply chain, you can understand, they’re not getting the same return. So they’re making it inflate.

 

I once had an airline say that the best deal for them is that the cabin, first-class cabin is full, economy empty, and the belly full of freight. Now, they don’t do first class. So they’re making all their money on the various freights.

 

TN: Are you seeing sea freight come down or stay the same or what’s happening with sea freights?

 

GB: Well, sea freights have been very interesting as well, because the distribution of liner and equipment, shipping containers, there’s a backlog in China because China hasn’t been moving.

 

A lot of equipment is stuck in China. The past few weeks, we’ve started to see competitive, very competitive sea freight rates coming out of China as China tries to boost the economy, get freight moving. And also as liners are trying to get the equipment back in the right places.

 

Conversely, trying to export from Europe or from the US. We’re seeing much higher rates because there’s a lack of capacity and a real demand for liner and equipment. So that’s proven a challenge. So it depends where your ship has been from and to, based on the allocation and relocation of liner and equipment.

 

TN: Okay. It is interesting from your perspective to see China’s actually back online.  We’re actually seeing the physical goods coming and you’re seeing the volumes come in. I think that’s very interesting.

 

So what is the biggest kind of concern that your clients have right now in terms of logistics and some supply chains? What do you hear from them as their biggest concern?

 

GB: Yeah. I mean, a lot of our clients are tied to oil and gas. They operate as a squeeze-in. And as it squeezes, it comes all the way down. And I always say the fate of logistics is at the end of the food chain.

 

We get the squeeze all the way down. Some of our clients are being asked to take 40 percent reductions in the rates. And now squeezing that back down to all that supply.

 

At times in, well, of course, we want to work with you. But we’re also presented with air freight that is 10 times what used to be. It’s proven very challenging commercially for our customers, and for us to keep those relationships. They want to continue to be a partner at a time when they want us to share the bin with the promise of sharing the prize when it comes back.

 

But the oil and gas industry, as you know, has been depleted since 2015. So we’ve all been sharing the bin for a long time. So there’s not much left in the market for starters being distribution goes.

 

TN: OK. And George, I don’t know if you can answer this question, but how long do you expect this to last? What do you expect, what do your clients expect? Are they expecting this next month or two months or six months or a couple of weeks? How long do you think this will last in the US?

 

GB: Yeah, I think China’s a good indicator of the length of time they needed to end it and start to come out of it. So we have been planning for the same length, 120 days.

 

I mean, based on the president’s comments yesterday, it seems like there’s a real bullish approach to not going into this too long. I don’t know if that’s keeping with health advisory or not. But it seems that America wants to get back to business sooner rather than later.

 

I think we’ll see that big spike as we have this past week and this week as people try and get product moving before very they put it in shutdown. And then we’ll see the wall. And then there’ll be a backlog and people will start and try and get goods moving again.

 

So we were making our plans 90 to 120 days. And we’re hopeful, obviously, that it comes back.

 

But, our industry has also led the charge in health and safety, so we’ve been talking about our safety language for many years, even decades. And this is a time to prove that we care for our people, care for our supply chains and for our communities.

 

And we’re thinking very much the safety of our employees at our every week touch points, literally and figuratively speaking. Even four weeks ago, we had a memo out to our staff saying to be ready to work from home. And that this is coming. And we saw it coming because we were in daily contact with our partners in China and Italy and in Europe. So we could see what was happening there.

 

So, and we’ve been preparing for this. We operate from the cloud. So a lot of our people are operating from home. I’ve got so much scale and staff, and we rehearsed it.

 

TN: Fantastic. George, thanks very much. Thanks for your time. I really appreciate it.

 

If any of the viewers have questions, leave me comments or send us an email at Complete Intelligence. Thanks very much.