Panel | Oilcomm The State of the Energy Market Environment October 13, 2016

PANEL DISCUSSION: OILCOMM 2016

MSUA Satellite CEO Panel | The State of the Energy Market Environment

Thursday, October 13

Moderator: Frank August, MSUA

Panelists: Joe Spytek, CEO ITC Global, Keith Johnson, SVP Speedcast and Anthony Queenan, VP Marlink.

Sponsored by the Mobile Satellite Users Association, this panel discussion focused on gathering business and operational perspectives from executive leaders of satellite service provider companies operating in the energy market.

Frank August: What are the major developments and new service capabilities on offer to the energy sector?

Keith Johnson: What Speedcast has done over the last few years is really taken opportunity to make some key acquisitions and establish some presence in some of the key markets where we may not have had local presence. I think as Greg pointed out earlier, the energy business is really built around trust and reliability, and in order to establish that you need local presence. You have got to have infrastructure, and you got to have reliability, so we have really taken significant amount of investment financially and time to establish these key market locations to ensure that we can deliver, and that we can provide trust and reliability to the customers.

Tony Queenan: We found with the commoditization of connectivity, more now than ever, the service providers have to develop a portfolio of more than just bandwidth: bringing managed services - whether it is your customer services, customer support - we need to invest more. We have made some significant investments; we invest 40 million dollars a year in applications and solutions. More than ever, with the way the market is, you need to have more value-add services, managed services, to be able to provide to them.

Joe Spytek: It is obviously a very difficult market, I think, in terms of just the providers themselves; one just has to look at the attendance at this show. You really sense there is a little bit of a change in the industry, and it is not just ourselves, it is not just the energy companies.

Joe Spytek: For the satellite industry themselves, I did not think there is any facet of our industry that has not been touched; it is just very disruptive. From the launch operators themselves vertically integrating and looking where they are going to find new revenues - and perhaps encroaching on our traditional role - to the launch operators... look at SpaceX: they do not exactly know what happened with their rocket. A lot of the new capacity coming online relies on these lower-cost launches that we are contemplating. Again, I think throughout the ecosystem and throughout the food chain, there is disruption abound.

Joe Spytek: I do sense that ... I hate to call it green shoots, but it does appear that things are stabilizing a bit. There was the first energy IPO released I think a day or two ago. It sprang up 15%; the first one in two years. We do see pockets of strength - again, "strength" might be a little bit of a strong word - in India, the Asian subcontinent, and also the Middle East. In Saudi Arabia, in particular. What we are trying to do at ITC Global - with the backing of our parent company, Panasonic - is really we just feel like we have got to get better at providing additional services, and not just that raw connectivity. One of the things we launched a year ago is our Crew welfare service, which now has about 12,000 users.

Joe Spytek: So we are really trying to help the energy companies offshore with a new service that from a cost perspective, would help alleviate some of the cost that they have had to incur in the past in providing services to their crew, and offloading some of those costs onto the crew themselves. But doing it in such a way that the crew are more than happy to pay for it, because you are providing a far, far, better, more rich, and enhanced service. That is just one example; there are plenty more of these pull-throughs that we hope to develop over time from a technology perspective. Video analytics is another one that we are considering.

Frank August: Let me segue into one other question, and that is about price. Greg was on just a few minutes ago, and he mentioned that it was difficult to really say what price would he be able to pay. Is there something we can do to help Greg and the industry to look at price differently? To look at price in a different way, as a total cost of the operation, not just what a megabyte, or a megabit, or something else costs? I do not think any of us want to follow the price of oil, and we really cannot afford to do that.

Is there something more we can do to help the customers understand the true value of the satcom solutions we are offering?

Keith Johnson: I think there are a number of things that, as a service provider industry, we are doing. Some out of necessity. Some of those are more commercial. Things that we have done would be to allow customers portability. If they have got an area that has just completely been removed in terms of the demand in that particular area, drilling perhaps may be completely absent, and not in the forecast. We have allowed them to take that network and import it into another country that is still producing. I think there is a number of things on the commercial side. I think there are also things from a technology standpoint that are being implemented that help provide more efficient band with. I think as Joe pointed out, even from the space segment launch providers themselves, the price is coming down, let’s face it. To a degree, the energy companies are benefiting just from the overall downturn in the market. A bit oversupply right now, so that is helping their bottom line out.

Tony Queenan: We are spending a lot of time with our customers. Now, more than ever, is really honing in on: "What are your requirements?" "What are the things you need today?" "What are the things you need in your technology roadmap or service road map over the next three years, five years, and beyond?" It is spending time understanding those requirements, and then delivering a service from there. To some degree, maybe it is a customized service for them, but: "What kind of bandwidth do you need?" "What kind of services are you looking for on a crew's side of ship operations?" We work again in remote management, to be able to work with them and make things more effective, and more efficient. It is really understanding, because no two companies are the same. Everybody has a different mission, and a different part of the world - whether it is in the Gulf, or the North Sea - and it is really honing in on those requirements. By finding those requirements, we will reduce cost significantly. We will also increase efficiency with the various value-add services to bring forward.

Joe Spytek: I think from our perspective - besides the obvious risk-sharing that Keith mentioned - that has just been across the board. I think some companies have done a little bit better at being able to push those costs back onto the satellite providers. Certainly, it has gone from a market where the three- and five-year contract was the norm, to almost full and complete flexibility in some ways. I consider that to be risk-sharing, because we have had to absorb an incredible amount of costs on behalf of companies that are sometimes 3, 4, 10 times the size of ourselves. I think the most important thing that needs to happen - and we have seen it happen in other industries - is you take advantage of a downturn in the market like this to increase the efficiencies in your operations.

Joe Spytek: If you look at what BP has done, the operations guys are great at driving efficiencies in a cyclical market, but from an IT perspective, we often miss these opportunities. We are talking to customers about doing this on these smart-stacked rigs. You have got a lot of cold-stacked rigs that are just off line, but then you have the smart-stacked rigs where the customer is trying to keep as many of the systems operational. Taking advantage of this to actually put IT staff on site and make improvements to address items on the communications side is a great way to take ful advantage of the current cycle and try to solve issues and work through things.

Joe Spytek: You can solve a lot of these problems, and you can engineer around these problems if you have the time to do it. Well now is the time to seek out those efficiencies. I mentioned other industries - the mining industry, in particular. We saw the bottom of the last super cycle when the global financial crisis hit in 2007 and 2008, where we had copper prices drop 94%. They took that opportunity to implement an incredible array of automation and inject efficiencies. I am sure Chris Hill, our CTO, is speaking at the IOT session a little bit later this afternoon; we will talk more on this subject. It was really incredible what you could do if you actually took the time to look at the data streams you are trying to utilize.

Frank August: You just brought up two topics, which I would like to move into our next category, and that is Smart Ops: Smart Operations. I never thought I would be so worried about the internet, and my phone, and my home internet, and my identity being stolen. Early days were about getting an email from some woman that I did not know that implicated me in some way. Now, I am worried about my identity being stolen. Cyber security, we are all threatened by it. What more can we do within our satellite communications business to help this industry? I would like to keep your answer down two sentences, because I want to move on to a few other questions very quickly. What can we do, or what can we do more of? What is the best way forward to work together, Keith?

Keith Johnson: It is a continuing process; you do not solve it with an audit, you do not solve it by hiring a consultant to come in and do an external audit. It is a continuous process. I know from our standpoint, we are taking those steps to self-audit: to hire an outside consultant to be able to validate - at least to the teleport - we are clean, we are monitoring. I think it is a very proactive approach, in terms of at least trying to stay ahead of the game as much as possible.

Frank August: Tony, is that in line with what your approach is?

Tony Queenan: It is; Keith is spot-on. At Marlink, we take this - as everyone should - very seriously. We have three areas with these cyber security piece. The network sides, we have teams working on that. As Keith said, we are staying ahead, because this is going to be constant. We are putting things in place to stay ahead. From the network side, we have a team working cyber security. We have an I-Direct platform, so we have a team that works that, and then also the office, and our offices around the world. This is a big thing for us: several teams working on it. Our former owner, Airbus, is a real leader with cyber security, and with the different things they have done. We continue to work with them to put different things in place, and again, to keep ahead of the game - because these guys are as smart as we are who are trying to hack in.

Joe Spytek: We are going to leverage the capabilities of our parent company, especially the unit of Panasonic that we are part of, Panasonic Avionics. This has been pretty much their number one priority. Everyone remembers a year or two ago where there were supposed hacks of connectivity systems and IT systems on aircraft, which was completely debunked. There was a team of a few dozen people that had very proactive systems. The idea is to develop those systems and work very closely with our very sophisticated customers to integrate with their systems, and be as proactive as possible.

Frank August: Great, thank you. We hear about the driverless automobile, … ships that will not have crew on them. Vessel and rig automation: is there anything in particular that you are looking at, or working with customers to help them? I know Greg mentioned earlier, consistency, reliability. I imagine those are two important factors to depending upon satellite networks for your activities.

Are you looking at automation in any way, or is there something that you need to do? Is that just at the other end of the pipe?

Keith Johnson: No, I think we are consistently trying to push the envelope and stretch the innovation. There is a real demand now for what is referred to as remote hands, smart hands. Being able to do more with video, just in terms of monitoring gauges, where it may have in the past taken an individual to be out on-site. One of the other things Greg touched on is just the ability to not only find a vessel they can use, but that could meet the HSE safety requirements. We got to keep in mind that these things are great, but they still need to fall in line with what the safety codes are of that particular location. As well as the potential reduction in risk by being able to automate it. I think that is a real driver in the industry right now.

Tony Queenan: Yes. As I was always listening to Greg earlier, the automation is increasing. The demand for low-latency capabilities also is the driver for more bandwidth. That is, again, another area that we continue to strive at, continuing to go forward with.

Frank August: This area morphs really into out of band management, remote management. That really takes it to another step; if your remote management increases, your dependability on satellites and networks to help you ... you reduce your crew. Maybe it is not a step-function; I guess it is continuous. With respect to out of band management, I know there are some players. I was with Iridium, and Inmarsat in the past. I guess they have been used for out of band management. Is there anything happening in that area that you have been able to help customers with? More that we can do - which basically touches on that key point - is price. If you can help reduce the price of the support of the systems, then the effective price goes down. Anything in particular that you can recall, Keith?

Keith Johnson: Yeah. From our perspective, again, in other industries that we touch ... In particular the mining, when they went through this downturn, they implemented these remote operations and control centers. It was more reliability than capacity, because it is not actually high. Most of this is remote operations control stuff; IROCK in the vernacular was triple redundancy. Sometimes the satellite systems were triple or even quadruple redundancies, so it was all about 100%-plus uptime to enable that. That is when the confidence will come, and they will actually embrace the automation.

Keith Johnson: Typically, we are the facilitators in the process. We obviously have to be very tightly-integrated with the network, so when it rolls over from potentially a fiber network or a microwave network to a satellite network, there is variable latency, and variable jitter that comes into play that has to be managed. It is that transition time, and it is all those machine-to-machine processes that are all those touch points that are there to enable the automation. It is that critical moment when the networks that we provide take over, and the transition back has to be absolutely seamless, or it is not a working solution.

Frank August: Okay, thank you. I just want to remind the audience, we have five minutes to go. If you have any particular questions, the next two topics we are going to bring up quickly are crew comms, crew communications, and service delivery. Those are my topics, but by no means am I trying to drive what your interests are. Any questions, please raise your hand as we go, clear your throat, whatever you need to do to get my attention, because we only have 5 more minutes. The third topic I wanted to bring up is crew comms. It is of course critical; the crew expects to be connected, like we all do.

Is the growth in the crew comm's communications enough for you, as a satellite operator, to offset the downturn in the industry? Is there enough of growth there offsetting the downturn?

Keith Johnson: From our perspective, the answer is, "No." The downturn has been significant for all of us. I think it is another niche; it is an area that Joe pointed out earlier. If you put some focus on it, I think there is an appetite among drillers, if there is space available. Certainly among the operators, if you can come in with maybe a higher-contended, much lower-cost, higher-bandwidth solution, they are very open to look at it. I think that is really what is driving it. You look at the age of the average worker that is still going offshore, it has gone way down. They are used to bringing their device; there is a lot of companies that have implemented the BYOD - Bring Your Own Device.

Keith Johnson: No different in the crew's business: more devices per passenger. Same thing is happening with the rigs. As tight a control as they try and have, they still have the contractors and everybody else coming offshore that, sometimes, they do not have the control over. I think to answer your question: is it is a good niche. It is an area that we are focused on as well, but there still is some control that is being implemented to try and manage the type of user, and what they are using offshore.

Frank August: Okay. Tony, I want to just change the question slightly. Do you see restrictions from a customer’s point of view on crew usage? There is probably a need, and a want. We all have needs, we all have wants. Tony, do you see that open end of the crew is driving the requirement for satcoms, or the other way around?

Tony Queenan: It depends on how many companies, and actually, geographical regions. We see companies in Scandinavia and the North Sea, the crew is able to use services at no cost, and it is fairly open. Where all of a sudden you get into areas going into Nigeria or so, and the crew does not have access. It really goes company-to-company, and region-by-region, and we are seeing more and more. When we talk to a customer, or a potential customer, they are asking about ship operations, network operations, but crew, that is a big thing. "What can you offer?", what can we do?

Tony Queenan: Some companies will let their crew use Skype, or Facebook, or these different things. Then again, the age of the crew has changed, that dynamic has changed. People will not get on a rig, a ship, or a platform, or a boat if it is not there. Again, trying to get the right people, the best crew, you are having to offer this. We are seeing it more by geographical regions, where open access versus no access, or charging the crew for some type of use.

Frank August: Great, great. Thank you. Joe, I am going to change it up for you. We have one more category; I ran out of time, so I feel I have to have one question in the area of delivery of the partnerships and all. I will let the other two panelists kick in as well, but Joe, what is your view on how we monetize HTS? The capacity of HTS that is here, and incoming, to best benefit the energy market?

Joe Spytek: HTS is definitely coming; in fact, we probably have more high throughput capacity deployed than anyone at the moment. As far as HTS capacity that is deployed on the global network now for instance, we have the Pacific covered with the entire payload on Telesat’s T-12-V, which is pretty extensive coverage. This is a bridge until we launch our own independent, custom-designed payloads with XTS. How do you monetize it? You put it on the network, and we are going to be giving them to the crew. That is part and parcel to our Crew Live product, and it is mainly deployed for the aero business of Panasonic, but we have full access to it.

Joe Spytek: The exciting thing is that we continue to build custom-designed networks for our customers, but we have access to a completely independent network in terms of the Panasonic aero network. This is how we can provide energy customers and crews with significant capabilities, including live television deployed on that network. To monetize it, we are going to bring it to our customers. If they choose to use it for transits, or if they choose to use it for primary communications, I would say the price points are impressive. We have a lot of HTS deployed, and we are betting on HTS and XTS in a very big way.

Tony Queenan: Sure. HTS from our end, it is the direction we are going. It is providing more flexibility; it helps the customer right now weather the storm. We are giving more. We are able to use more, and have more. It is more contributing to the customer than margins on this. HTS, again, opens higher throughputs, and it is the directions for us. Again, we are technology agnostic, so if we were talking about the Epic - the Ku, the Ka - this is the direction we will be going in coming months and coming years.

Frank August: Keith, anything to add on your end?

Keith Johnson: No, I think they really covered it. It is definitely here; it is going to have an impact. It is going to also free up some other bandwidth that had not been available. From that standpoint, I think the market is going to help determine how much it is utilized by the supply and demand that comes through.

Frank August: Excellent, thank you. Thank you. We do not have time for any questions, but is there a question? I will take it. Yes, please.

Audience question: What problems and challenges have we run into? We talk about a more competitive market. We talk about multiple models of redundancy out there. We talk about throughput in systems. We are talking about more and more deck space and weight. All those things are limited commodities - limited constraints. In addition, when you talk about doing work in the field; you talk about the logistics, you talk about the scheduling, and the activities offshore required to move two meter dishes. How do we move that forward to make this a more dynamic and easier access to high capacity?

Keith Johnson: I think there is a few things that are happening right now. Number one, obviously, there is some flat panel antenna technology that is coming out that is still perhaps a little ways off, in terms of this application. I think the other trend that is certainly here upon us is being able to take some of the wireless technologies - 3G, 4G - and extend it. Things that I am sure that are going to be part of the BP Gulf of Mexico fiber. And tap that partnership. I think the other thing that is occurring that we are doing right now, we have five 03b networks deployed, and we are putting LTE on the back of it. We have talked about offshore, but energy also has a big land play as well. For these large camp facilities, remote offices, we are extending wireless connectivity off the back of 03b to deliver not only further reliability, but much lower cost basis. Lower footprint out on a rig or a platform. Those can also help address some of the problems you are describing.

Frank August: Anything else?

Joe Spytek: Yes, if you are in a basin, then you could do exactly what you said in your presentation; we need to partner with people with enough assets in an area, you can use wireless connectivity and that is a great way to do it. The antennas are getting better – for example, the tri-band antenna – and now that we can buy it, we can actually have that flexibility. Also, embrace the higher frequencies, if you are not afraid. BP certainly has not been afraid to embrace Ku.

Joe Spytek: Your antenna size decreases, and perhaps you can find the real estate on the asset. Again, there are physical constraints that you just have to work with, but things are getting better. The flat panels may or may not get there in the end and be perfectly reliable enough to do that. We tested the Kymeta at the Monaco Yacht Show. We distributed a press release yesterday about 60, 65 gigabits down on two panels. You could obviously put 4, 8, 16 – you could bundle a bunch of those together, and they would work. Maybe we are 12 to 18 months away from that and that would be a fantastic solution.

Frank August: Last word, Tony. Anything?

Tony Queenan: Again, as BP has done and others, depending where you are, the technology to choose with Ku, Ka, L-band. Again, the 3G, 4G in the Gulf area - we have seen it in the North Sea. As satellite operator, we found that that is an area that we are partnering with these companies to be able to provide that. There are different niches that there's another service that is for you. That is what we are all here to do, is to determine what your needs are, and what are the best services to make your service company efficient in the communication side.

Frank August: Thank you, Tony. With that, I would like to thank the audience here for making the change of venue, for those of you who walked across the hall. Thank you for being with us. Thank you to our panelists today. Have a good day.