[Editor's note: This transcript was taken from a recent discussion with Neil Saunders, executive vice president of oilfield equipment at Baker Hughes, and Hart Energy’s Jessica Morales.]

Hart Energy: Offshore entered 2020 reasonably confident. Then, the COVID-19 pandemic hit causing oil market challenges that has taken the wind out of offshore sails. What’s been most surprising to you about all of this? 

Neal SaundersNeil Saunders: The industry just amazes me in terms of its resilience. You know, this is really not being much of a change. I would start internally and say that my biggest surprise, although maybe I shouldn’t have been surprised, was really the resilience of the business. You know, we were identified as an essential workstream early on, given our role in the energy supply chain. But the determination, the commitment of the team through really a double issue—obviously, the pandemic, but, ultimately, the oil price crash that has resulted in us having to make some tough decisions. And I’m super proud to say that managing the health and well-being of the team has been at the top of our mind. But business continuity is something that we’ve been able to sustain globally right throughout the company. So, incredibly impressive. A big surprise. Certainly, a few moments that didn’t look like that was feasible. But we kept working for our customers, and I’m super proud of that. 

Hart Energy: Analysts with Rystad Energy estimate that greenfield tenders are set to shrink to $60 billion in 2020. That’s down from $170 billion in 2019. As the markets begin to recover, do you think you’ll see a backlog of orders? Particularly for subsea and other long-lead time terms? 

Neil Saunders: The business is predominantly long cycle and we do see that decline. We see customer after customer moving their FIDs out, reducing their capital expenditure forecast way beyond double-digit declines through ’21. I think you can you can read different views on recovery time. We still believe that ’21 looks pretty difficult for some of our long-cycle businesses, subsea specifically. There are some suggestions that ’22 may start to show some levels of recovery. It probably feels to us more like ’23 for the long cycle. I think short cycle opex spend—really maintaining the installed base that’s there offshore—that feels like that some activity will take place there next year. The proxy we all use for subsea is the subsea tree cap and, along with everybody else, only a few months ago, we were seeing a sustained 300 tree per annum market place. Certainly, this year for us, that looks like it will struggle to get to 100. And, you can take a view on ’21 and it’s very project dependent. 

Hart Energy: What’s being done to fill equipment orders faster in a more cost effective manner? For example, how is Baker Hughes making it possible to fill an equipment order for a subsea tree system. Is this an example of how standardization is working?

Neil Saunders: Standardization is a big part of it. We’re pretty thrilled with the way we’ve managed to take our Subsea Connect strategy to market there. And this is something that really does allow us to connect up the portfolio to really directly deliver value to the customers. Very strong early engagement. Very structured. I would say structured as opposed to standard product suite. That gets us to market quicker. That means that we can have designs that are stock designs available for our customers. But that feels more relevant than ever. Coming into a situation where we need to work even harder on cost in cycle, I think the vendors, us and my competition will be allowed to lead the technical solution a little bit more. And that suits not only Subsea Connect, but also the ability and the portfolio that we have to really be able to do much more than many of our competition in terms of work for our customers. So, we’re seeing a lot of interest in our tieback solutions through subsea tiebacks and a lot of interest in our intervention solutions as well. Both of which rely on much broader parts of the Baker Hughes portfolio than just my business. 

Hart Energy: Can you talk to us about Baker Hughes helping companies with the Subsea Connect TV digital event? I know there’s a lot that digital has been able to provide us with during this time. 

Neil Saunders: We launched Subsea Connect in November ’18 and we planned to follow up this April. And that was another opportunity for us to bring customers together in a very, what we now know to be, fairly conventional event. It would have been a face-to-face event. We would have basically shown how we’ve evolved Subsea Connect and how we’ve brought additional offerings into the Subsea Connect portfolio earlier. Specifically, the intervention and the tieback solutions that we have. Now a face-to-face gathering in April was not something that we could achieve. We went digital very quickly. I loved the idea of Subsea Connect TV. It’s very cool. It’s going to be a channel that I don’t know will be just temporary. I think it’s something that we can build on. And that will be a channel where we can keep our customers informed on how Subsea Connect is evolving. I will be doing a fully digital event where customers can come into the event digitally and attend the session. They’ll be able to see the products. They’ll be able to interact with the engineers. We’ll have speakers. It’s going to be new, fresh, cool, but a little bit different to what we’re used to. 

Hart Energy: Can you talk about the biggest challenge facing offshore at this time? And, of course, as we move forward through the rest of the year? 

Neil Saunders: There’s a lot of volatility there. I think we’re all becoming pretty used to that. But the challenge of really trying to establish when recovery comes so that you’re ready for that, you protect your capability. Coming out of any downturn, that’s always the challenge for leadership. Do you retain cost and capability because it’s coming back quickly? Or do you really have to reposition the business and restructure it and go quite deep on the basis that you’re going to see a longer downturn? That’s the challenge for all of us who are running these businesses in the segment. The lessons for me over my time in the industry is whatever you do, you have to do something. Waiting for consensus or trying to wait for the perfect storm or the perfect forecast, it is not great. You need to make your calls, make your decisions and move quickly. And we still remain positive on offshore for the longer term. We’ve talked about ’20, ’21, ’22. We know that it’s a small percentage of the energy mix going forward, but there is demand. There will be depletion on the oil side and there’s clearly a big part that gas will play, which obviously significant amounts of gas are around in offshore environments and they’ll need to be produced. So, longer term, we still feel like there’s a strong segment there.