Editor’s Note: Two senior executives with Paradigm, a provider of software solutions to global E&P companies, recently spoke with OGFJ editor Don Stowers about their products and services. Gary Morris, chief financial officer, and Andrew Stein, chief marketing officer, also discussed Paradigm’s 2009 forecast in light of the economic downturn and low commodity prices.
Oil & Gas Financial Journal: Gary, as Paradigm’s CFO, can you tell our readers what the company’s overall outlook is like for 2009? Better or worse than 2008?
GARY MORRIS: The problem with answering that question right now is that so many of our clients today are scratching their heads trying to figure out what to do. We’re not hearing negatives from our clients with regard to spending on the kinds of things that we sell. What they are concerned with is how to get their operating costs down. Well, the very things we sell are the things they need to reduce their costs. Our software and the products and services we sell help them lower their operating costs. Our big competitors have a vested interest in their service side, so what they want to do is to figure out how to sell more services. We think this puts Paradigm in an advantageous position in this regard. I believe that companies that buy our technology will spend at the same level as last year or slightly above. From what I hear, this is not an area that I hear people are planning to cut.
OGFJ: Let me make sure I understand what you’re saying. You don’t believe companies will reduce their spending on technology such as Paradigm’s because it helps them lower their overall costs?
MORRIS: That’s correct. Our most technologically advanced customers have told us that they need our software solutions more than ever because it helps them make decisions faster.
OGFJ: Can you describe what Paradigm does?
ANDREW STEIN: The quick nutshell answer is that Paradigm produces digital subsurface asset management technology. Our focus is on the energy industry, and our technology applies to everything from hydrology to environmental remediation to mining and a number of other applications where building a digital model of the subsurface can increase information and knowledge to improve decision making.
We get positioned a lot as an oilfield services company, but we do not do oilfield services or activities. We don’t have any labor costs, or iron, or drilling rigs, or hardhats and trucks – things of that nature. We’re not a capital-intensive company; we’re a technology company. We produce software.
OGFJ: Are you saying you don’t go to sites at all?
STEIN: We do go to sites, but not to run the rigs. Modeling the subsurface is remotely done. We have a consulting services group, in addition to our software technology group, that works with our customers on site to enable them to improve the data they collect and the knowledge they extract from that data so they can make better decisions about deploying their activity in the field.
OGFJ: How big is Paradigm and where do you operate?
MORRIS: We have just under 1,000 employees worldwide. We operate in 28 countries, so they are scattered around the globe. We go where the basins are and the opportunities are.
OGFJ: How does what you do differ from the services offered by some of the larger oilfield service companies?
STEIN: We produce technology at the very beginning of the value chain that increases in value the knowledge created from it. And it’s not linear for us. We have a multi-disciplined data base that has some 16 major solutions built on top of it. Each one of those solutions, for the domain they focus on, increases the value of the data collected at the very beginning of the value chain and improves the knowledge that can be extracted to make decisions.
OGFJ: Can you summarize Paradigm’s position in the energy industry?
STEIN: We are a pure-play software company. Our aim is to provide solutions that provide the greatest visibility and understanding of the subsurface. We’re not conflicted with where we’re going to innovate because we’re not concerned with drilling rigs or selling supplies or putting people with hardhats in the field.
OGFJ: What are some of the things that could affect your company’s financial performance in 2009?
MORRIS: Some of the customers that we rely on heavily for most of our revenue are some of the bigger players. While it’s possible some of our customers could go bankrupt, it is less likely that this will happen to the larger companies. A bigger concern for our customers is the issue of liquidity in the marketplace and whether or not we can rely on them paying for the things they do buy in the same kind of timely manner that they have in the past. So one of my concerns is that payments would start to slow down because if they’re having liquidity issues, that is likely to go downstream to us.
OGFJ: What about commodity prices? What if oil falls to $25/bbl? How will that impact Paradigm?
MORRIS: You can’t paint this with a broad brush. I can’t speak to the economics of all companies. However, some of the smaller independent companies are likely to have trouble with $25 oil, but I think the bigger customers will make it just fine because they didn’t plan on $140 oil. When they made the decision to invest in a field, they probably made it at the $25 or $30 a barrel level. Also, companies that already have 40% or more of their investment sunk in a project, they are going to finish that project. They’re not just going to stop because that money would be lost money to them.
OGFJ: Paradigm is a privately-held company. If the economy turns around in 2009 and Paradigm is suddenly faced with the need to grow the company dramatically, where will you get the funding? Would you consider an IPO?
MORRIS: I sit here every day with zero concern about where I’m going to find funding for growth. I have absolutely full faith in the sources that we’ve aligned to be able to grow as fast as we need to to service our customers. So that is something I’m not concerned about. Would I consider an IPO to generate funds? Probably not, although I wouldn’t etch that in stone. I’ll just say we’re very comfortable where we are right now. I believe with all my heart that we have proven the Paradigm business model works.
OGFJ: Thank you both for your time.
