Interview

John Yearwood, Chief Executive Officer, President, and Chief Operating Officer, Smith International

What lessons can you share about leadership? How can a young professional (YP) achieve a successful career?

I do not believe that a YP needs to focus on leadership skills to be successful. People can be successful in their area of expertise without wanting to be a leader. When you say leadership, I am inferring you are talking about management, but it could also be technical leadership. Many individuals in SPE are clear leaders in their technical domain. They’re probably great managers, but many are better known for their technical leadership. To be successful in anything you do, you must be someone who has the ability to listen, to learn, to make decisions without fear, and also to be extremely adaptable. We work in an industry which is fairly volatile in terms of supply and demand, with change a daily experience. We always have to strive to learn something new from our peers, fellow employees, clients, and suppliers. We then have to act on that knowledge to create value for our company and ourselves.

As far as your career, can you speak of some turning points?

I am unable to think of one particular event that helped me. There was not one moment, there were thousands of moments. All of these experiences came together and created something positive. I was very fortunate when I joined the oil field. I was working in Latin America and had a great group of people around me. They continually tossed assignments my way to see how quickly I could learn. It was an environment where the more you learned, the more responsibility you were given. People who were willing to try new assignments, explore new countries, or change locations were given more opportunities than their peers. These people quickly became more valuable to the company and, despite the two downturns, they were transferred to more active areas geographically. People who were less adaptable or more change-resistant, were not able to really grow that quickly. If I had to identify one thing that influenced my career the most in the past 29 years, it is the willingness to change. Be willing to embrace anything that you believe is a benefit to your long-term career or success with the company. Sometimes you don’t recognize the positive aspect of a change. I remember a situation when a senior executive proposed, “Why don’t you move to the engineering center?” I was a location manager in Brazil at the time and I fought this transfer! I said, “Why do you want to send me to an engineering center? I’m an operational guy. I’ll be useless in an engineering center.” My boss insisted. I finally said, “You’re right. Let’s try it.” He was right. The experience introduced me to a totally new segment of the business.

As far as the global recession currently, what specific effect has it had on your international organization?

The main result is that we’ve had to reduce headcount by approximately 3,500 people, which impacted employee morale and their families. From a business perspective, it really hasn’t impacted us, apart from the business volume and margin compression. Strategically, it has had no negative impact; our strategic plan and vision is to become a top-quartile provider for drilling, completion, and production-related services. We’re improving the understanding and relationship between each of the elements in the drilling process. Smith engineers know how to design the most appropriate bit for the formations being drilled. M-I SWACO thoroughly understands drilling-fluids systems designed to deliver the best hydraulic properties. We have PathFinder contributing the directional drilling component. So we have these distinct elements with an engineering and top-quartile-performance focus, but we also want to add a complete and entire drilling-optimization focus.

Think about walking into an office. You will usually find a chair, table, and computer equipment. In addition to providing those individual components, we want to provide our customers with an understanding of how each of those elements work best together so that the entire room is coherent. Smith is working to develop systems that optimize the right bit for the right directional-drilling tool, for the right stabilizer, and for the right drilling fluids, according to the well being drilled. Instead of only looking at each element, we’re also looking at the entire process. This involves movement from a distinct provider of drilling-related products to a provider of the entire drilling process. Has this downturn impacted us strategically? No. Has it impacted us from our employee participation and number of employees? Yes, there has been a negative impact, and we’re working every day to keep our organization focused on our strategy. 

You’re telling engineers that there is going to be a rebound. Are you saying this downturn isn’t going to last forever and to be prepared to meet customer needs?

Exactly, but we’re not linking it to a rebound. We don’t know if there will be 3,000 or 4,000 rigs drilling worldwide in the next few years. We don’t control those numbers. We do control our ability to deliver value-creating services and products by understanding our customer needs and developing better engineered solutions to deliver those needs. Every customer wants to drill and complete a well at a lower cost. They are always analyzing costs. Smith is aligning itself with our customer objectives. Whether there is a rebound or not, we want to offer services and products that will allow our customers to drill wells at a lower cost, safely and efficiently. We want to increase our market share through better engineered offerings related to the drilling and completions process. I don’t want to set an objective related to something over which we have no control. We can still be the top-quartile provider of drilling services with 1,000 or 4,000 rigs.

“Given the competitive nature of our industry, there is no consistent, formal process in place to allow E&P operators to easily see the best practices in a basin without having to experience the same learning curve as each of the existing E&P operators in the basin.”

In this issue, the main topic is the difference between service companies and E&P providers. Could you share some of your own thoughts on those differences?

This is a fascinating topic and something I have always striven to better understand. For the first 26 years of my career, I worked in a service company. I’ve tried to take a very sincere and realistic approach with clients in terms of new products and services that were offered during those 26 years. Sometimes I was able to convince the customer to use a particular service or technology. Often, I did not succeed, even when that technology was good for the customer and would reduce their costs.

When I stopped working in 2006, I decided that it was important for me to better understand how E&P operators make decisions regarding the technologies and services used in developing their assets. I observed that E&P companies have an inherent disbelief, or lack of trust, of a service company. Oftentimes, their immediate reaction is that a service company is trying to oversell a product or service. They react in this manner because they see several service companies trying to promote their own services and often hear conflicting stories from a variety of providers. They must then decide which provider to believe, trust, and use. Unfortunately, the service sector, like anyone selling something, can exaggerate abilities, promising product performance that the customer does not feel is delivered. E&P companies are also not very enthusiastic about being the first to try innovative technologies and often prefer that new techniques or products are first proven on another company’s well.

There is a difference in the work scope between the two business models. The E&P company is focused on their assets, and the YP is looking at optimizing his or her work on a particular asset or group of similar assets. The YP in the service industry is entering the E&P office and usually talking about only one element of that E&P engineer’s daily activities. An E&P engineer may interact with 10 or 15 different types of service providers, plus the competitors of those service providers. The service engineer, however, must sell their service or products to as many customers as possible and is therefore exposed to many different operators and assets. With a lack of trust often existing between the service provider and the E&P operator, and the natural resistance to try new technologies, SPE and the industry can help bridge that gap. I’m convinced the gap exists and that there is too much reinvention of the wheel happening in the industry today.

The service companies are exposed to many more assets than a particular E&P asset manager. The service company handling west Texas may be dealing with 15 customers operating in the same region. The service company sees what techniques and applications are working best in the area. The technology does not advance as quickly as possible because the E&P engineer develops a particular asset while often remaining unaware of many new developments in the surrounding area. Large service companies are usually involved with a large percentage of the wells, but each E&P company is like an island trying to complete their own assets. Given the competitive nature of our industry, there is no consistent, formal process in place to allow E&P operators to easily see the best practices in a basin without having to experience the same learning curve as each of the existing E&P operators in the basin. I think SPE can play a significant role in helping those YPs on both sides better understand the most successful techniques in every basin around the world.

What advice would you have for YPs or recent graduates on considering careers at an operations company vs. a service company?

If all YPs had the opportunity to work in both types of careers during their first 10 years, they would significantly improve their overall knowledge of the industry. It would eventually improve the understanding between service providers and E&P companies. Being exposed to multiple methods of operations is of great value to the YPs in an E&P company before they focus on one set of assets. It’s very difficult for that young E&P professional to understand how each available technology performs in numerous applications. They would have a much greater knowledge of that technology, thereby helping them better understand how to interact with the service provider.

Interaction is key. The most successful E&P companies use the expertise of their service companies. They are spending less time reinventing the wheel because they work closely with their service providers and share a common efficiency objective. We’re all in this business to produce hydrocarbons, using practices that are efficient, safe, and environmentally correct. We all share that common vision, but unfortunately, it can become obscured. I would encourage both E&P and service-provider YPs to spend more time with each other by attending courses, visiting rigs, etc., to gain a better understanding and to facilitate open communication.

What role has SPE played in your career, and what involvement have you had in the organization?

I was introduced to SPE in 1988, when I was very fortunate to be a coauthor for an SPE paper. SPE is the best technical organization that allows both the service provider and the E&P company to talk in a nonselling environment. The value of SPE is that papers and technical conferences are all structured around facts. I would strongly encourage papers written together by E&P and service companies, as many papers as possible.

YPs are thinking more globally. What advice do you have for them in terms of positive global impact on society?

As an industry, we must continuously explain the positive and responsible projects we support from an environmental or community point of view. Someone mentioned to me the other day that the charitable contributions from the energy sector are some of the largest of any industry. We need to promote that fact globally. For the YP, I recommend they look at opportunities for participation in local community projects, from helping to build a school in some small town to teaching at a local college. We also must continuously provide services and products that minimize the impact on the environment. Look for every opportunity to give something back to the communities where we live and work, and continuously look for ways to minimize the industry impact on the environment.

Could you provide any reading suggestions for YPs?

I tend to read more of the technical magazines. There is nothing out there that replaces individual experiences working with others, listening and learning from our mistakes. Don’t try to be a professional who adopts a practice or follows someone who has been successful in a different field. Understand first if that technique is relevant to your position and industry. I would focus on reading everything related to the job you have been asked to perform. Be open to everything that might impact your position and achievements.

Companies are struggling to recruit talented YPs and secure their loyalty to the company. What specifically is Smith International doing to address this?

We continue to recruit even during this downturn. We had a new engineering training program start in January and will continue to have programs going forward. Loyalty breeds loyalty; it’s easy to say but hard to practice. If a company is loyal to employees, they’re less likely to jump ship and go somewhere else when better economic conditions return. The Smith goal is to approach people as family members. Each of our 21,000 Smith worldwide family members is an individual with expertise and a role to play as a key contributor in the success of our company.

In our surveys, the work/life balance has been rated at the top of the motivational factors. How does your company help the efforts of YPs to reach this balance?

The current YPs have put more importance on work/life balance than those of 20 years ago. The industry has adapted to that with more regular days off. In general, I believe that the E&P companies are better able to offer a work/life balance than the service companies. There is an inherent work/lifestyle imbalance between the two operations because of the purchaser/service provider relationship. The service company will always have a more difficult time managing the work/life balance as they accommodate the requirements of the E&P company. It’s up to each individual to decide if he or she is willing to accept the strains on one’s time off in the service sector.

Is there anything else that you would like to share with YPs, our readership?

We all share the same objectives. We all want to produce hydrocarbons safely in the most environmentally acceptable way and at the lowest cost possible. The reinvention of the wheel is a costly, inefficient way to achieve this common objective. The service providers must always be straightforward and up-front with their counterpart E&P professionals. Jointly, we need to establish the key milestones to achieve this common objective.


John Yearwood  is chief executive officer, president, and chief operating officer of Smith International. He joined the company in 2008 as executive vice president and president of Smith Completion and Production and was promoted to his current position in January 2009. Before joining Smith, Yearwood was with Schlumberger and held a variety of positions over 26 years, including president of North and South America Oilfield Services and president of Dowell. He has served on the Smith International Board of Directors since 2006 and also serves on the boards of NFR Energy and Sheridan Production Partners. A member of SPE, Yearwood received a bachelor of science honors degree in geology and the environment from Oxford Brookes University, England.

 


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