Mr. GUAN Linhua, CEO of Surge Energy, is a corporate executive who has been dedicated diligently of his entire career to the energy industry. He previously worked for CNPC, Chevron, and Statoil. While at Statoil, he was the president of the company’s Asian technology company after served as a manager of corporate strategy, business development project manager, and principal engineer at Statoil.
As a registered petroleum engineer in Texas, Mr. GUAN has served on various technical and management committees and published more than 40 professional papers & research reports in the past 30 years. He has given more than 20 keynote speeches to many associations, such as the Chinese American Petroleum Association (CAPA) and other Chinese American organizations, greatly contributed to the international investment and development of China’s oil and gas industry. Mr. GUAN received a BE degree in Petrophysics and an MS degree in Geology from China Petroleum University. He also received a MS degree in Petroleum Engineering from Texas A&M University and an MBA from Rice University.
In August, 2021, Mr. GUAN became the only CEO from oil companies in Houston to have won the “2021 Most Admired CEO Award” by the Houston Business Journal. Most recently, he was awarded the “2021 Global Outstanding CEO – CEO of the U.S. Oil and Gas Industry Award” by the UK’s “CEO Monthly” magazine.
Founded in 2015, Surge Energy America is located in Texas – the largest oil-producing state in the United States. Among the top 20 oil producers in Texas, Surge Energy is the only one of two internationally sponsored oil companies. The company was the only upstream company which was recognized as both “Best Places to Work” and “Middle Market 50” by Houston Business Journal (HBJ) in 2020. In 2019, the company also won HBJ’s inaugural innovation award for its breakthrough in shale oil development. In June 2021, Surge Energy announced a production milestone of 100 million gross barrels and was on the list of Houston Chronicle’s top private companies.
The COVID-19 pandemic started in 2020 brought about unprecedented challenges in the oil and gas industry. Despite these challenges, Surge Energy became a leader in the petroleum industry by taking a series of forward-looking measures, such as reducing costs, increasing efficiency, simplifying decision-making processes, and initiating plans for sustainable development.
(originally conducted in Chinese, CLICK HERE for the Chinese version)
CGCC: How did the COVID-19 pandemic impact your company in 2020 and what measures did your company take?
Mr. GUAN: As a Chinese petroleum company in the U.S. (compared with notable names, such as Shell, BHP, BP, etc.) there are significant differences in language, culture, corporate governance, and management styles.
In 2020, the company experienced three things never happened before: The first is that the Internal Revenue Service conducted a seven-month-long tax auditing on the company. Although we passed the audit without any major issues, this was the longest tax review we’ve ever had experienced in our company’s history.
Secondly, the annual renewal of our Form P-5 in 2020 (a license required for oil and gas companies in Texas). While the renewal process went smoothly, when the license was in the processing stage, we received a call from the Texas Secretary of State’s office, asking excessive questions.
The third experience was an on-site inspection of our oil field for the first time by the Committee on Foreign Investment in the United States (CFIUS). When we first acquired these oil assets in 2015, we had already undergone a complete CFIUS review. So based on these experiences, you can get a sense that the overall operating environment for Chinese-funded enterprises in the U.S. in 2020 has been quite tight and restrictive.
When I became CEO of the company in early 2019, I found that the company had high operating costs and unsustainable practices. I took a series of measures to reduce costs and increase efficiency. As a result, Surge is now well below its peers in terms of operation costs. In 2020, when the pandemic was at its peak and oil prices were low, the company proactively took several cost-effective measures that significantly reduced the impact on oil field operation.
In spite of various challenges, the pandemic in 2020 created opportunities for us to grow. We started preparing for acquisitions in the second half of 2020 and completed a cash acquisition of $420 million asset at the beginning of 2021. During the pandemic, and the oil industry downturn, we completed such a cash acquisition, the first valued at more than $100 million in 2021 in the Permian Basin- the main battleground of acquisitions in the U.S. oil industry. This transaction shocked a lot of our peers.
CGCC: How did your company seize the opportunity in response to the crisis? Can you share your experiences with us?
Mr. GUAN: In 2019, the realized price of natural gas in the Permian Basin was negative. Much of the natural gas is used to generate electricity, and the company’s oil fields used a lot of electricity. So we decided to take advantage of the negative price of natural gas in 2019 to lock in the price of electricity for operation. This is a sound plan for the long-term development of the company. The 2021 winter storm in Texas was unforeseen and negatively impacted many oil companies. We shut down our oil fields before the storm. Because of this, we were able to sell the unused electricity back to the grid at market prices and achieve a sizable profit. The electricity we saved as we shut down the field beforehand also prevented more than 20,000 Texas households from power outages during the once-in-a-century winter storm.
The meaning of the word “crisis” in Chinese contains not only “danger” but also “opportunity.” Only by taking precautions and being prepared for danger in times of peace can we avoid chaos. More importantly, we should always look for business “opportunities” during times of “crisis”.
In the face of crises, one of the reasons we can seize opportunities in a timely manner is the flexibility of the company’s decision-making processes. I have experienced the decision-making system of large companies where I worked before. When I had the opportunity to manage a smaller size company myself, I decided to remove unnecessary “red-tape” processes.
CGCC: What is your company’s plan for the future? （in terms of development, etc.)
Mr. GUAN: Our parent company is very supportive of Surge Energy and has always wanted us to develop as a sustainable oil company. Our parent company fully trusts the American management team. At the same time, it is also widely recognized that the petroleum industry is cyclical. Surge Energy entered the United States in 2015 during the industry downturn, but the company seized the opportunity and acquired two assets. In recent years, although the relationship between China and the United States has been very unstable, by reducing costs and increasing efficiency, Surge has won the trust by more than 20 banks in the US and they are willing to provide us with financial and credit support.
CGCC: In the past two years, the transition from traditional to renewable energy has been a widely discussed topic worldwide. Does your company have any strategic considerations in this regard?
Mr. GUAN: The development and adoption of renewable energy is a trend driven by the demand to reduce pollution from traditional energy sources. We’ve done a lot of homework on this front, but we haven’t made the transition to a company focusing on renewable energy sources yet. The main reasons are (1) the economic return of renewable energy is low, and (2) development of renewable energy is not Surge’s strength. The company’s natural gas emissions had fallen by more than 60% in 2020 although natural gas production increased by 13%. Oil development and production is our strength. A lot of investors are not very optimistic about the transformation from fossil fuel energy to renewable energy companies and lack confidence in companies that are in the process of doing so.
Despite a bright future, renewable energy has many material weaknesses, which will need to be addressed over time. During extreme weather conditions in Texas, wind and solar power supply may be unavailable. The traditional oil and natural gas have the highest energy density. In the last century, people were very enthusiastic about nuclear energy. At that time, they said that nuclear energy had more advantages than traditional energy resources and believed that a one-time investment in nuclear energy would be all that was needed. However, following the Chernobyl incident, more questions were raised about nuclear energy, even in countries with the best nuclear energy technology, such as France and the United States. As such, with reference to the current renewable energy sector, we have to recognize how to recycle waste, such as batteries, solar panels, and the windmill. As a result, I think, there will still be a long way to go for renewable energy to replace traditional energy.
Visit https://www.surgeenergya.com/ to learn more about Surge Energy America