November 2015

What's new in exploration

Price does matter
William (Bill) Head / Contributing Editor

In one of last year’s exploration columns, I stated, “Another down cycle in the works? I hear that some exploration companies are thinking of slowing down their expenditures.” I may have understated that opinion, especially when considering ConocoPhillips’ actions in early October to reduce its E&P budget by 40%.

Continuing E&P reductions. I was told at the 2015 SEG Annual Convention that my alma mater, Marathon, now has fewer geophysicists than I can count on my human digits, shoes on. Who would have believed, 10 years ago, a strategy involving such a staff level for a company valued at $17.8 billion? Against my opinon, it was probably correct for Marathon to divorce itself from refining and retail. MPC is valued at $31.5 billion. I should have kept those shares.

You know the story well by now. Time to look for more innovation, more answers. This is not a historical event, to just think that we are the next group of soon-to-be-out-of-work buggy whip makers. Should I be shocked that the head of the Texas A&M Department of Petroleum Engineering is asking new grads in petroleum engineering to accept jobs as oil techs? The “E” arena is not the only place with some contraction. Makes sense to me; cut back on finding resource and you do not need the folks to develop what was not found. Under these circumstances, I would like to applaud Continental Resources for attempting to keep its talent and
younger faces.

The supply side of the oil and gas industry is the result of innovation and hard work, creating a new generation of wealth with the shale oil boom. The consumers [U.S. and worldwide], who should like lower retail gasoline prices, have also reduced their consumption of discretionary income items that use various forms of energy. The user demand curve for oil and gas, over the next five years, is still positive, but the slope is reduced. What do the Western free-world governments think? They are lamenting the fact that low oil prices preclude development of alternative energy sources, such as solar and wind, while still worrying if cow methane will cause more global warming.

All of this supply is great for the petro-plastics guys, some refineries and retirement-home land developers. However, you, as a science or engineering person, probably know more details about one or two pieces of this planet than anyone else. If that is your garage or cabin, okay, but if that spot on earth holds oil or gas, what are you doing with that knowledge? Sell it [again] to management, or to investors. Believe me when I say 0.01% annual interest at banks has a lot of money folks looking for alternatives. Oil at $45/bbl can still give an ROI over 20% in low-risk, known oilfield development programs.

Disappointing turnout at SEG. The SEG Annual Meeting this year was held in New Orleans, La., Oct. 18-23. The convention was a little better than a funeral, except that in New Orleans, those folks are famous for celebrating a funeral with parties, parades, bands, singing and dancing. I did not see any dancing. There were no parties worth mentioning. Missed the parade of geos. Total attendance on Monday was about 3,400, less than in the disastrous year of 1986. I have been told by many that their companies restricted travel, some even worried about crossing I-10 in Houston. They must have been right. Highlights were who was not there, both BIG oil and intermediate service companies.

For the first time that I can recall, I saw five, yes, five large exhibitors from Chinese G&G service companies. What should the industry have expected when very intelligent Chinese students attended universities worldwide, could not get legal immigration or work status in the host country and then returned home? What does that mean? Since I have not worked with, or for any of the stated companies, let us assume they offer services of data in and data out as good as any. What price do you think they pay their PhD geophysicists? Price will remain “king” for some time, as new entrants continue to come into the market sponsored by NOCs. Exploration cost per BOE still counts. Face it, OilCo would be irresponsible to its shareholders if it did not push hard to lower unit costs, even if it affects your “unit.”

If OilCo already thought G&G and seismic were a commodity, the presence of more semi-national services will be a paradigm shift that did not exist much before, at least not in the intelligence service format. When I was faced with market-wide downward price pressure at PGS, my group went from faster, better, cheaper; to faster, better, what price do you need to operate? Quality service from experienced people, unique solutions and simply better problem-solving will move the needle, whether at service or oil. When you have a better idea, and trust of the people you deal with, the price normalizes.

Papers at SEG were good to above-average. What did bring some attention, were presentations on data management [similar to AAPG] and environmental and civil engineering geophysics, CSI style. This group still has work. Disappointing was the little attention given to potential-fields papers. While the tech is obviously lower-resolution geophysics, compared to say VSP, it seems to be disregarded by many, who could actually benefit from combining gravity or CSEM data with seismic and geology. Often, potential field data will tell you what something is not. That can be just as valuable as interpreting what something is. wo-box_blue.gif 

About the Authors
William (Bill) Head
Contributing Editor
William (Bill) Head is a technologist with over 40 years of experience in U.S. and international exploration.
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