No sooner had the ink dried on my last column about the winds of change buffeting our industry when we saw oil prices slide from $75 a barrel to $55. I didn’t foresee these winds arriving at gale force, but that’s what’s happened. Happy New Year to us!
Already we’re seeing press releases by major oil and gas producers announcing cuts to their 2015 spending plans in response to lower oil prices. And capital markets are jittery as traders process how this will impact the global economy, particularly countries like Russia and Venezuela, whose economies are largely dependent on oil and natural gas, and how central banks will respond.
There was a mood of uncertainty that pervaded the International Petroleum Technology Conference in Kuala Lumpur last month. How will the industry and our profession respond to sliding oil prices and what will be the long-term effects?
And yet, despite the mood, this eighth IPTC was the largest ever. More than 10,300 people attended the conference and exhibition, hosted by Petronas together with co-hosts Shell and Schlumberger.
IPTC is a cooperative venture of AAPG, the European Association of Geoscientists and Engineers, the Society of Exploration Geophysicists and the Society of Petroleum Engineers. It rotates between Asia and Middle East, and as a joint geoscience and engineering conference is the premier event of its kind in the eastern hemisphere.
“Innovation and collaboration: Keys to Affordable Energy” was the conference theme – and as the conference unfolded it became clear that innovation and collaboration would sustain the industry in the uncertain times ahead.
Senior industry leaders led off the conference with what turned into a provocative executive plenary session.
The panel included executives from international and national oil companies and from multi-national service companies, and they zeroed in on how close collaboration between producers and service companies is essential to innovation and technology advances. You really need a producer willing to champion a new technology or approach in order to perfect it and gain widespread market adoption.
There also was lively discussion of how the costs to find and produce oil and gas have spiraled upward at a faster rate than the resulting revenues from production. Nevertheless, there was consensus that while both producers and service companies had businesses to run and shareholders to please, the relationships between them are and must remain symbiotic.
One particular insight that emerged from the conversation was that innovation shouldn’t just be focused on finding and producing oil and gas. In the face of low oil prices and high costs, the industry must focus on improving efficiency.
That, too, requires innovation.
In fact, in response to a question of how low oil prices are likely to impact the unconventional oil and natural gas production, AAPG member Matthias Bichsel, former director of projects and technology and a member of the executive committee of Royal Dutch Shell plc, noted that he expected a wave of technical innovation in this space.
More efficient drilling and completion techniques as well as improved hydraulic fracturing technologies are some of the advances we can expect to see as producers seek to do more with less.
This view also was echoed in an article in the Dec. 6 issue of The Economist, about the impact of low oil prices on shale development. They foresee growth in shale production falling dramatically, and perhaps even a slight decline in production, as producers dial back investments.
Yet “adversity will eventually make shale stronger,” they predict. Unconventional resources are not going away.
So, while the current climate is affecting our industry from Kuala Lumpur to Midland, how should we as individuals respond?
As I indicated last month, an important first step is accepting that our world is changing and that succeeding in this new environment will take new thinking and new approaches.
Innovation and collaboration – the themes of IPTC – should be watchwords as we seek to build our businesses, contribute at our jobs or serve our Members and customers.
A dash of good luck never hurts, of course. But fortune favors those who actively prepare for uncertain times.