Scott W. Tinker could be the industry's
leading forward-thinker on oil and gas research.
Unfortunately, his vision is disturbing.
Why? Because Tinker sees petroleum research and development
getting too little attention, too little funding.
Spending on R&D has been slashed almost everywhere.
And when research isn't developed to come on-line, sooner or later
the innovation pipeline runs dry.
Still, he remains optimistic about the outlook for
"Research and technology have played a fundamental
role in the oil and gas business for well over a century, and will
continue to do so well into the 21st century," Tinker said.
"The exciting challenge we face in the U.S. today
is developing a business model to fund energy research for the long
He should know. Research is his life.
Tinker is director of the Bureau of Economic Geology
at the University of Texas at Austin. A major oil and gas research
center, the BEG pursues multi-year projects funded by industry consortia
groups, the U.S. Departments of Energy and the Interior, the Minerals
Management Service and the state of Texas.
Earlier, he served as an advanced senior geologist
at Marathon Oil's Petroleum Technology Center in Littleton, Colo.
A former AAPG Distinguished Lecturer and recipient
of the association's J.C. Sproule Memorial Award, Tinker has been
a member of numerous national and international professional committees,
including the DOE's Strategic Initiatives Task Force.
He earned a bachelor's degree magna cum laude in
geology and business administration at Trinity University in San
Antonio, his master's degree at the University of Michigan-Ann Arbor
and his doctorate in geological sciences at the University of Colorado,
Because of his background, he's had a close-up view
of upstream research and its long slide. Funding for R&D has
dropped from $5 billion to $2 billion over the past decade, Tinker
said, "and is on a strongly decreasing trend."
'Moments of Brilliance'
The DOE allocates only 4 percent of its $19 billion
budget to energy research, and only 7 percent of that 4 percent
goes to oil and gas research, he noted. Nuclear, coal and renewable
energy share equal claim to the other 93 percent of the research
Federal spending has remained close to $100 million
per year for true oil and gas research, Tinker said, but the initial
2002 budget proposal from President George W. Bush would cut that
amount in half.
Money has dried up, or is drying up, for other research
as well. Tinker said the Gas Research Institute (GRI) at one time
funded close to $200 million per year in gas-related research. GRI's
support came from a Federal Energy Regulatory Commission-mandated
surcharge on interstate gas sales. The surcharge will be phased
out, however, producing an estimated $70 million this year, $60
million in 2002-2004, and nothing after that.
To regroup, GRI combined with another organization
and now operates as the Gas Technology Institute.
Other research centers affiliated with universities
or state geological surveys fight their own rounds to cope with
reduced industry R&D spending, according to Tinker.
"There are still several centers that do oil and
gas research," he said. "The problem they're facing is a very significant
decrease in funding from the private sector."
At one time, Tinker noted, the largest U.S. oil companies
supported their own, independent research operations.
"They weren't asked to justify themselves on an hourly
or daily or even a weekly basis," he said. "Their return on investment
and that sort of quarterly profit picture wasn't part of the equation.
"That's what research is. It has a long payout time
-- sometimes -- if ever," he said. "It's a creative process with
a lot of dead-ends and some things that are home runs."
As those companies struggled to justify their internal
expenditures, research labs came under more scrutiny. A profit-center
model evolved with non-operating departments required to bill back
their services, but Tinker said "that's not the way research works.
"Research is long periods of normalcy punctuated
by moments of brilliance. I think it was the wrong business model.
It wasn't a failure on the part of the research labs."
At the same time, beginning in the early 1970s, the
industry began to see dramatic product price swings, he said.
Now oil and gas both are subject to three-to-four-year
major price cycles.
"It's kind of unpalatable for a company to say, we're
going to go through two or three of these price cycles before we
see a payout on this research investment. They can't afford to do
that," Tinker explained.
Competition for capital investment during the 1990s
also reduced companies' ability to support long-payout R&D,
As a result, private industry in the United States
shuttered almost all of its large, self-funded research labs.
While that was going on, about 80 percent of all
energy produced in the United States came from fossil fuels -- oil,
natural gas and coal, Tinker said. About 85 percent of Btu consumption
relied on those sources.
"Over the past 50 years those percentages have not
changed dramatically," he said. "The U.S. production of oil has
decreased, but I think it's more important to look at consumption."
Today the United States imports about 57 percent
of its oil consumption and about 15 percent of its natural gas consumption,
with oil imports certain to rise, Tinker said.
"Natural gas is a little different story," he said.
"We can certainly increase natural gas production. That's going
to require a commitment to infrastructure and a huge commitment
He'd PREFER This
With more than half of U.S. Lower 48 oil production
and almost two-thirds of gas production coming from independents,
Tinker sees a real need for both continuing research and technology
transfer. That's why he thinks the slowdown in R&D is such a
"I don't think we've solved it all," he said. "If
we decrease the funding and go toward pure application of technology,
we certainly have a good 10-year or 15-year future ahead of us."
But in the years after that, the industry will suffer
from a lack of new technologies and new concepts, Tinker predicted.
The long payoffs from long-term research simply won't
Exploration companies expect the service-and-supply
sector to gallop into battle in technology and equipment research,
he said. But that won't happen, because the same economic pressures
that affect producers also hit service firms.
"In fact, quite often it's more dramatic," he observed.
"Services tend to be cut heavily by the private sector oil and gas
companies in low product-price times."
Tinker believes the need for upstream R&D funding
has grown so acute that the industry needs to undertake a consolidated
"I'd like to see the private sector become proactive
and create a foundation," he said. "In fact, I've proposed this
in a couple of talks over the past year. I call it PREFER, the Private
Research Energy Foundation."
Companies would set aside a small percentage of revenues
from U.S. oil and gas production, in Tinker's plan, taking on a
voluntary tax to fund a national foundation for E&P research.
Contributing just two-tenths of 1 percent of half
of U.S. production revenues would provide $150 million per year
in research funding, he reckoned.
"I really believe government matching of that proactive
step would follow," Tinker said. "We could leverage that investment
and get a good, significant match."
An added benefit would be sending a signal to students
that the industry had made a 20- or 30-year commitment to ongoing
research activities, an investment in its own future.
"You'd see students return to the earth sciences,
because it's a fun discipline," he said. "Kids enjoy it, they really
do, but they have to see some future in it."
For the Record
To emphasize the importance of continued R&D,
Tinker mentioned a few areas with what he calls research roots:
- Reservoir characterization.
- Visualization techniques.
- Geocellular modeling.
- Unconventional-gas play concepts in tight gas, shale gas and
- New research in basin-center gas and gas hydrates.
"If you look at the production curves of unconventional
gas types, they've all had an infusion of research investment from
the federal level and private industry. There's a 5- to 10-year
lag, and then the production curve was built," he said. "Concepts
- 3-D and 4-D seismic.
- Four-component and nine-component seismic.
- Acoustic and elastic impedence.
- High-frequency seismic.
- Attribute analysis.
- Cross-well tomography.
- Geochemical fingerprinting.
- Maturity modeling.
- Migration timing.
- Petrophysical analysis.
- Image logs.
- Forward and inverse modeling.
- Fracture prediction.
- Salt tectonics.
- Seal analysis.
"And the list goes on," Tinker said, "You can make
plots of oil-producing reservoirs that have these technologies applied
to them and you can plot the increase in incremental oil production,
almost without fail."
Hey, This Is Fun
Benefits will continue to accrue from research results,
as innovations like new reservoir-characterization technology spread
throughout the industry, he said.
"The independent producers do not have that technology
in their shops. I'm talking about hardware, software and even to
some extent the expertise. An infusion of research dollars that
could transfer that technology to the independents would show a
remarkable return," he predicted.
If upstream research continues, Tinker expects big
payoffs to come from the following areas:
- Multicomponent seismic.
- Live wells.
- New visualization technology.
- Technology transfer.
"In natural gas, there are tremendous opportunities
in the unconventionals, the deep water and subsalt," he said. "Those
are going to have to become half of U.S. production in less than
Future research could help the industry identify,
drill and produce gas hydrates in a world-altering shift of energy
resources, according to Tinker.
"There's a resource base there that could potentially
change the whole balance of the global economy," he said, "and would
make us a methane economy for many years."
Environmental research is also important, Tinker
emphasized, and wouldn't be seen as conflicting with E&P interests.
"I strongly believe that energy and environmental
research can go hand in hand," he said. "There's no reason that
those have to be mutually exclusive and competing topics."
In both environment and safety, the industry needs
to celebrate its current successes and communicate its efforts to
the public, in addition to developing new technologies, Tinker said.
"When you think about what goes on with a deep-water
offshore platform and the technology there to target, drill for
and produce safely through water, it's like a Mars landing every
time," he said.
Tinker presented a paper on "The Value of Upstream
Technology and the Future of Energy Research" at the recent AAPG
annual meeting in Denver. He knows that winning renewed support
for upstream R&D will take speeches, articles, presentations,
Congressional testimony and more.
"Solving some of the technological challenges the
energy industry will face in the next 50 years will require great
minds and the highest-end software and hardware, all poring over
massive amounts of data," he said.
"Scientists will have the opportunity to tackle energy
and environmental issues head-on. Nothing could be more important
-- or more fun."