Westwood: Big oil needs new business model

Sam Fletcher
Senior Writer

HOUSTON, Jan. 10 -- The fundamentals of population and economic growths are driving a worldwide demand for oil that has recently pushed crude prices to $100/bbl and have producers scrambling for the reserves to satisfy market needs, said John Westwood, managing director of the UK consultancy Douglas-Westwood Ltd.

"In my view, 'big oil' now needs a new business model, and nothing demonstrates that more than oil company stock buybacks—this is paramount to saying investors can find a better return for the money than oil companies can. So the key question that remains is 'where can big oil profitably reinvest?'" said Westwood at a luncheon meeting of 200 oil and gas industry participants Jan. 10 in Houston.

Based on historic data, "oil production tracks world population [growth] except when oil is too cheap or too expensive," Westwood said. Weakness of the US dollar against the euro and yen is "without a doubt" one of the major factors supporting high oil prices today. Another is the declining production of oil outside the Organization of Petroleum Exporting Countries, "particularly in shallow [ocean] waters," Westwood said. With the "easy" oil now gone, the big onshore and offshore projects vital to the major integrated countries are now "in politically troubled areas," he said.

In the early 1970s, international oil companies controlled 80% of world oil reserves. But now the position has been "completely reversed" with the national oil companies holding 80% the remaining reserves. "Even in shallow waters, the oil companies now face much higher costs. For example, per barrel lifting costs in the UK sector of the North Sea in 2005 was $15, but by 2007 it had increased by 67% to $25," said Westwood.

"Virtually the only place where giant fields will be found in future years is in deepwater; Brazil's recent Tupi elephant find is testament to that," he said. Douglas-Westwood sees world deepwater production growing worldwide to 11 million b/d by 2011 from 6 million b/d in 2007. "This drive to produce what is very high cost oil, from deep water is the oil companies' response to declining production in offshore continental shelf areas such as the North Sea and Gulf of Mexico and the increasingly onerous terms being sought by the biggest holders of on-shore oil reserves, the NOCs," Westwood said.

"Another hard place is Arctic waters where the prospects of massive reserves (estimates range from 160-300 billion bbl of oil equivalent) have resulted in a 'great subsea land claim' being played out by Russia, Canada, and the US, against a spring 2009 deadline imposed by the United Nations Convention on Law of the Sea," he said. There are 45 countries that are trying to prove up potential claims to portions of the Arctic. "Russia may have control over 60% of the Arctic reserves, but it hasn't the technology to develop them," Westwood said. That means Russia will have to bring in Western partners with the equipment and expertise to develop Arctic reserves, as well as the huge investments to finance such programs.

"Recent $100 oil has only served to add to the already massive demand for the products and services of firms that supply the offshore oil and gas companies. Suppliers are virtually beating off the customers, but demand continues to grow," said Westwood. As a result, he said, "The offshore oil field services sector is facing unprecedented levels of business; some companies that might normally have a 6-month backlog are now booking work for 2011."

Douglas-Westwood expects capital expenditures of $25 billion to be invested annually in deepwater projects in 2008-12, a 30% growth over spending in the previous 5 years. "This will drive demand for deepwater drilling rigs, floating production systems, subsea production hardware, and more," said Westwood.

Recruiting and retaining qualified personnel remains a major challenge for all of the oil and gas industry. "The real crunch is the lack of experienced people—that's the single biggest problem year after year," Westwood said.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Western Australia taps Kimberley site for LNG hub

12/29/2008 Western Australia has chosen a site called James Price Point about 60 km north of Broome on the Kimberley coast to establish a proposed LNG hub for...

MMS chief hopes next president, Congress won't reinstate OCS bans

12/19/2008 US Minerals Management Service Director Randall B. Luthi said on Dec. 9 that he hopes the Obama administration and Congress seriously consider expa...

Pakistan plans $1 billion TAPI, IPI gas storage

12/17/2008 Pakistan says it will require $1 billion to build underground storage for gas to be imported from Iran and Turkmenistan, according to the country's...

MMS OCS Policy Committee plans first post-moratorium meeting

12/12/2008 The US Minerals Management Service's Outer Continental Shelf Policy Committee will hold its next meeting Dec. 9-10 at the Washington Dulles Crowne ...

BLM defends Utah lease sale as its state office defers more tracts

12/12/2008 The US Bureau of Land Management defended its scheduled Dec. 19 oil and gas lease sale in Utah on Dec. 2 as its state office deferred additional pa...

BLM Utah director defers lease parcels in response to Park Service concerns

12/12/2008 US Bureau of Land Management Utah State Director Selma Sierra agreed on Nov. 25 to defer from a Dec. 19 oil and gas lease sale all parcels of conce...

DOE appoints clean coal chief to lead fossil energy operations

11/28/2008 The US Department of Energy named Victor K. Der, a 35-year employee with DOE and its predecessors, as its new principal deputy assistant secretary ...

As BLM completes Utah resource plans, possible December lease sale draws fire

11/07/2008 New resource management plans for five of the US Bureau of Land Management's six Utah field offices received final approval on Oct. 31, while the s...

EPA diesel fuel emission reduction grants go to North, South Carolina

10/31/2008 The US Environmental Protection Agency presented grants of $295,320 each on Oct. 23 to North Carolina and South Carolina state agencies to establis...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts

On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.



Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected