OTC: Speakers call for investment in staff, technology

Uchenna Izundu
OGJ International Editor

HOUSTON, May 13 -- Operators and service companies must continue to invest in developing innovative exploration and production technology and retaining staff during this industry downturn, panel speakers agreed at the Offshore Technology Conference in Houston.

Chad Deaton, chief executive officer of Baker Hughes Inc., said service companies have laid off 23,000 workers this year. "The workforce increased by 64% from 2006-08 by the six largest companies, but there's a real danger that we'll do cuts, especially in younger engineers—this would be the same mistake in the last cycle, and I'm scared we'll lose young talent."

Deaton's views were echoed by Amin Nasser, Saudi Aramco's senior vice-president of exploration and production. "We've been through many cycles before in the industry, and my concern is that we'll have layoffs and reduced hiring—the brightest and best students and talented individuals have left the industry. We need to keep the graduate line moving, keep recruitment, and get people on courses." Aramco is sponsoring 2,000 students worldwide in petroleum courses at universities.

The industry has struggled to replace its ageing workforce following the major cuts made in the 1980s and 1990s as student entrants were put off studying sciences in college and lost confidence in potential long careers.

Different industry trends
Deaton said this downturn is different compared with those earlier depressions in that the oil price has fallen rapidly from a record high of $147/bbl last July to the $50/bbl range in early May. This was also coupled with a global economic recession, a collapse in oil demand, and the impact on rig activity was great. Last September, the rig count in the US peaked at 2,031, and 1,056 rigs had been idled by May.

Mike Bahorich, executive vice president and technology officer at Apache Corp., agreed today's trends differ from others in the industry's history: There is a growing middle class in India and China that own cars, and maturing basins around the world are increasing pressure on operators to make new discoveries and offset declining production.

Cutting carbon emissions is now a priority, and trading carbon will be an important business in the future. Despite pressure from environmentalists to increase the usage of renewables in the energy mix and the anti-oil stance from President Barak Obama's administration, speakers agreed fossil fuels will be the dominant source of energy for several decades. Renewables cannot be scaled up to plug this gap, and they too require huge investments to bring them to market.

Nasser said: "Alternative energy is a welcome addition, but it needs more efficiency on the consumer side. It's been over-exaggerated in its impact, and even under the most optimistic scenario we will need 105 million b/d of oil over the next 20 years: We need to invest in additional capacity."

Falling oil demand
The International Energy Agency in Paris estimated oil demand will shrink by 2.4 million b/d this year due to the global economic recession, and it does not expect recovery to pick up until next year. Nasser said: "We have had turmoil period and demand destruction with high oil prices." Many companies have cancelled or postponed projects, arguing that low oil prices means they are too expensive to implement considering high construction costs and the uncertainty regarding demand.

"The expectations for future oil prices are higher than before," added Deaton. "In 1983, there was a supply overhang of 24%, and in 2009 this is 4%, and so the industry is running at 95% of capacity compared with 75% in the 80s."

But for some cash-rich companies, the industry's low point is raising the possibility of mergers for those that are finding it difficult to access capital to continue their work programs. Bahorich said Apache has $4 billion to spend on acquiring new assets, but none of quality had yet come to the market.

Ali Moshri, president of African and Latin American operations at Chevron, said the company plans to invest $6 billion in these regions, but he was critical of the industry's inability to communicate about its operations to the public. "Now we have the opportunity to do this exercise. Under-investment will be a problem, and this will lead to tight supplies. No one can explain how we got to $140/bbl—some said it was a capacity issue. We've failed to demonstrate that the business is a commodity, and it goes up and down with supply and demand."

Technology challenges
Baker Hughes plans to maintain its research and development budget; it has spent $450 million on pipeline maintenance issues. Deaton warned, however, that companies could cut their technology budgets as they try to balance the books and focusing on saving money now in purchasing decisions could have long term consequences. "We need to have consistent investment, find the right business partners, do the technology, and keep the people," he said.

The oil industry could save substantial sums through energy efficiency, and there needs to be technology investment in this area, said Nansen Saleri, chief executive officer of Quantum Reservoir Impact LLC, Houston. Only 13% of reservoir barrels are actually useful, he said. "There is inefficiency in the recovery rate—the historical average is 35%, and 50-60% could be achievable. The theoretical maximum is 80%."

In a later presentation, Melody Meyer, president of Chevron Energy Technology Co., told OGJ the range of companies displaying their technology at OTC showed they were willing to invest despite the recession. "A lot of ideas are being shared here, and they demonstrate the focus of the industry," Meyer said. She added that the oil sector could learn from other industries, robotics being a case in point. "This is contributing to underwater operations, and we need to reach outside the industry to look for new concepts." Chevron's research and development budget last year was $830 million, and this was a significant rise on the year before, driven by hydroprocessing technology developments and other issues.

She said it is important to motivate research staff by giving them challenging projects and offering them mentoring opportunities to new entrants. Meyer said the industry must improve its cycle time in adopting new technologies, but this would need to factor in the scale of the investment and the different steps taken to bring the technology to market.

Chevron has advanced deepwater technologies to bring its Tahiti oil field onstream in the Gulf of Mexico (OGJ Online, May 4). "We developed eight new technologies to do the test well," Meyer said. "Seismic development allowed us to see deeper. The technology to produce included intelligent completions, artificial lift systems, and multiphase pumps. No company should [develop] technology alone; we should partner up. Technology requires private and public investment."

Contact Uchenna Izundu at uchennai@pennwell.com.

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