Two years ago, I had the privilege of speaking during career day at Cypress Creek High School in Northwest Houston, touting the virtues of petroleum engineering as an exciting and rewarding career.
With slides and other desktop exhibits provided in the Society of Petroleum Engineers' "Magic Suitcase"-a kit of materials about the oil and gas industry created for career days and similar events-I did my best to pique the students' interest.
Using the lures of high-paying jobs, travel opportunities to exotic work locations, having responsibility for assets costing millions of dollars, and the opportunity to work with some of the most sophisticated equipment and science that any field of endeavor has to offer, I urged them to get going on those engineering school applications.
At the time, US gasoline prices at the pump were less than $1/gal, and the industry was emerging from the mid-1999 record low budgets and rig counts. Oil company mergers, serving to cut costs and high-grade assets, were capturing business-page headlines and resulting in layoffs. Internet stocks were at their investment-fad highs.
Expecting student doubts about the petroleum industry due to downturns and layoffs, I was surprised by one student's question. She and a friend had discussed career ideas and came up with the concern, "What would become of our careers once oil and gas reserves run out?"
That was a great question. At least someone was paying attention, but equally important, there was an answer.
Resource pyramid
I explained that the issue of oil and gas reserves running out is not a problem from a young person's career perspective, because the earth's natural resources have a lognormal distribution.
This means we can think of any natural resource such as silver, iron, aluminum, oil, or natural gas, in terms of a resource triangle or pyramid. The volume of the pyramid represents the total quantity of the resource within a geologic basin.
Take natural gas for example. At the pyramid's apex is the relatively small volume of high-quality, high-permeability reserves that are relatively easy to develop at low cost.
Moving toward the pyramid's base, the amount of resource increases, but quality is lower, with low reservoir permeabilities requiring a larger number of wells or more-extensive completions. Advanced technology is required to change the resource into producible reserves.
The founders of Canadian Hunter Exploration Ltd., Calgary, Jim Gray and John Masters, first published the resource triangle or pyramid concept as it relates to natural gas in 1977-79. Canadian Hunter was one of the first companies to specifically explore for low-permeability gas reservoirs.
Intuitively, we think of reserves as a static quantity, but resources only become reserves once we apply incrementally higher commodity prices, lower operating costs, or more-advanced technology, moving down the resource pyramid.
This is where our young person's career comes in: to empower the petroleum industry's ability to move down the resource pyramid, with skilled personnel to use advanced technology.
The students nodded their heads in agreement and said they understood what I was saying. If my kids had been present, they would have been rolling their eyes and making faces as if to say, sarcastically, sure they understood my explanation of lognormal distribution.
Rig counts
Fielding that career-day question early this year would have been easy, and the point would have been crystal-clear.
Even teenagers, normally nonresponsive to parental complaints of leaving the lights on or the thermostat at economically abusive settings, would have been newly impressed with mom's or dad's latest admonition to "Turn it off!"
Behind the scenes of public and private efforts to use less energy, the number of drilling rigs operating in North America recently have shot up to levels not observed since the mid-1980s.
About 80% of working rigs in the US, for the past 2 years have been drilling for natural gas, compared with 20% for oil. The number of US active rigs drilling for natural gas had exceeded 1,000 by June 2001.
In response, US natural gas production growth has been only 1-2%, certainly in the low single digits, depending on whose estimate one considers.
Primarily demand-side influences and nonrecurring events, such as the gas cap blowdown of a 70-year-old ExxonMobil Corp. oil field, have allowed US natural gas storage volumes to recover, pushing the price back down to earth from the $10/MMbtu peak in December 2000.
Basin-specific
Comparing the rigs actively drilling with the production response reinforces the idea of the resource pyramid. One must remember that the concept is basin-specific.
Efficient commodity transportation between basins imposes one basin's economic paradigm on another's. Higher-quality reserves in the more-prolific basin become the benchmark.
Clearly, the task of finding, developing, producing, and supplying the petroleum resource worldwide will grow. It appears our young person's career is safe, at least from concerns that the petroleum re- source will run out.
