TECHNOLOGY MUST PASS MONEY TEST

Reactions to results from the Teak subsalt test in the Gulf of Mexico say much about the modern oil and gas business. Phillips Petroleum Co. and Anadarko Petroleum Corp. disclosed flows totaling 4,431 b/d of oil and 7.8 MMcfd of natural gas from three zones tested below salt-and stock prices for both companies fell.

Well, it's a financial business. And that is not something anyone needs-or can afford-to regret.

EXCITING PLAY

In any exciting exploration play, the danger exists that excitement will come to dominate perceptions, even events. Excitement breeds hype, and hype creates unrealistic expectations. The process may be overdrawing expectations in the subsalt play.

Expectations among investors were high for the Teak well, Phillips 1 OCS-G-12037 ST1. Apparently, they were higher than 4,431 b/d. That flow rate Wasn't the 7,250 b/d turned in by the Mahogany subsalt discovery disclosed by Phillips, Anadarko, and Amoco Production Co. - the first such strike in the gulf. And the Teak partners didn't instantly declare the strike commercial. Still, 4,431 b/d is nothing to sneeze at.

Exploration and production professionals will be tempted to scoff at what seems to be the market's quick dismissal of the Teak results. They know that companies seldom commit to development of a prospect on the basis of one wildcat, even one that flows several thousand barrels a day of oil. Mechanical problems ran the cost of the Teak wildcat to $25 million, which means the partners must choose their next steps carefully. A quick declaration of commerciality might have been good for stock prices now but disastrous later.

What the stock price dips mean are that a certain number of investors bet on Teak's being instantly recognizable as a boomer discovery like Mahogany and that they were wrong. Whether they were wrong about Teak's being a boomer discovery or only about its being instantly recognizable as one remains to be seen. This is how markets are supposed to work.

Investors who lost money on that bet learned an important lesson. They'll learn something more if the discovery does prove Commercial.

But there's a lesson in this for exploration and production professionals, as well. What to some of them may seem like the fickle nature of markets is in fact tough discipline in a dynamic and complex industry.

The oil and gas business isn't just financial. As the subsalt play shows, it is imminently technical, as well.

IMPRESSIVE FEATURE

At this point, in fact, technology remains the most impressive feature of the subsalt play. It is the ability of companies to make accurate images of drilling targets beneath salt that makes this play special. The geophysical and computer technologies underlying that ability have added an exploratory concept to the search for fluid hydrocarbons. They have given explorationists whole new realms in which to look.

Teak enhances confidence in subsalt imaging technology. No matter what happens commercially with it or later subsalt prospects, the new exploratory concept settles more firmly than before into place. But the market's response to the inconclusive commercial results lend perspective: Ultimately, the aim is to make money. Industry's financial and technological imperatives must travel together. With Teak, technology just took the first step.