SPE meeting explores ways to cope with change

Oct. 9, 2000
Oil and gas companies continue to wrestle with the problems of consolidation, new technology, an evolving workforce, and other issues that are reshaping their business.

Oil and gas companies continue to wrestle with the problems of consolidation, new technology, an evolving workforce, and other issues that are reshaping their business.

Many of those issues were addressed during the annual meeting of the Society of Petroleum Engineers in Dallas last week. And while no pat answers have been provided, some new perspectives have been explored.

Is bigger better?

Mark Papa, chairman and CEO of the newly independent EOG Resources Inc., presented probably the best perspective of the industry's continual concerns about consolidation at the Oct. 2 plenary session.

"When a lion wakes up each morning, he knows that sometime during the day he's going to have to run like hell to get his food. When a gazelle wakes up each morning, he knows he's going to have to run like hell to keep from being eaten. At EOG, we don't know if we're the lion or the gazelle. So we just get up each morning and run like hell," he told SPE members.

Although classed among the large independents with a market capitalization of $4.78 billion, EOG Resources' eight division offices operate as "mini-exploration and production companies" responsible for their own profits and losses, Papa said.

"We're not convinced that bigger is necessarily better. So we focus on per-share performance instead," he said. "The game plan is more important."

However, Andrew Gould, executive vice-president of Schlumberger Oilfield Services, a unit of Schlumberger Ltd., New York, said at that same session, "To be a global player in a key segment of the industry, you must have critical mass." He said, "Acquisitions and mergers will continue until the right mix of large global and small niche service companies is obtained."

Megamergers or slightly smaller supermergers can increase earnings and provide the capital necessary to fund expensive investments in deepwater projects, said David L. Moore, a partner in strategic services with Andersen Consulting. However, he said the recent wave of big mergers has probably played out.

Now, smaller operators and service companies are pursuing "co-issues"-cooperative, coordinating, collaboration agreements that eventually will lead to more consolidation, he said.

Meanwhile, movement by state-owned and formerly state-owned oil companies, such as Petroleo Brasileiro SA and Repsol-YPF SA, into other outside markets is likely to continue, with those companies growing as they expand abroad, said Moore. "The bidding for new [foreign] concessions is going to get really tough" with that additional competition.

"Bidding already is tough. This is a tough business," answered Rex Alman III, vice-president of operations for Anadarko Petroleum Corp.

New technology the key

One of the "most critical" issues facing the industry is technology-"how it will be developed, employed, and applied," Gould said.

Greater use of the internet will "drive changes" within the oil and gas industry in coming years as use of computers did in recent years, bringing "all of its well-advertised transparency" to the service sector, he predicted.

That signals "a cultural shift" within the industry to a more cooperative approach and elimination of previous barriers to a pooling of knowledge, he said.

"With the internet, we no longer have to rely on local expertise but can access collective knowledge wherever it resides. The greater the degree of integration and the greater the degree of real-time knowledge involved, the greater the degree of collaboration that will be needed," said Gould.

"A community of common interests is being developed on the internet that creates ideas," said Moore. As a result, he said, "I think we will see the spread of technology faster than ever."

Last year, the upstream oil and gas industry spent about $2.5 billion, or 4.9% of its gross revenue, on research and development of new technology-more than the food and photo industries, but less than telecommunications, aerospace, and engineering, said Tim Warren, director of Royal Dutch/Shell Group unit Shell Technology E&P.

The industry is helping to fill that gap in R&D investment by adopting and adapting technologies developed by other industries, he said. More of that technology transfer will occur through the growing exchange of information through the internet, said Warren.

"Although we don't see [as much support for research and development among the majors] as we used to, I don't agree that it's dead or even in trouble," said Papa.

Employee recruitment, retention

"This industry has been able to attract the top talent in the past, but will it have access to the top talent of the future?" asked Don L. Paul, a Chevron Corp. vice-president.

Despite its escalating use of high technology, the upstream oil and gas industry "does a poor job of selling its high-tech side to potential employees," Gould said.

But on the other hand, "If this industry's next down cycle comes too soon after 1996, we're going to completely ruin our credibility with college faculties after recruiting their graduates only to lay them off 18 months later," he said.

"This industry hasn't done enough to support our universities," said Curtis Mewbourne, president of Mewbourne Oil Co. For 2 decades, Mewbourne has provided endowments and scholarships for faculty and students at the University of Oklahoma, his alma mater. "Your future company is sitting on those campuses. You need to make an investment in your company's future," he told industry representatives at an Oct. 2 session of the meeting. "People are more important than assets."

Meanwhile, the upstream oil and gas industry faces the prospect of losing half of its aging work force in the next 10 years, said Robert Heinemann, vice-president and chief technical officer of Halliburton Co., at that same session. "Retirement at 55 is becoming the norm," he said.

Unlike the last 20 years-in which workers over 50 years of age were pushed out of the workforce-Papa said older workers will become more valuable in the next 20 years. "We will see incentive programs aimed at keeping older people in the work force," he predicted.

New workers today "want more personal input on their jobs; they have more to say about what you have them do and where they work," said Gould. One of the costs of keeping good workers is providing "as much continuing education as they want," he said.

Petroleum engineers were "jacks-of-all-trades" in the 1950s and 1960s, but that profession became more specialized in various areas in the 1970s to 1990s, said Warren.

"Now that pendulum is starting to swing back. The people in the field have to be broadly knowledgeable to find the new technologies and apply them," he said.